UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

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

                    For the fiscal year ended JUNE 28, 1997

                                      OR

            /   / 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. 1-7737

                                    ARROW AUTOMOTIVE INDUSTRIES, INC.
                    (Exact name of registrant as specified in its charter)

  MASSACHUSETTS                                                   04-1449115
(State or other jurisdiction of                       (I.R.S. Employer I.D. No.)
  incorporation or organization)

3 SPEEN STREET, FRAMINGHAM, MASSACHUSETTS                            01701
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code (508) 872-3711

Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of Each Exchange on
Title of Each Class                                      Which Registered      
COMMON STOCK, $.10 PAR VALUE                            AMERICAN STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act:

                                     NONE

Indicate  by  check  mark  whether  the  registrant  (1)  has filed all reports
required to be filed by Section 13 or 15(d) of the Securities  Exchange  Act of
1934  during  the  preceding  12  months  (or  for 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





                              Page 1 of 83 Pages


<PAGE>





Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not  be  contained,  to the
best  of  registrant's knowledge, in definitive proxy or information statements
incorporated  by  reference  in  Part III of this Form 10-K or any amendment to
this Form 10-K.  [ x ]

    Aggregate market value of the  voting  stock  held by non-affiliates of the
registrant as of October 7, 1997:  $3,999,850.

Number of shares of Common Stock, $.10 Par Value, outstanding  as of October 7,
1997: 2,873,083.

                      DOCUMENTS INCORPORATED BY REFERENCE

      Portions  of  the  Proxy  Statement  for  the  1997  Annual  Meeting   of
Stockholders are incorporated by reference into Part III hereof.






























                              Page 2 of 83 Pages


<PAGE>




                                    PART I



ITEM 1.  BUSINESS.


GENERAL


    Arrow Automotive Industries, Inc. (the "Company" or "Arrow") was founded in
1929,  incorporated  in 1946 as a Massachusetts corporation and became a public
company in 1972.  The  Company's  Common  Stock has been traded on the American
Stock Exchange since 1978 under the trading symbol AI.

    The Company is primarily engaged in the  remanufacture  and distribution of
replacement  automotive  parts  used  in  the  repair of domestic and  imported
passenger  cars,  light and heavy duty trucks, farm  vehicles  and  heavy  duty
industrial and construction  equipment.  The Company's products are distributed
throughout the United States and in Canada to the automotive aftermarket.

    The Company sells to the distribution  sector of the automotive aftermarket
including warehouse distributors ("WD's"), such  as  General Parts, Inc., Parts
Warehouse,  Inc.,  Mar-Lac  Distributing Co., Acklands, Ltd.,  Joint  &  Clutch
Service, Inc.; retail automotive  chain stores ("retailers") such as Chief Auto
Parts, Inc., TRAK Auto Corporation  and  The  Pep  Boys-Manny,  Moe & Jack; and
original  equipment  manufacturers  ("OEM's")  such  as Brake Parts, Inc.,  New
Holland  North  America,  Inc. and Nacco Materials Handling  Group,  Inc.   The
Company's sales to customers  in  the  retail channel of distribution have been
increasing, but the majority of the Company's sales continue to be to customers
in the WD channel of distribution.

    Products  are  manufactured  at  and distributed  from  the  Company's  two
manufacturing facilities located in Spartanburg,  South Carolina and Morrilton,
Arkansas.   The  Company  also maintains distribution  facilities  in  Toronto,
Vancouver and Edmonton, Canada.   The  Company's  corporate headquarters are in
Framingham,  Massachusetts,  and  its operations headquarters  are  in  Conway,
Arkansas.

    The  Company  operates in one industry  segment  as  a  remanufacturer  and
distributor of replacement  parts  for  automotive  vehicles  and  trucks.  The
Company does not consider its overall business to be seasonal, however,  demand
for certain products may be affected by extreme weather.

RECENT DEVELOPMENTS

    The  distribution  sector  within  the automotive aftermarket is undergoing
rapid consolidation, resulting in fewer  and  larger  distributors.   WD's  are
expanding vertically through the acquisition of jobber stores and becoming more
like  their retail counterparts in the industry. This consolidation is expected
to continue.  Program  buying groups, which represent most of the WD channel of
distribution, are becoming a more powerful voice for their member warehouses by
encouraging members to maximize  their collective buying power through  the use
of preferred vendors.  In addition, over the last ten years, retail chains have
emerged as major distributors of automotive  aftermarket products and have made
successful  inroads  into  product  distribution previously  dominated  by  the
traditional  WD.  As a result of the competitive  pressures  created  by  these
changes in the  automotive  aftermarket, all distributors have become extremely
price sensitive, exerting considerable  pressure  on  vendors  for  competitive
pricing.

    Over   the  last  two  fiscal  years,  the  Company  has  restructured  and
streamlined  its  organization  to  better  compete  in the changing automotive
aftermarket.   The Company's restructuring plan included  the  closing  of  its
Santa  Maria,  California   production   facility   in   December,  1996.   The
manufacturing operations formerly conducted at that facility  were  transferred
to the Company's two remaining manufacturing facilities.  As a result  of  this
consolidation,  the  Company  incurred  a  $1.1 million restructuring charge in
fiscal 1997.  The Company also incurred $1.8  million  in  non-recurring period
costs related to the consolidation of the production operations  from  three to
two  manufacturing  facilities.   The  streamlining of the Company's operations
during the last two years also included the consolidation of production of four
product lines from multiple facilities to  a  single manufacturing facility, as
well as the centralization of certain administrative functions.

PRODUCT INFORMATION


    The Company remanufactures and distributes  a  wide range of electrical and
mechanical  automotive  parts.  The Company's product  offering  encompasses  a
broad range of vehicle applications  including  domestic  and  import passenger
automobiles,  light  and  heavy  trucks, heavy duty industrial and construction
equipment, and farm vehicles.  The  Company  is  a  leading  remanufacturer  of
electrical  products,  which  represented  55%  of  the Company's unit sales in
fiscal 1997.  The balance of the Company's sales were  of  mechanical products.
The table below summarizes the product lines offered by the  Company, the total
number of parts offered for sale and the vehicle coverage.

<TABLE>
<CAPTION>

                                                                              VEHICLE COVERAGE
                                  PRODUCT                PART NUMBERS
<S>                    <C>                           <C>                   <C>
ELECTRICAL
                       Alternators                   990                         1961 - 1997
                       Starters                      1033                        1939 - 1997
                       Generators                    123                         1939 - 1997
MECHANICAL
                       Water Pumps                   751                         1932 - 1997
                       Clutches                      1,141                       1939 - 1997
                       Master Brake Cylinders        620                         1960 - 1996
                       Power Steering Pumps          559                         1955 - 1995
                       Power Brakes                  664                         1946 - 1994
                       Smog Pumps                    161                         1966 - 1994
                       Brake Calipers                1,096                       1965 - 1996
                       Distributors                  560                         1950 - 1995
                       Wiper Motors                  341                         1962 - 1997
                       Crankshafts                   342                         1946 - 1996
                       Rack and Pinion Steering      222                         1973 - 1995
                       Carburetors                   1,827                       1937 - 1989
</TABLE>

                              Page 3 of 83 Pages


<PAGE>




MANUFACTURING OPERATIONS


    The   Company's  manufacturing  operations  consist  principally   of   the
collection, disassembly, cleaning, examination and reconditioning of used parts
(referred  to  in  the  industry  as  "cores")  and  the  reassembly  of  their
components,  together  with  new  replacement  components where necessary, into
remanufactured products.  The principal raw materials  used  by  the Company in
its  operations  are  cores, which are obtained primarily from customers  on  a
trade-in basis and to a  lesser  extent from concerns which sell cores, and new
component parts which are obtained  from  a  wide  variety  of  suppliers.  The
Company's raw materials are available in adequate supply in the open market.

    When first received, cores are sorted and held until needed for production.
When  needed,  cores  are disassembled into their component parts.   The  major
components are then further  sorted  and  examined  for suitability for further
processing,  and,  if  suitable,  are  cleaned, reconditioned  and  refinished.
Components that are not reconditioned are replaced with new materials which are
purchased from outside vendors.  The metal  components of cores not utilized in
the  manufacturing process are sold for scrap.   Production  of  remanufactured
parts  is  carried on in an assembly-line operation with inspection and testing
conducted at  various  stages  of  assembly.   The  finished product is further
inspected  and tested by simulating the product's performance  under  operating
conditions.

    Each of  the  product lines is supported by an engineer.  Their function is
to improve the quality  of  existing  products and formulate the specifications
and procedures for adapting particular remanufactured products for use on makes
and  models  of  vehicles in addition to those  for  which  the  products  were
originally designed.  The Company maintains a Quality Assurance department that
is responsible for monitoring  the  manufacturing  process through a variety of
methods, including Statistical Process Control (SPC),  to  maintain  compliance
with the Company's quality standards as well as to ensure that Arrow's  quality
standards are maintained by our suppliers for any purchased component.

WORKING CAPITAL ITEMS


    Inventories  are  kept  at  a  sufficient level to service customer orders.
Sales reported on the  Company's financial  statements are net of credits given
to customers for prompt payment and volume discounts,  as well as credits given
for customer product returns.

    The primary customer returns are of "cores".  When invoiced,  the  price of
the  finished  product sold includes a separately invoiced amount for the  core
("core value") which is part of the product.  When a customer returns a core to
the Company, the  customer  receives  credit for the then current core value of
the part returned which is applied to future  purchases  by that customer.  The
customer's ability to return product cores is limited to the  number  of  like-
type  products  purchased  by  the  customer.   The core must be in rebuildable
condition to receive credit.

    The Company also allows for warranty returns  and stock adjustment returns.
The  Company's  warranty  program provides for the right  to  return  defective
product for up to 24 months  for  the  Company's  premium  line of alternators,
starters  and  water  pumps and up to 12 months for all other products.   Stock
adjustment returns are generally returns allowed for the customer's slow-moving
product.  Credits for stock  adjustment  returns  are  limited  to  4%  of  the
previous calendar year's purchases.

    It  is  industry  practice that remanufacturers only accept product returns
from current customers.   When  a  customer  ceases  to  do  business  with the
Company,  the  Company  no  longer accepts product returns for any reason.   As
returns generate credits which  can  only be used against future purchases, the
Company does not record a reserve for customer's warranty, stock adjustments or
core returns.

                              Page 4 of 83 Pages


<PAGE>




DISTRIBUTION


    The Company sells its products nationwide, primarily through its own direct
sales force.  The Company currently maintains  a direct sales force of 33 full-
time  salesmen.   The  Company also employs sales agencies  in  certain  market
areas.  The majority of the Company's sales (approximately 72 percent in fiscal
1997) are to warehouse distributors.  The balance of the Company's sales are to
retailers  (approximately  18  percent  in  fiscal  1997),  original  equipment
manufacturers (approximately 9 percent in fiscal 1997) and other customers.

    During fiscal  1997,  sales to the Company's two largest customers, General
Parts, Inc., and Chief Auto Parts, Inc. accounted for 24% and 13% of net sales,
respectively.  No other customer  accounted  for more than 10% of the Company's
net sales.

    Substantially  all of the Company's WD customers  are  members  of  program
distribution associations.   These associations use the collective buying power
of their members to negotiate price and other terms with vendors, which has the
effect  of encouraging competition  among  remanufacturers  in  the  automotive
aftermarket.   The  associations  do  not  purchase  directly  from vendors and
members  of  these associations generally are not obligated to purchase  solely
from association approved vendors.  The evolution of these associations and the
emergence of high  volume  retail  chains  in  the  automotive aftermarket have
combined to create additional price competition among manufacturers.

    The  Company  utilizes  its  own  truck  fleet,  and  to  a  lesser  extent
independent  trucking  services, to handle most of its product  deliveries  and
other shipping requirements.   Special order and delivery options are also made
available to customers, such as overnight direct parts service.

MARKETING


    The Company markets its products  under  its Arrow( and Lance( labels.  The
Arrow( line consists of the Company's premium  quality parts often containing a
number  of new components.  The Lance( line consists  of  higher  volume  units
whereby manufacturing  economies  of scale permit reduced pricing to customers.
The Lance( line is available in starters  and  alternators.  At  the request of
customers,  Arrow  also  distributes product under a variety of private  labels
such as  Carquest, Proven  Valu,  Bravo,  Rockhill,  Parts  Plus, Pronto, Parts
Master  and  many  others.   In  fiscal 1997, approximately 54 percent  of  the
Company's sales were made under various  private  labels  and  the balance were
made under the Company's own labels.

    The  Company  markets  its  remanufactured products with frequent  customer
contact  by  sales representatives,  merchandising  bulletins,  direct  mailing
campaigns, advertising,  participation  in  trade  shows  and  complete catalog
coverage.  The  Company  also  offers  a  subscription  basis  service bulletin
program, which provides periodic technical information.

    The  Company  receives  the  majority  of  its  product  orders through  an
automated  communication  system called TRANSNET(, which enables  customers  to
submit orders to the Company  directly by computer.  The TRANSNET( computerized
system is made available through the Motor Equipment Manufacturers Association.
The Company can also accept orders  through  other  proprietary electronic data
interchange (EDI) networks for its customers' convenience upon request.

                              Page 5 of 83 Pages


<PAGE>




COMPETITION


    The   Company   competes   with   other   national,  regional   and   local
remanufacturers, with rebuilders of automotive  parts and with manufacturers of
new  parts,  including  the  leading  automobile  manufacturers.   The  Company
believes it is one of the largest companies engaged primarily in the production
and  sale  of  remanufactured automotive parts, although  there  may  be  other
companies whose  sales  of  such  products  exceed  those  of the Company.  The
automotive  aftermarket is highly competitive.  The Company considers  the  key
factors determining  the ability to compete in this highly competitive industry
to be price, product quality,  a  complete  product  offering,  current product
catalogs, direct factory sales service and high order fill rate.

EMPLOYEES


    On  June  28, 1997, the Company employed 1,259 full-time employees  and  23
part-time employees.

ENVIRONMENTAL


    The Company  is  subject  to various federal, state and local environmental
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling,  storage, transportation, treatment and
disposal  of a variety of hazardous and non-hazardous  substances  and  wastes.
These laws and regulations provide for substantial fines and criminal sanctions
for violations.  The Company believes, although there can be no assurance, that
the overall  impact  of  compliance with regulations and legislation protecting
the environment will not have a material adverse effect on its future financial
position or results of operation.   However,  the operation of automotive parts
remanufacturing  plants  involves environmental risks,  and  there  can  be  no
assurance that the Company  will  not  incur  material  costs or liabilities in
these areas.  In addition, significant expenditures could be required to comply
with   evolving   environmental,   health  and  safety  laws,  regulations   or
requirements that may be adopted or  imposed  in the future.  The Company is in
various stages of investigation or remediation  at  five  separate  sites where
contamination has been alleged, as discussed in the footnotes to the  financial
statements,  and  has  recorded  a  liability  of $509,000 at June 28, 1997 for
future costs pertaining to environmental cleanup.

ITEM 2.  PROPERTIES.


    The   Company's   corporate   headquarters  are  located   in   Framingham,
Massachusetts; its operations headquarters are located in Conway, Arkansas; and
it occupies industrial and warehouse  space  in  Spartanburg,  South  Carolina,
Morrilton,  Arkansas,  and Toronto, Canada. The Company utilizes fee warehouses
in Edmonton  and Vancouver, Canada.

    The Company leases approximately  15,000  square  feet  of  office space in
Framingham,  Massachusetts,  for  its  corporate  headquarters  under  a  lease
expiring  in  1998.  Approximately 9,500 square feet of this space is subleased
under an agreement  which  also  expires  in  1998.   The  Company  also leases
approximately 7,000 square feet of office space for its operations headquarters
in Conway, Arkansas, under a lease expiring in 2001.

    The   Company  operates  manufacturing  facilities  in  Spartanburg,  South
Carolina (occupying  approximately  315,000  square  feet  of  floor space) and
Morrilton,  Arkansas  (occupying  approximately  209,000 square feet  of  floor
space).   The  Company  formerly  occupied industrial  space  in  Santa  Maria,
California (occupying approximately  98,000  square  feet of floor space) which
was  closed during fiscal 1997.  The South Carolina, Arkansas  and   California
facilities  are  all owned by the Company, subject to mortgages which, together
with other collateral,  secure  the  Company's obligations to its lenders.  The
Company is actively marketing the California property.

                              Page 6 of 83 Pages


<PAGE>




    In addition, the Company leases warehouse  space  of  approximately  67,000
square  feet  in  Morrilton, Arkansas, 58,000 square feet in Spartanburg, South
Carolina, and 10,500 square feet in Toronto, Canada.

    All facilities are well maintained and are in good operating condition.

ITEM 3.  LEGAL PROCEEDINGS.


    The Company is,  from  time to time, party to routine litigation incidental
to the business.  The amounts  claimed  in  these matters are either covered by
insurance or are not, in the aggregate, material in amount.

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


    The Company did not submit any matters to a vote of security holders during
the fourth quarter of fiscal 1997.


                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

    The common stock of the Company is traded  on  the  American Stock Exchange
under the trading symbol AI.  The approximate number of holders  of  record  of
the  Company's  common  stock  at October 7, 1997 was 289.  The following table
sets forth the high and low sale  price  on  the American Stock Exchange of the
Company's common stock during each fiscal quarter  during  the  last two fiscal
years:


<TABLE>
<CAPTION>
                                                FISCAL                                 FISCAL
                                                 1997                                   1996
                                   HIGH               LOW                HIGH             LOW
<S>                              <C>                <C>                <C>              <C>
First                    $       5 5/8      $       4 1/2      $       7 3/8     $      5 1/2
Quarter.....................
Second Quarter...............    4 15/16            3 3/4                6 7/8            4 3/4
Third                            4 5/8              4                    7 1/2            5 3/4
Quarter...................
Fourth                           4 1/4              2 15/16              6 1/8            5 1/16
Quarter.................
</TABLE>


    The Company did not pay any dividends during the 1997 or 1996 fiscal years.
Operating  covenants  in the Company's loan agreement with its lenders prohibit
the Company from paying dividends unless the following conditions are met:  (i)
the Company is not then  in  default,  and  after giving effect to the dividend
would not be in default, under the loan agreement; (ii) the aggregate amount of
such dividends does not exceed the greater of (a) during any period of four (4)
consecutive fiscal quarters an amount equal to  fifty  percent (50%) of the net
income of the Company for the immediately preceding four (4) consecutive fiscal
quarter  periods,  or  (b)  an  amount equal to the excess of  (i)  twenty-five
percent (25%) of the net income of  the  Company for the period commencing June
27, 1993 and ending with the last day of the  fiscal quarter next preceding the
proposed date of the dividend, treated as a single accounting period, over (ii)
all dividends made subsequent to June 27, 1993.


                              Page 7 of 83 Pages


<PAGE>




ITEM 6.  SELECTED FINANCIAL DATA.

                      FOR THE FISCAL YEARS ENDED IN JUNE
   (Amounts in Thousands Except Per Share Amounts and Financial Ratio Data)


<TABLE>
<CAPTION>
                                               1997             1996             1995             1994             1993
                                             (52 WKS)         (53 WKS)         (52 WKS)         (52 WKS)         (52 WKS)
<S>                                      <C>             <C>              <C>          <C>                  <C>    
Net                                      $87,501         $103,603         $106,574     $ 108,055            $100,654
sales...................................................
Gross                                     13,180           21,441           25,092           27,861           26,622
margin.............................................
Selling, administrative & general
                                          21,310           21,597           23,505           23,334           23,147
expense...................................................
Interest                                   2,364            2,113            1,935            1,614            1,830
expense........................................
(Loss) income before income taxes and
  extraordinary                         (11,594)          (2,269)            (348)            2,914            1,645
items..................................
(Benefit) provision for income             (597)            (825)            (103)            1,113              628
taxes...........
(Loss) income before extraordinary
                                        (10,997)          (1,444)            (245)            1,801            1,017
items........................................................
Loss on refinancing of debt, net of
  income tax                                  --               --               --            (276)               --
benefit...................................
Net (loss)                              (10,997)          (1,444)            (245)           1,525             1,017
income.......................................
(Loss) income per share before
 extraordinary                                (3.83)          (.50)             (.09)                      .64            .36
items...................................
Loss per share on refinancing of debt,
  net of income tax                           --              --               --              (.10)             --
benefit..........................
Net (loss) income per                      (3.83)             (.50)             (.09)                      .54            .36
share.......................
Cash dividends declared per share............ --               --               --               --               --
Capital                                      644              828            2,574            670                648
expenditures..................................
Depreciation and                      $    1,170       $    1,373        $   1,412    $     1,546         $    1,692
amortization....................
Average shares                             2,873            2,873            2,872          2,821              2,814
outstanding.......................
                   AT YEAR END
Working                                $ 26,250          $ 36,378         $38,518           $32,071          $29,994
capital...........................................
Total                                    59,333            71,728          67,144            69,490           60,345
assets................................................
Long-term                                16,819            17,969          19,265            11,732           12,487
debt...........................................
Stockholders'                            20,043            31,296          32,739            32,974           31,175
equity...................................
Equity per common                         $    6.98        $  10.89      $ 11.40            $ 11.69           $ 11.08
share..........................
                                                  FINANCIAL RATIOS (%)
Gross                                      15.06            20.70            23.54            25.78             26.45
margin.............................................
Net profit                                (12.57)           (1.39)            (.23)            1.41              1.01
margin........................................
Return on                                 (42.84)           (4.51)            (.74)            4.75              3.32
equity.........................................
Current ratio (to                           2.37             2.82             3.82             2.39              2.93
1)......................................
</TABLE>

                              Page 8 of 83 Pages


<PAGE>





ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


    The following discussion and analysis should  be  read  in conjunction with
the  financial  statements  and notes thereto.  All forward looking  statements
contained in the following discussion and analysis and elsewhere in this report
are qualified in their entirety  by  the  cautionary statement appearing at the
end of this discussion and analysis.


RESULTS OF OPERATIONS

    The Company incurred net losses of $10,997,000, $1,444,000 and $245,000 for
the respective fiscal years ended June 28,  1997,  June  29,  1996 and June 24,
1995.   The  fiscal  1997  operating  loss is attributable to several  one-time
charges and a 15.5% decline in net sales  compared  to  the  prior fiscal year.
The  one-time costs include the following, each of which is discussed  in  more
detail below:

      <diamond>  a restructuring charge and non-recurring period costs relating
         to  the  Company's   California   plant   closing  of  $1,100,000  and
         $1,842,000, respectively;
      <diamond>
      <diamond> a $4,000,000 charge to write down certain  inventories  to  net
         realizable value; and
      <diamond>
      <diamond>  a $437,000 increase in the Company's reserve for environmental
         remediation  costs  as a result of the Company's adoption of Statement
         of Position 96-1, ENVIRONMENTAL REMEDIATION LIABILITIES.


RESTRUCTURING CHARGE AND RELATED NON-RECURRING PERIOD COSTS

    In  December,  1996,  the  Company   closed  its  Santa  Maria,  California
production  facility  and  transferred  the manufacturing  operations  formerly
conducted at that plant to its remaining manufacturing facilities.  This action
was taken to streamline the Company's productive  capacity  to better match its
production  requirements.   As  a  result  of this consolidation,  the  Company
incurred a $1.1 million restructuring charge  in  fiscal  1997.   Of  the total
charge,  $413,000  represented severance benefits for terminated employees  and
$687,000 related to  the  closing  of  the  facility.   The Company is actively
marketing the California property.

    In addition to the restructuring charge, the Company incurred non-recurring
period costs totaling $1.8 million attributable to the relocation of production
operations  from  the  California  facility  to  the  Company's  two  remaining
facilities and included such costs as the shipment of inventory  and equipment,
employee relocation and initial labor and production inefficiencies.

    The  consolidation  of  manufacturing  operations  is  consistent with  the
Company's long-term strategy to streamline its operations.   Starting in fiscal
1996,  the  Company consolidated to one location production of certain  product
lines  which  were   previously   manufactured   at   all   of   the  Company's
remanufacturing  facilities.  Centralization of administrative functions  began
late in fiscal 1996 and continued throughout fiscal 1997, and included customer
service, customer  billing  and  vendor  payment  functions. These actions were
taken to enhance operating efficiencies and improve  the  financial performance
of  the Company.  The Company is continuing to review its operations  and  will
take   the   necessary   measures   to  control  costs  and  promote  efficient
manufacturing operations.

INVENTORY PROVISION

    The Company continually reviews the  net realizable value of its inventory.
The Company's analyses in the third quarter  of  fiscal 1997 identified certain
inventory items for which quantities on hand exceeded  forecasted needs.  Lower
unit sales in fiscal 1997 and the consolidation of manufacturing facilities and
product line production resulted in excess inventory levels.   As a result, the
Company  recorded  a  charge in the third quarter of $4,000,000 to  write  down
certain inventories to net realizable value.


ENVIRONMENTAL

    In  fiscal  1997, the  Company  adopted  Statement  of  Position  No.  96-1
ENVIRONMENTAL REMEDIATION  LIABILITIES  (SOP  96-1) which provided new guidance
for  the  accrual  of  environmental  remediation  costs.    The  SOP  provides
benchmarks  to  aid  in  the  determination  of  when environmental remediation
liabilities should be recognized and specific guidance as to how they should be
measured.  The adoption of SOP 96-1 resulted in a  pretax  charge to operations
of $437,000 in fiscal 1997.

    The  Company  is subject to various federal, state and local  environmental
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation,  handling, storage, transportation, treatment and
disposal of a variety of hazardous  and  non-hazardous  substances  and wastes.
These laws and regulations provide for substantial fines and criminal sanctions
for violations.  The Company believes, although there can be no assurance, that
the  overall  impact  of compliance with regulations and legislation protecting
the environment will not have a material adverse effect on its future financial
position or results of  operation.   However, the operation of automotive parts
remanufacturing  plants involves environmental  risks,  and  there  can  be  no
assurance that the  Company  will  not  incur  material costs or liabilities in
these areas.  In addition, significant expenditures could be required to comply
with   evolving   environmental,  health  and  safety  laws,   regulations   or
requirements that may  be  adopted or imposed in the future.  The Company is in
various  stages  of  investigation   or   remediation   at   five  sites  where
contamination has been alleged, as discussed in the footnotes  to the financial
statements, and has recorded a liability of $509,000 at June 28, 1997 ($437,000
due to the adoption of SOP 96-1) for  future costs pertaining to  environmental
cleanup.


SALES

    Net  sales  of  $87,501,000  declined  $16,102,000 or 15.5% in fiscal  1997
compared to fiscal 1996 net sales of $103,603,000.  $1,992,000 of the net sales
decline was due to the number of weeks differential  in  the  two  periods  (52
weeks in fiscal 1997, 53 weeks in fiscal 1996).  The other factors contributing
to the decline in net sales in fiscal 1997 were:

      <diamond> reduced unit sales,
      <diamond>
      <diamond>  the  change  in  the  mix  of products sold between electrical
         products and mechanical products, and
      <diamond>
      <diamond> a higher level of customer returns  in  the current fiscal year
         compared to the previous fiscal year.

    While  unit  sales  to the Company's two largest customers  increased  this
year, overall unit sales  declined  14.8% in fiscal 1997 compared to unit sales
in the previous fiscal year.  The majority of the unit sales decline was due to
a general decline in customer orders  throughout  the  Company's customer base,
while approximately 6% of the decline was due to the loss of two customers.  The
Company attributes the lower sales in its customer base in part to the current
merger and consolidation actively occurring among  distributors.  These mergers
have  resulted  in  closings  of  distribution  centers as  newly  consolidated
entities rationalize necessary facilities and inventory requirements.  Vertical
integration  is  also  occurring in the automotive aftermarket  with  warehouse
distributors (WD's) purchasing  jobber  stores.  Many jobber stores have closed
due  to  the  extreme  competition  in the aftermarket  distribution  channels,
shrinking the customer base of traditional  WD's.  Program buying groups, which
began as WD membership organizations, focused  purely  on purchasing power, are
now enlarging their mission statements to include marketing and other services.
The program groups want to send a consistent message regarding  all  aspects of
vendor  services  and, therefore, they are promoting broader use of a preferred
vendor concept within  their  group  membership.  The  growth  in the preferred
vendor  concept  will  lead  to  larger  shifts  in sales when a group  changes
preferred vendor.

    In fiscal 1997, the Company experienced a change  in  the  mix  of products
sold,  in  that sales of electrical products declined as a percentage of  total
units sold compared to the prior year.  The average selling price of electrical
products is  higher  than  the  average  selling  price of mechanical products.
Therefore,  the reduction in unit sales of electrical  products  has  a  larger
adverse impact  on  net  sales  than  a  reduction  in unit sales of mechanical
products.  This product sales mix contributed to a larger dollar decline in net
sales than the decline in unit sales.  There were no significant changes in the
Company's pricing structure during the current fiscal year.

    Customer returns as a percentage of gross sales in  fiscal  1997  increased
2.6%  relative to fiscal 1996.  Customer returns are deducted from gross  sales
in calculating  net  sales.   The  Company's  gross  sales  were  $191,312,000,
$219,889,000,  and  $212,820,000  for  the  fiscal  years 1997, 1996 and  1995,
respectively.   Credits  are  issued to  customers for core  returns,  warranty
returns and stock adjustments.  The  higher level of customer returns is due to
the following factors:

      <diamond> Customer returns for core, warranty and stock adjustments, as a
         percentage  of  net  sales,  naturally  increases  during  periods  of
         declining sales volume, as the  returned product relates to the higher
         sales volume of previous periods.
      <diamond>
      <diamond> The Company believes that  increased  consolidation  and merger
         activity of distributors resulted in excess customer inventory levels.
         The  Company  believes  that  in  order  to  rectify surplus inventory
         issues, many distributors returned as much of  their  excess inventory
         as permissible within Arrow's policies.

    Fiscal  1996  net  sales  declined  2.8%  from  fiscal  1995  net sales  of
$106,574,000.  The  decline in net sales in fiscal 1996 (53 weeks) compared  to
fiscal 1995 (52 weeks)  was  due  to  lower  unit  sales  and a higher level of
customer returns.  Unit sales for fiscal 1996 declined 5.8%  from unit sales in
fiscal  1995.   The  Company  believes  that  the impact of consolidations  and
mergers within the distribution sector of the industry  negatively impacted the
Company's  unit  sales and resulted in increased customer returns,  similar  to
that seen in fiscal  1997 and discussed above.  The adverse impact on the lower
unit sales volume and the high level of customer returns was mitigated somewhat
by a favorable mix of  products sold and a price increase implemented in fiscal
1996.


GROSS MARGIN

    The gross margin in fiscal 1997 was 15.1%, down from the prior year's gross
margin of 20.7%.  Fiscal  1997's  cost  of  goods  sold includes the $4,000,000
inventory provision and non-recurring period costs of $1,054,000 related to the
closure of the California facility.

    Gross  margin  before  the  above  adjustments  would   have   been  20.8%,
approximately the same as the gross margin of fiscal 1996.

    The  Company's  strategy to improve its gross margin has been to streamline
operations and to reduce the break even point.  However, lower sales volume and
product mix combined  to  reduce  gross  margins below management's goals.  The
higher  percentage  of mechanical products in  the  current  year's  sales  mix
adversely impacted margins  because  generally mechanical products have a lower
gross margin than electrical products.

    The decline in the gross margin in  fiscal 1996 relative to fiscal 1995 was
due to several factors, including temporary  labor  inefficiencies  during  the
effort to consolidate production of four product lines from multiple facilities
to  a  single manufacturing facility.  Also, additional costs were incurred due
to down  time  and  inefficient  output  from certain new manufacturing related
equipment.  During fiscal 1996, customer gains  and  losses  caused significant
swings  in  production  requirements  resulting  in  labor  inefficiencies  and
additional overhead expenses.  Finally, the Company realized  a 13% increase in
the cost to provide medical benefits to its employees in fiscal  1996  compared
to  fiscal  1995,  of  which  approximately  85%,  or $445,000, was reported as
increased cost of goods sold.



IMPACT OF INFLATION

    The  Company  follows  the LIFO method of determining  inventory  costs  to
better match current costs with  current  revenues.  In fiscal 1997, the impact
of  price  changes and operating factors, primarily  in  reduced  spending  and
improved material  sourcing  and  usage,   decreased  cost  of  goods  sold  by
$1,200,000  compared  to  fiscal  1996.   In  fiscal  1996, the impact of price
changes and operating factors, primarily improved material  sourcing and usage,
decreased cost of goods sold from the prior year by $345,000.

    Charges  to  operations  for  depreciation  represent  the  allocation   of
historical cost incurred in prior years and are significantly less than if they
were based on current or replacement cost of the Company's production capacity.
In  the  normal  course  of  business,  the Company will replace its productive
capacity  over  an  extended  period  of  time.    Decisions   concerning  such
replacements  will  be  made  in  light of economic, regulatory and competitive
conditions  existing  from time to time.   These  new  assets  will  result  in
additional depreciation  charges.   In  many  cases,  however,  there  will  be
offsetting cost savings from technological advances.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling,   general   and   administrative  expenses  in  fiscal  1997  were
$21,310,000, or 24.4% of net sales,  compared  to  $21,597,000, or 20.8% of net
sales, in fiscal 1996.  The current year's selling,  general and administrative
expenses include $788,000 of non-recurring costs related  to the closure of the
California plant, consisting primarily of shipping costs to  relocate inventory
and   equipment  to  the  Company's  two  remaining  manufacturing  facilities,
personnel  relocation costs, public relations and legal costs.  Also during the
current  year,   the  Company  accrued  $437,000  of  additional  environmental
remediation liabilities  as  a  result of its adoption of Statement of Position
No.  96-1,  ENVIRONMENTAL  REMEDIATION   LIABILITIES.    Selling,  general  and
administrative  expenses,  exclusive  of  these  adjustments, would  have  been
$20,085,000  (22.9%  of  net  sales),  reflecting  a decrease  in  spending  of
$1,512,000  compared  to  fiscal 1996.  The increase in  selling,  general  and
administrative expenses as a percentage of net sales for fiscal 1997 (exclusive
of the aforementioned adjustments)  was  primarily  attributable  to the higher
proportionate  fixed  expenses  not  absorbed  during  the  current  period  of
declining sales volume.

    Selling,  general and administrative expenses in fiscal 1996 declined  $1.9
million compared to the prior fiscal year.  The declines in spending related to
lower customer  acquisition  costs  in  fiscal  1996  and  the  effect  of cost
reduction measures implemented in that year.


INTEREST EXPENSE

    Interest  expense  in fiscal 1997 of $2,364,000 increased $251,000 or 11.9%
over fiscal 1996.  Interest  expense  in  fiscal  1996  of $2,113,000 increased
$178,000  or 9.2% over fiscal 1995.  In fiscal 1997, the increase  in  interest
expense compared  to  fiscal  1996  is  due  to  higher  interest  rates on the
Company's  bank  debt.   In  fiscal  1996,  higher  borrowing levels and higher
interest rates resulted in the additional interest expense compared to interest
expense in fiscal 1995.



LIQUIDITY AND CAPITAL RESOURCES

    Cash  flow  from operations of $2,467,000 increased  in  1997  compared  to
fiscal 1996 which  had  cash  flow  from  operations  of  $67,000.  Declines in
inventories  and  accounts receivable and an increase in accounts  payable  and
accrued expenses were  the  primary  working capital components contributing to
the increase in cash flow.  Inventory  decreased approximately $6.4 million due
to the $4 million inventory provision, as  well  as a reduction in the level of
on-hand inventories required as a result of the consolidation of the California
facility's  inventory  with the Company's remaining  manufacturing  facilities.
Cash  flow was also generated  from  a  reduction  in  accounts  receivable  of
approximately  $4  million,  which  is  consistent  with the lower sales volume
during the current fiscal year.  Additional cash was provided by a net increase
in accounts payable, cash overdrafts and accrued liabilities  of  approximately
$350,000.   The  cash  requirements  created  by  the closing of the California
facility resulted in the Company's lengthening of payment  terms  with  vendors
during the current year.

    Cash  used  for  investing  activities for fiscal 1997 of $787,000 was used
primarily to purchase property, plant and equipment.  Capital expenditures were
$644,000 in fiscal 1997 compared  to  $725,000  in  fiscal  1996.   The Company
continues  to  invest  in  capital  improvements and other long-term assets  to
enhance operations and maintain the highest standards of overall quality.

    During fiscal 1997, net cash used in financing activities was $2.3 million.
The  reduction  under  the  revolving line  of  credit  was  $1.3  million  and
repayments of long-term debt and capital lease obligations were $1.4 million.

    In December, 1993, the Company  entered  into  financing agreements ("Prior
Credit Agreements") with a commercial bank.  The Company's  primary  lender was
joined  by  a  second  commercial  lender  (the  "Prior Lenders") in the second
quarter of fiscal 1997 to the extent of a one-third  participation.   The Prior
Credit  Agreements,  at June 28, 1997, consisted of a term loan in the original
principal amount of $9  million and a revolving line of credit with a principal
amount of up to $20 million.   During  fiscal  1997, the Company failed to meet
certain then existing financial covenants related to earnings and balance sheet
ratios in the Prior Credit Agreements.  The Prior  Lenders  subsequently waived
these  defaults  by  modifying  such  covenants in a manner which  resulted  in
compliance by the Company for the periods completed.

    On October 7, 1997, the Company restructured  the  Prior  Credit Agreements
via  an amendment ("Replacement Credit Agreements") effective as  of  June  28,
1997.   The  Replacement  Credit Agreements consist of a replacement $7,500,000
term loan and continuation  of  a  $20  million  revolving line of credit.  The
Company's primary lender issued a one-third participation to a financial credit
institution (the "Replacement Lenders") to replace the prior participant.

    Under the Replacement Credit Agreements, as in the Prior Credit Agreements,
amounts available to the Company under the revolving line of credit are subject
to  a borrowing base formula based upon certain percentages  of  the  Company's
accounts  receivable and inventories.  The interest rate on amounts outstanding
under the line  will  change  depending upon the achieved debt service coverage
ratio and can range from the lender's base rate to 1.50% over the lender's base
rate, as compared to rates at June  28,  1997 under the Prior Credit Agreements
of lender's base rate plus 3%.  At June 28,  1997,  the  Company has classified
$13 million of advances outstanding under the line as noncurrent, since it does
not  intend  to  reduce  its advances under the credit line below  this  amount
during fiscal 1998.  The revolving credit loan maturity date is July 31, 2000.

    Similarly, the interest  rate  on the replacement term loan on a given date
can range from 0.25% to 1.75% over the  lender's  base  rate depending upon the
achieved  debt  service coverage ratio.  Under the Prior Credit  Agreements  at
June 28, 1997, the  Company  was  paying interest on the term loan equal to the
lender's base rate plus 3.25%.  The  term  loan has a maturity date of July 31,
2000.   Principal is payable in twelve consecutive  quarterly  installments  of
$267,857,  except  the final payment which shall be equal to the unpaid balance
of the term loan of  $4,285,716. The outstanding balance of the term loan as of
the refinancing date was  $4,179,000.   The $3,321,000 million incremental cash
proceeds of the replacement term loan over the outstanding balance of the prior
term  loan  will  be used for working capital  purposes,  primarily  to  reduce
accounts payable to vendors.

    The balance sheet  as  of June 28, 1997, reflects the current and long term
portion  payable  under  the  Replacement  Credit  Agreements.   The  Company's
obligations under these agreements  continue to be secured by substantially all
of its assets.  The interest rate borne on the revolving line of credit and the
term loan at June 28, 1997 was 11.5% and 11.75%, respectively.

    Both the Prior Credit Agreements  and  the  Replacement  Credit  Agreements
contain  certain  provisions  and covenants which, among other things, restrict
the  amount  of future indebtedness,  amount  of  cash  dividends  and  capital
expenditures  and   require   the   Company   to  maintain  levels  of  minimum
profitability, tangible net worth, debt service  coverage  and  liabilities  to
worth  ratios.   Certain  of  these  covenants were modified in the Replacement
Credit Agreements.

    The Company believes that based upon  its  current  operating  forecast for
fiscal  1998,  its  existing  cash  balance  and cash generated from operations
combined with its borrowing ability under its financing agreements, the Company
will  have sufficient funds to meet its cash requirements  for  operations  and
other obligations over the next twelve months.


OUTLOOK

    Arrow's  strategy  has  been  to  focus  on streamlining its operations and
reducing operating costs in order to reduce its break-even point.  As indicated
throughout this management discussion, Arrow has  taken great strides to remove
excess  overhead  costs from its operations.  Strategic  efforts  included  the
following:

      <diamond>  Closure   of    the   California  manufacturing  facility  and
         transferring  these  operations  to   the   Company's   remaining  two
         manufacturing facilities.
      <diamond>
      <diamond>  Consolidation of the production of four product lines  to  one
         manufacturing    facility,   changing   the   previous   practice   of
         manufacturing most product lines at all manufacturing facilities.
      <diamond>
      <diamond>  Investment   in  the  expansion  of  the  "warranty  recovery"
         department to enhance the efficiency with which the Company transforms
         warranty returns to finished good products.

      <diamond> Centralization of certain administrative functions in order to
         reduce fixed cost per unit produced.
      <diamond>
      <diamond> Investment in winding  equipment  with  which the Company began
         winding  major  components  for  alternators  and starters,  providing
         material cost savings by eliminating the need to  purchase these parts
         from outside vendors.
      <diamond>
      <diamond> Development of automated bore reaming process  for master brake
         cylinders  which  will  improve the quality of the product  and  lower
         costs through automation and better material utilization.
<diamond>
      <diamond>  Establishment  of quality  task  forces  focusing  on  quality
         enhancements which have  resulted  in several significant improvements
         over OEM designs and will ultimately favorably impact warranty rates.
<diamond>
<diamond>Through  these  efforts,  the Company has  been  able  to  reduce  its
   operating costs and thereby reduce its break-even point.
<diamond>
<diamond>The marketplace is changing  in  ways  that  result  in  reduced gross
   margins.   The  distribution sector within the marketplace is consolidating.
   The traditional warehouse distributors ("WD's") are buying jobber stores and
   becoming more like  their  retail  counterparts  in  the  industry;  and the
   program   buying   groups,  which  represent  most  of  the  WD  channel  of
   distribution, are becoming a more powerful voice for their member warehouses
   by encouraging the use  of  a primary vendor.  In addition to these changes,
   retail chains are emerging as  major  distributors of automotive aftermarket
   products,  making successful inroads into  product  distribution  previously
   dominated  by   the  traditional  WD.   The  increased  competition  between
   retailers and WD's  has  resulted  in  lower  gross margins at all levels of
   distribution.  Accordingly, all distributors are  extremely  price sensitive
   and exert considerable pressure on vendors for competitive pricing.

    In times of change, opportunities exist.  Arrow's opportunity  lies  in its
ability  to  offer  a  broad  line of quality, remanufactured automotive parts,
distributed nationwide at reasonable  prices.  Arrow  is  not the lowest priced
competitor,  but  is  price  competitive.   Lower-priced competitors  generally
sacrifice either quality, breadth of coverage  or  service in order to maintain
low price structures.  Customers that the Company regains  tell Arrow that they
came  back  for those very reasons and that Arrow's product is  worth  a  price
premium.  With  this  sales  approach,  the  Company  is  aggressively pursuing
relationships at all levels of distribution, including the  traditional  market
program distribution groups and retail chains.

    The  Company  is  continually studying ways to reduce costs inherent in its
structure and better strategically  position  itself in the marketplace.  Arrow
will  continue  to  change  as  necessary  to adapt to  the  evolution  of  the
aftermarket it supplies.


CAUTIONARY STATEMENT

    All statements made in the foregoing discussion  and analysis and elsewhere
in  this report which are not historical fact are forward  looking  statements.
In connection  with  the  "Safe  Harbor"  provisions  of the Private Securities
Litigation  Reform  Act  of  1995,  the  Company  is  providing  the  following
cautionary  statement  to  identify  some  (but  not necessarily  all)  of  the
important factors that could cause its actual results to differ materially from
those anticipated in any forward looking statements  made  in  this  report  or
otherwise by or on behalf of the Company.

    Actual  results  of  the  Company  may differ from those anticipated in any
forward looking statement made by or on  behalf  of  the  Company  due  to  the
following  factors, among other risks and uncertainties affecting the Company's
business:  the  inability  to  realize  the  cost  savings  as estimated in the
Company's  plan  to  restructure  its operations; lack of availability  to  the
Company of adequate funding sources  and  cash from operations; reduced product
demand  and  industry over-capacity; a change  in  product  sales  mix  between
electrical or  mechanical  products;  the  loss  of  or a material reduction in
orders  from either of the Company's two largest customers  or  other  material
loss of business;  month-to-month  volatility  in  sales  volumes  or  customer
returns  which can result in additional labor and operating costs; new business
acquisition costs, unseasonably mild weather patterns, the impact of inflation,
and the various  other factors identified in the discussion appearing under the
heading "Outlook" above and elsewhere in this report.


                              Page 9 of 83 Pages


<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The response to  this  item  is included as part of Item 14 of this report.
An index to the financial statements  and  schedules  filed  as  a part of this
report appears on page 18 of this report.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

    The Company has not reported on Form 8-K any disagreement with  its  public
accountants  on  any  matter of accounting principles or practices or financial
statement disclosure.


                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;


ITEM 11.  EXECUTIVE COMPENSATION;


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT;


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

    Information required  under  these  items  has been omitted, as the Company
intends to file with the Securities and Exchange  Commission not later than 120
days after the close of its fiscal year a definitive  proxy  statement pursuant
to Regulation 14A.  The information concerning directors and executive officers
of   the  Company,  executive  compensation,  security  ownership  of   certain
beneficial  owners  and  management,  and  certain  relationships  and  related
transactions  is  incorporated  by  reference  to  the  Company's  Annual Proxy
Statement for its 1997 Annual Meeting of Stockholders.


                              Page 10 of 83 Pages


<PAGE>




                                    PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.


     (a)  1.  FINANCIAL STATEMENTS.  The following financial statements  of the
Company are included in Item 8:
<TABLE>
<CAPTION>
                                                                                    PAGE
<S>                                                                                 <C>
                          Report                      of                      Independent  20
Auditors...............................................................................
          Balance      Sheets      -      June      28,     1997     and     June     29,  21
1996................................................
     Statements of Operations - Years ended June 28, 1997, June 29, 1996, and
                                             June                                     24,  22
1995......................................................................................................
     Statements of Changes in Stockholders' Equity - Years ended June 28, 1997
                 June          29,          1996,          and          June          24,  23
1995.......................................................................
     Statements of Cash Flows - Years ended June 28, 1997, June 29, 1996
                               and                        June                        24,  24
1995...............................................................................................
                           Notes                       to                       Financial  25 - 38
Statements................................................................................
</TABLE>

          2.  FINANCIAL STATEMENT SCHEDULES.  The following financial statement
schedules of the Company are included in Item 14(d):
                                                            
Schedule II - Valuation and Qualifying Accounts         PAGE   39

All other schedules  have  been  omitted  since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the  financial  statements or the notes
thereto.

         3.  LISTING OF EXHIBITS.  A listing of exhibits  filed as part of this
Form 10-K begins on page 40 hereof.

     (b)  The Company did not file any reports on Form 8-K  during  the  fourth
quarter of fiscal 1997.

      (c)   The  Company  hereby files as a part of this Form 10-K the exhibits
listed in Item 14(a)(3) above.

     (d)  The Company hereby  files  as a part of this Form 10-K the  financial
statements and schedules listed in Items 14(a)(1) and (2) above.

                              Page 11 of 83 Pages


<PAGE>




                                  SIGNATURES

     Pursuant to the requirements of Section  13  or  15(d)  of  the Securities
Exchange Act of 1934, the registrant has duly caused this report to  be  signed
on its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
                                                         ARROW AUTOMOTIVE INDUSTRIES, INC.
<S>                                                      <C>
                Dated:   October 9, 1997                 By:   /S/ JIM L. OSMENT
                                                         Jim L. Osment, President and
                                                         Chief Executive Officer
</TABLE>

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

<TABLE>
<CAPTION>
/S/ JIM L. OSMENT                        President, Chief Executive Officer,         October 9, 1997
Jim L. Osment                            (Principal Executive Officer) and Director
<S>                                      <C>                                         <C>
/S/ JAMES F. FAGAN                       Executive Vice President, Chief Financial   October 9, 1997
James F. Fagan                           Officer (Principal Financial Officer),
                                         Treasurer and Director
/S/ HARRY A. HOLZWASSER                  Chairman of the Board and Director          October 9, 1997
Harry A. Holzwasser

Mary S. Holzwasser                       Director
/S/ ROBERT A. HOLZWASSER                 Director                                    October 9, 1997
Robert A. Holzwasser
/S/ JOEL D. HOLZWASSER                   Director                                    October 9, 1997
Joel D. Holzwasser
/S/ LAWRENCE M. LEVINSON                 Director                                    October 9, 1997
Lawrence M. Levinson
                                             Director
Winthrop P. Rockefeller
                                             Director
Alan Steinert, Jr.

                                         Director
Marvin Almy
/S/ KATHALEEN M. CARROLL-COELHO          Vice President and Controller               October 9, 1997
Kathaleen M. Carroll-Coelho
</TABLE>



                              Page 12 of 83 Pages


<PAGE>




               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
ARROW AUTOMOTIVE INDUSTRIES, INC.


We have audited the accompanying balance sheets of Arrow Automotive Industries,
Inc.  (the  Company)  as  of  June 28, 1997 and June 29, 1996, and the  related
statements of operations, stockholders'  equity, and cash flows for each of the
three years in the period ended June 28, 1997.   Our  audits  also included the
financial  statement  schedule  listed  in  the  Index  at  Item 14(a).   These
financial  statements  and  schedule  are  the responsibility of the  Company's
management.  Our responsibility is to express  an  opinion  on  these financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally  accepted  auditing
standards.   Those  standards  require  that  we  plan and perform the audit to
obtain reasonable assurance about whether the financial  statements are free of
material misstatement.  An audit includes examining, on a  test basis, evidence
supporting the amounts and disclosures in the financial statements.   An  audit
also   includes  assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,  as  well  as evaluating the overall financial
statement presentation.  We believe that our  audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred  to  above present fairly, in
all  material respects, the financial position of Arrow Automotive  Industries,
Inc. at June 28, 1997 and June 29, 1996, and the  results of its operations and
its cash  flows  for each of the three years in the period ended June 28, 1997,
in conformity with  generally  accepted  accounting  principles.   Also, in our
opinion, the related financial statement schedule, when considered in  relation
to  the  basic  financial  statements  taken  as whole, presents fairly, in all
material respects, the information set forth therein.

                                           ERNST & YOUNG LLP

                                           /S/ ERNST & YOUNG LLP

Boston, Massachusetts
September 3, 1997, except
for Notes 1 and 7, as to which the date
is October 8, 1997.


                              Page 13 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                                BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         JUNE 28,                      JUNE 29,
                                                                           1997                          1996           
<S>                                                                     <C>                            <C>           
ASSETS
Current assets:
       Cash and                                           $             240,291          $             850,537
equivalents...........................................................
       Accounts receivable, less allowance ($542,017 in
          1997 and $524,401 in 1996) for doubtful                    12,538,853                     16,468,224
accounts............
                                                                     30,920,184                     37,312,671
Inventories...........................................................................
       Deferred income                                                                                 543,000
taxes.........................................................
       Refundable income                                              1,140,000                        675,000
taxes.....................................................
       Other current                                                        565,746                       563,346
assets.............................................................
               Total current                                         45,405,074                     56,412,778
assets......................................................
Property, plant and equipment:
                                                                        952,087                        952,087
Land....................................................................................
        Buildings and building                                       15,185,937                     15,780,776
improvements..................................
        Leasehold                                                       246,441                        247,670
improvements....................................................
        Machinery and                                                17,604,681                     18,746,723
equipment...................................................
                                                                     33,989,146                     35,727,256
         Less allowances for depreciation and                        22,362,518                      22,912,356
amortization.............
            Net property, plant and                                  11,626,628                     12,814,900
equipment...................................
Other                                                                    2,300,956                     2,500,718
assets................................................................................
                                                          $          59,332,658          $          71,728,396
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
         Cash                                             $             764,113          $           1,260,165
overdraft....................................................................
         Current portion of advances under
            revolving line of                                         3,836,680                      5,104,715
credit.....................................................
         Trade accounts                                               8,523,743                      6,647,237
payable.....................................................
         Accrued                                                      4,864,374                      5,637,422
expenses..............................................................
         Current portion of long-term                                    1,166,111                     1,385,672
debt........................................
               Total current liabilities                             19,155,021                     20,035,211
Long-term debt, net of current                                       16,819,166                     17,969,339
portion.........................................
Other noncurrent                                                      3,315,105                      2,428,226
liabilities...........................................................
Stockholders' equity
         Preferred stock, par value $.01 per
            share--authorized 1,000,000 shares, none issued
         Common stock, par value $.10 per
            share--authorized 5,000,000 shares,
            issued 2,968,870 in 1997 and                                296,887                        296,887
1996.................................
         Capital in excess of par                                     7,428,586                      7,428,586
value............................................
         Retained                                                      13,022,570                     24,019,471
earnings..............................................................
                                                                     20,748,043                     31,744,944
          Less cost of common stock in treasury
             (95,787 shares in 1997 and                                 449,324                        449,324
1996)..................................
          Less minimum pension                                          255,353
liability..........................................
               Total stockholders'                                   20,043,366                     31,295,620
equity.............................................
                                                          $            59,332,658        $            71,728,396
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                              Page 14 of 83 Pages


<PAGE>





ARROW AUTOMOTIVE INDUSTRIES, INC.

                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 FISCAL YEAR ENDED
                                                  JUNE 28,                    JUNE 29,                       JUNE 24,
                                                   1997                         1996                           1995
                                                (52 WEEKS)                   (53 WEEKS)                    (52 WEEKS)
<S>                                          <C>                         <C>                            <C> 
Net                                $         87,501,307         $        103,602,534         $          106,574,023
sales........................................
Cost and expenses:
           Cost       of       products      74,320,940                   82,161,642                     81,482,460
sold....................
    Selling, administrative
                                    and      21,309,855                   21,597,047                     23,504,545
general................................
                                              2,364,413                    2,112,887                      1,934,722
Interest.........................................
                          Restructuring       1,100,000
charge.....................
                                             99,095,208                  105,871,576                    106,921,727
 Loss before income taxes............        (11,593,901)                (2,269,042)                      (347,704)
        Benefit        for       income       (597,000)                     (825,000)                     (103,000)
taxes.................
Net                                $         (10,996,901)       $        (1,444,042)         $            (244,704)
loss.........................................
Net               loss              per             $  (3.83)   $                  $ (.50)  $                           $  (.09)
share..........................
</TABLE>













   The accompanying notes are an integral part of the financial statements.

                              Page 15 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                     CAPITAL IN                                                  MINIMUM
                                 COMMON              EXCESS OF             RETAINED          TREASURY             PENSION
                                  Stock              Par Value            Earnings            Stock              Liability
<S>                                 <C>               <C>                 <C>                  <C>                <C>    
Balance      at     June     25, $  296,767    $      7,418,004    $      25,708,217   $       449,248
1994............
Income tax benefit
  resulting from disqualifying
  disposition of shares under
           stock          option                        3,920
plans.............
Purchase of treasury stock..                                                                                76
Exercise of stock options  ...         120              6,330
Net       loss      for      the                                          (244,704)
year.............
Balance at June 24,1995.....        296,887            7,428,254          25,463,513           449,324
Income tax benefit
  resulting from disqualifying
  disposition of shares under
           stock          option                          332
plans.............
Net       loss      for      the                                          (1,444,042)
year............
Balance at June 29,1996...         296,887            7,428,586           24,019,471           449,324
Minimum pension
                       liability                                                                           $     255,353
adjustment.............
Net       loss      for      the                                          (10,996,901)
year............
 Balance at June 28,1997.... $     296,887     $      7,428,586    $      13,022,570   $       449,324     $     255,353
</TABLE>











   The accompanying notes are an integral part of the financial statements.

                              Page 16 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                           STATEMENTS OF CASH FLOWS

<TABLE>
                                                            FISCAL YEAR ENDED
<CAPTION>
                                                      JUNE 28,                  JUNE 29,                JUNE 24,
                                                        1997                      1996                     1995
                                                   (52 WEEKS)                (53 WEEKS)               (52 WEEKS)
<S>                                                 <C>                        <C>                     <C>                     
Operating activities
                                             Net $  (10,996,901)     $        (1,444,042)      $       (244,704)
loss..........................................................
  Adjustments to reconcile net loss to net
  cash provided by operating activities:
                  Depreciation               and    1,170,068                 1,373,132                1,411,722
amortization......................
    Provision  for environmental
                                     remediation     436,700
costs......................................
            Deferred         income        taxes     543,000                  (399,000)                144,000
(credits).....................
                                   Restructuring    1,100,000
charge.....................................
    Cash payments relating to the restructuring
                                                    (475,000)
charge.......................................................
             Provision          for          bad      22,754                   109,840                  41,376
debts..................................
(Increase) decrease in assets:
                                        Accounts    3,906,617                 (4,042,418)              3,084,405
receivable......................................
                                                    6,392,487                 (1,004,810)              1,125,159
Inventories....................................................
                 Refundable               income    (465,000)                 (57,477)                 (567,523)
taxes..............................
                   Other                 current      29,897                   595,634                  31,402
assets......................................
Increase (decrease) in liabilities:
  Accounts payable, accrued
          expenses     and     other     current     352,052                  4,229,577                (1,261,460)
liabilities...........
                   Income                  taxes                                                       (961,842)
payable.....................................
                Accrued               retirement     450,179                   706,359                  68,580
benefits............................
Cash provided by
                                       operating    2,466,853                   66,795                 2,871,115
activities..........................................
Investing activities
                    Purchase                  of    (644,119)                 (724,744)                (2,551,563)
equipment..................................
  Increase in net cash
      surrender   value   of    life   insurance    (278,709)                 (268,296)                (139,599)
policies......
                                                     135,737                    34,735                  84,898
Other..............................................................
Cash          used         for         investing    (787,091)                 (958,305)                (2,606,264)
activities......................
Financing activities
(Decrease) increase in
      advances   under    revolving    line   of    (1,268,035)               2,374,740                1,410,529
credit.........
  Repayments of long-
        term     debt    and    capital    lease    (1,369,735)               (1,386,035)              (1,377,984)
obligations.........
       Proceeds     from     life      insurance     347,762
loans.................
  Proceeds from exercise of
       stock    options    and    related    tax                                   332                  10,370
benefits...........
          Purchase          of          treasury                                                          (76)
stock.............................
Cash (used in) provided by financing activities.    (2,290,008)                989,037                  42,839
(Decrease) increase in cash and equivalent.....     (610,246)                   97,527                 307,690
Cash and equivalents at beginning of year.....       850,537                   753,010                 445,320
Cash     and     equivalents     at    end    of $   240,291         $         850,537         $       753,010
year...............
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                              Page 17 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                         NOTES TO FINANCIAL STATEMENTS

NOTE 1. MANAGEMENT'S PLAN AND SUBSEQUENT EVENT


    Over  the  last  two  fiscal  years, in response to continuing losses from
operations, Arrow Automotive Industries, Inc. (the
"Company" or "Arrow")  has restructured  and  streamlined  its  organization to
better   compete   in   a   changing  automotive  aftermarket.   The  Company's
restructuring  plan  included  the  closing  of  its  Santa  Maria,  California
production facility in December,  1996.   The manufacturing operations formerly
conducted at that facility were transferred  to  the  Company's  two  remaining
manufacturing  facilities.   As  a  result  of  this consolidation, the Company
incurred a $1.1 million restructuring charge in fiscal  1997, consisting of
$413,000 of employee termination benefits and $687,000 relating to the facility
closing.  The Company also
incurred   $1.8   million  in  non-recurring  period  costs  related   to   the
consolidation of the  production  operations  from  three  to two manufacturing
facilities.  The streamlining of the Company's operations during  the  last two
years also included the consolidation of production of four product lines  from
multiple  facilities  to  a  single  manufacturing  facility,  as  well  as the
centralization of certain administrative functions.

    The  Company's  strategy  to  improve  its  operating  results  has been to
streamline  operations  and  to  reduce  the break even point.  The Company  is
continually studying ways to reduce costs  inherent in its structure and better
strategically position itself in the marketplace.   In  addition, the Company's
sales and marketing personnel have developed several programs  intended to 
increase the
sales  of the Company's products.  These include installer incentives  to  pull
the product  through  the  distribution  channel to end users.  The Company has
also  implemented  aggressive  and  focused  efforts   throughout   its   sales
organization to pursue prospective customers.

    On  October 7, 1997, the Company restructured the Company's existing credit
agreements  via  an  amendment  effective  as of June 28, 1997.  The new credit
agreements consist of a replacement $7,500,000  term loan and continuation of a
$20  million  revolving  line  of  credit.  The incremental  cash  proceeds  of
$3,321,000 from the new term loan over  the outstanding balance of the previous
term loan will be used for working capital purposes.  The new credit agreements
will provide lower interest rates than the existing credit agreements.

The Company's fiscal 1998 operating plan contemplates an improvement over the
fiscal 1997 operating results.  Managament believes, that based on the 1998
operating plan and the availability under its new credit line, the Company will
have sufficient cash to support operations and remain in compliance with the 
financial covenants of its new credit agreements.  


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The principal accounting policies of the Company are as follows:

    FISCAL YEAR:  The Company's fiscal year  ends on the last Saturday of June.
Fiscal years 1997 and 1995 contained 52 weeks and fiscal year 1996 contained 53
weeks.  The number of weeks in fiscal quarters varies from twelve to fourteen.

    BUSINESS  SEGMENT:   The  Company is a remanufacturer  and  distributor  of
replacement parts for automotive vehicles and trucks, which is considered to be
a single line of business.

    USE  OF  ESTIMATES:   The  preparation   of  the  financial  statements  in
conformity with generally accepted accounting principles requires management to
make  estimates  and  assumptions  that  affect the  amounts  reported  in  the
financial statements and accompanying notes.   Actual results could differ from
those estimates.

    INVENTORIES:  Inventories are valued at the  lower of cost or market.  Cost
is determined by the last-in, first-out (LIFO) method.





                              Page 18 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

    PROPERTY, PLANT AND EQUIPMENT::  Property, plant  and equipment is recorded
on  the  basis of cost or, in the case of leased assets under  certain  capital
leases  (see  Note  10),  at  the  present  value  of  future  lease  payments.
Depreciation  and  amortization  of  plant  and  equipment  are  provided  on a
straight-line  basis,  based  upon  the following estimated useful lives of the
assets:

            Buildings and building improvements                10-33 years
            Leasehold improvements                               2-5 years
            Machinery and equipment                             2-10 years

    The  Company  eliminates  from  its  accounts   the  cost  and  accumulated
depreciation of the assets when they are retired, sold or abandoned.  Gains and
losses are reflected in the statements of operations.

    INCOME TAXES:  Income taxes have been provided using  the  liability method
in  accordance  with  Statement  of  Financial  Accounting  Standards No.  109,
ACCOUNTING  FOR  INCOME  TAXES.   The amounts deductible in determining  income
taxes may exceed amounts charged to  income  as  a  result  of  tax  deductions
arising  from  disqualifying dispositions of stock acquired under the Company's
qualified stock  option  plans.   Any  reduction in income taxes as a result of
these differences is credited to capital in excess of par value.

    EARNINGS (LOSS) PER SHARE:  Earnings  (loss)  per  share  is computed based
upon the weighted average number of common shares outstanding during each year,
plus the dilutive effect, if any, of the assumed exercise of outstanding  stock
options.   Weighted  average  shares used in the calculation of earnings (loss)
per share were 2,873,083 for 1997 and 1996 and 2,872,309 for 1995.

    STOCK  BASED COMPENSATION:   In  October  1995,  the  Financial  Accounting
Standards Board  issued  Statement  of  Financial  Accounting Standards No. 123
(SFAS 123), ACCOUNTING FOR STOCK-BASED COMPENSATION.   SFAS 123 encourages, but
does  not  require, companies to record the compensation cost  for  stock-based
employee compensation  plans  at  fair  value.   The  Company   has  elected to
continue   accounting   for   stock-based  compensation  under  the  Accounting
Principles Board Opinion No. 25  (APB  25),  ACCOUNTING  FOR  STOCK  ISSUED  TO
EMPLOYEES,  and related interpretations, as permitted by SFAS 123.  This allows
the Company to continue to account for stock-based compensation plans using the
intrinsic value method, and to disclose the pro forma effects on net income and
earnings per  share  had  the  fair  value of options been expensed.  Under the
provisions of APB 25, compensation cost  for  stock  options is measured as the
excess, if any, of the quoted market price of the Company's common stock at the
date of grant over the amount an employee must pay to acquire the stock.

    Accordingly, no compensation expense has been recognized for options issued
under the Company's  Incentive Stock Option Plan.  No  grants were issued under
the Incentive Stock Option Plan for the years ended June  28, 1997 and June 29,
1996.  The effect of applying SFAS 123 to the Company's stock-based awards on a
pro forma basis was not material.

    IMPAIRMENT  OF  LONG-LIVED  ASSETS:   In  fiscal 1997, the Company  adopted
Statement of Financial Account Standards No. 121 (SFAS 121), ACCOUNTING FOR THE
IMPAIRMENT  OF  LONG-LIVED  ASSETS  TO  BE  DISPOSED  OF.   SFAS  121  requires
impairment losses to be recorded on long-lived  assets  used in operations when
indicators  of  impairment are present and the estimated fair  value  of  those
assets are less than  the assets' carrying amount.  SFAS 121 also addresses the
accounting for long-lived  assets  that  are  expected to be disposed of.  As a
result  of  the operating loss sustained in 1997,  the  Company  evaluated  the
recoverability  of its long-lived assets, principally plant and equipment.  The
Company's analysis, consisting principally of independent appraisals, indicates
that there was no impairment in the carrying amount of these assets.

    CASH EQUIVALENTS:  The Company considers all highly liquid investments with
a maturity of three months or less at the date acquired to be cash equivalents.

<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

    RECLASSIFICATION:   Certain  amounts  reported  in  prior  years  have been
reclassified to conform to the 1997 presentation.

    CONCENTRATION  OF  CREDIT RISK:  The Company sells its products nationwide,
primarily to warehouse distributors  and  to  a lesser extent, to retailers and
original  equipment  manufacturers.   The  Company   performs   ongoing  credit
evaluations  of  its  customers  and when appropriate registers UCC filings  to
provide a security interest in its customers' inventory.  The Company maintains
reserves  for  potential  credit  losses  and  such  losses  have  been  within
management's expectations.  In fiscal  1997, sales to the Company's two largest
customers represented 24% and 13%, respectively,  of  net  sales  and  no other
customer accounted for more than 10% of net sales.

    IMPACT  OF  RECENTLY  ISSUED  ACCOUNTING  STANDARDS:   In October 1996, the
American Institute of Certified Public Accountants issued Statement of Position
96-1,  ENVIRONMENTAL  REMEDIATION  LIABILITIES, (SOP 96-1) which  provides  new
guidance with respect to the accrual  of  environmental  remediation costs. The
SOP  provides  benchmarks  to  aid  in the determination of when  environmental
remediation liabilities should be recognized  and  specific  guidance as to how
they  should  be measured.  The Company adopted SOP 96-1 as of June  28,  1997,
which resulted in a pretax charge of $437,000 ($.15 per share) which is included
in the results from operations.

    In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS  PER  SHARE  (SFAS  128).   This  new  standard requires dual
presentation of basic and diluted earnings per share (EPS)  in  the face of the
statement  of  income  and  requires reconciliation of the numerators  and  the
denominators of the basic and diluted EPS calculations.   This statement will be
effective for the second quarter of the Company's fiscal year ended June, 1998.
The Company has not yet quantified the effect of the adoption of  SFAS  128  on
its earnings per share of common stock.

    In  June  1997,  the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, (SFAS 130), and  Statement  No.  131,  DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS 131).   SFAS 130 established standards
for reporting and displaying comprehensive income and its components.  SFAS 131
establishes  standards  for  the  manner  by  which  public   companies  report
information about operating segments in financial statements.  The requirements
to report information about major customers remains consistent  with  SFAS  14,
FINANCIAL  REPORTING  FOR  SEGMENTS OF A BUSINESS ENTERPRISE.  SFAS 130 and 131
are effective for the Company in fiscal 1998.  The Company does not believe the
adoption of these Statements  will  have  a  material  effect  on the Company's
financial statements.

NOTE 3.  INVENTORIES

    Inventories consist of the following:

<TABLE>
<CAPTION>
                                                               1997                    1996
<S>                                                        <C>                            <C>       
 Stated at cost on first-in, first out  (FIFO) method
 (which approximates replacement cost):

Finished goods........................................$    10,507,186          $          11,522,643
Work in process and materials.........................     25,649,998                     32,260,028
                                                           36,157,184                     43,782,671
Less reserve required to state inventory on the
last-in, first-out (LIFO) method......................     (5,237,000)                    (6,470,000)
                                                      $    30,920,184          $           37,312,671
</TABLE>

                              Page 19 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

    The  Company continually reviews the net realizable value of its inventory.
The Company's  review  in  the  third quarter of fiscal 1997 identified certain
inventory items for which quantities  on  hand  exceeded forecasted needs.  The
combined effect on the Company's inventory requirements due to the reduced unit
sales  in  fiscal  1997 and the consolidation of manufacturing  facilities  and
product lines resulted  in  excess  inventory levels.  As a result, the Company
recorded a charge in the third quarter  of  $4,000,000  to  write  down certain
inventories to net realizable value.


NOTE 4.  CASH MANAGEMENT SYSTEM

    Daily,  under  the Company's cash management system, the bank notifies  the
Company of checks presented  for  payment  against  imprest operating accounts.
The Company transfers funds from available lines of credit, to cover the checks
presented for payment.  The Company reflects a book cash  overdraft as a result
of the checks outstanding.

    The cash (overdraft) balance consists of the following:

<TABLE>
<CAPTION>
                                                                      1997                      1996
<S>                                                    <C>       <C>                 <C>       <C>
Bank                                                   $             13,398          $             30,591
balance.......................................................................
Less outstanding                                                  (777,511)                   (1,290,756)
checks......................................................
                                                       $          (764,113)          $        (1,260,165)
</TABLE>

NOTE 5.  ACCRUED EXPENSES

<TABLE>
<CAPTION>
Accrued expenses consist of the
following:
                                                                        1997                          1996
<S>                                                    <C>       <C>                 <C>       <C>
Compensation and taxes withheld
                                                        $          2,489,180         $           3,358,507
therefrom............................................................................
Promotional                                                          833,319                       629,246
allowances........................................................
Other....................................................................................  1,541,875  1,649,669
                                                        $          4,864,374         $           5,637,422
</TABLE>


NOTE 6.  ENVIRONMENTAL

    In  fiscal  1997,  the  Company  adopted  Statement  of  Position  No. 96-1
ENVIRONMENTAL  REMEDIATION  LIABILITIES  (SOP 96-1) which provided new guidance
for the accrual of environmental remediation costs. The SOP provides benchmarks
to  aid  in  the  determination of when environmental  remediation  liabilities
should be recognized  and  specific guidance as to how they should be measured.
The adoption of SOP 96-1 resulted  in a pretax charge to operations of $437,000
in fiscal 1997.

    The Company is in various stages  of  investigation  or remediation at five
separate  sites where contamination has been alleged.  The  total  accrual  for
environmental  remediation  liability  as  of  June 28, 1997 is $509,000, which
includes the $437,000 impact of SOP 96-1.  Of this  total  liability,  $392,000
relates to a manufacturing facility formerly occupied by the Company in Hudson,
Massachusetts.   Testing  at  the site has indicated the presence of relatively
high levels of volatile organic  compounds in both the soil and ground water. A
ground-water treatment system has  been  installed at this site pursuant to the
direction of the


ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

Massachusetts Department of Environmental  Protection  ("DEP").  In addition to
the ground water treatment, treatment or removal of contaminated  soil may also
be required.

    The balance of the accrual for environmental remediation liability  relates
to  two  sites  identified  by  the  Environmental  Protection Agency and state
regulatory agencies for cleanup under the Comprehensive Environmental Response,
Compensation  and  Liability  Act ("CERCLA") and similar  state  statutes  with
respect to which the Company has been named as a potentially responsible party.
The environmental investigations  at  these  sites  are  on-going, but based on
information available to date the Company does not believe  its  liability with
respect to either site will be material.

NOTE 7.  LONG-TERM DEBT AND CREDIT ARRANGEMENTS

<TABLE>
<CAPTION>
Long-term debt consists of the following:
                                                                     1997                          1996
<S>                                                 <C>       <C>                <C>       <C>
Term                                                $          4,821,429         $          6,107,143
loans.......................................................................
Noncurrent portion of advances under
 revolving line of credit                                      13,000,000                   13,000,000
Other................................................................................  163,848  247,868
                                                               17,985,277                   19,355,011
Less                                              current      (1,166,111)                  (1,385,672)
portion..........................................................
                                                    $          16,819,166        $          17,969,339
</TABLE>


    Maturities of amounts classified as long-term debt  are as follows:  1999--
$1,115,255;  2000--$1,090,603;  2001--$14,611,882;  2002--$1,426.

    Interest  paid amounted to $2,367,367 during 1997, $2,034,098  during  1996
and $1,960,718 during 1995.

    In December,  1993,  the  Company entered into financing agreements ("Prior
Credit Agreements") with a commercial  bank.   The Company's primary lender was
joined  by  a  second commercial lender (the "Prior  Lenders")  in  the  second
quarter of fiscal  1997  to the extent of a one-third participation.  The Prior
Credit Agreements, at June  28,  1997, consisted of a term loan in the original
principal amount of $9 million and  a revolving line of credit with a principal
amount of up to $20 million.  During  fiscal  1997,  the Company failed to meet
certain then existing financial covenants related to earnings and balance sheet
ratios in the Prior Credit Agreements.  The Prior Lenders  subsequently  waived
these  defaults  by  modifying  such  covenants  in  a manner which resulted in
compliance by the Company for the periods completed.

    On  October 7, 1997, the Company restructured the Prior  Credit  Agreements
via an amendment  ("Replacement  Credit  Agreements")  effective as of June 28,
1997.   The  Replacement Credit Agreements consist of a replacement  $7,500,000
term loan and  continuation  of  a  $20  million revolving line of credit.  The
Company's primary lender issued a one-third participation to a financial credit
institution (the "Replacement Lenders") to replace the prior participant.

    Under the Replacement Credit Agreements, as in the Prior Credit Agreements,
amounts available to the Company under the revolving line of credit are subject
to a borrowing base formula based upon certain  percentages  of  the  Company's
accounts  receivable and inventories.  The interest rate on amounts outstanding
under the line  will  change  depending upon the achieved debt service coverage
ratio and can


ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

range from the lender's base rate  to  1.50%  over  the  lender's base rate, as
compared  to  rates  at  June  28,  1997 under the Prior Credit  Agreements  of
lender's base rate plus 3%.  At June  28,  1997, the Company has classified $13
million of advances outstanding under the line as noncurrent, since it does not
intend to reduce its advances under the credit  line  below  this amount during
fiscal 1998.  The revolving credit loan maturity date is July 31, 2000.

    Similarly, the interest rate on the replacement term loan  on  a given date
can  range from 0.25% to 1.75% over the lender's base rate depending  upon  the
achieved  debt  service  coverage  ratio.  Under the Prior Credit Agreements at
June 28, 1997, the Company was paying  interest  on  the term loan equal to the
lender's base rate plus 3.25%.  The term loan has a maturity  date  of July 31,
2000.   Principal  is  payable in twelve consecutive quarterly installments  of
$267,857, except the final  payment  which shall be equal to the unpaid balance
of  the  term  loan.  The outstanding balance  of  the  term  loan  as  of  the
refinancing date was  $4,179,000.   The $3,321,000 incremental cash proceeds of
the replacement term loan over the outstanding  balance  of the prior term loan
will be used for working capital purposes, primarily to reduce accounts payable
to vendors.

    The balance sheet as of June 28, 1997, reflects the current  and  long term
portion  payable  under  the  Replacement  Credit  Agreements.   The  Company's
obligations under these agreements continue to be secured by substantially  all
of its assets.  The interest rate borne on the revolving line of credit and the
term loan at June 28, 1997 was 11.5% and 11.75%, respectively.

    Both  the  Prior  Credit  Agreements  and the Replacement Credit Agreements
contain certain provisions and covenants which,  among  other  things, restrict
the  amount  of  future  indebtedness,  amount  of  cash dividends and  capital
expenditures   and   require  the  Company  to  maintain  levels   of   minimum
profitability, tangible  net  worth,  debt  service coverage and liabilities to
worth  ratios.  Certain of these covenants were  modified  in  the  Replacement
Credit Agreements.

    At June  28,  1997,  the  Company  had  $505,622  of outstanding letters of
credit.

NOTE 8.  PREFERRED STOCK

    The Board of Directors has the authority to issue Preferred Stock in one or
more series, and to fix the dividend, redemption, liquidation,  conversion  and
voting rights associated with each such series.

NOTE 9.  STOCK OPTIONS

    Effective  as  of December 21, 1992, the Company adopted the 1993 Incentive
Stock Option Plan.   The  1993  Plan  provides  for  grants  of  options to key
employees  to  purchase  up  to 200,000 shares of common stock of the  Company.
Options under the 1993 Plan may  be  granted  during  a  period  of  ten  years
beginning  December 21, 1992, and are exercisable ratably over a period of five
years from date  of  grant  and  expire on the sixth anniversary of the date of
grant.

    The Company's Stock Option Plan  for  Non-Employee  Directors  provides for
grants  of  options  to  purchase  up  to 20,000 shares of Common Stock of  the
Company.  Options granted under the Non-Employee  Directors'  Plan become fully
exercisable six months after the date of grant, and expire ten  years  from the
date  of  grant.   As of November 22, 1993, no further options could be granted
under the Stock Option Plan for Non-Employee Directors.




                              Page 20 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued


    Information with  respect  to  incentive  stock  options  outstanding is as
follows:

<TABLE>
<CAPTION>
                                              OPTIONS OUTSTANDING
                                     NUMBER                    WEIGHTED-AVERAGE
     RANGE OF                     OUTSTANDING                         REMAINING              WEIGHTED-AVERAGE
EXERCISE PRICES                    AT 6/28/97                    CONTRACTUAL LIFE               EXERCISE PRICE
<S>                              <C>                          <C>                                 <C> 
$6.625                           89,000                       7 months                            $6.625
$6.125                            5,000                       7 months                            $6.125
$6.125 - $6.625                  94,000                       7 months                            $6.600
</TABLE>

    A  summary  of the status of the Incentive Stock Option Plan as of June 28,
1997, June 29, 1996  and  June 24, 1995, and changes during the years ending on
those dates is presented below:

<TABLE>
<CAPTION>
                                          1997                              1996                                 1995
                                           WEIGHTED AVERAGE                  WEIGHTED AVERAGE                  WEIGHTED AVERAGE
                          NUMBER           EXERCISE         NUMBER           EXERCISE         NUMBER           EXERCISE
                            OF             PRICE              OF             PRICE              OF             PRICE
                           SHARES                            SHARES                            SHARES
<S>                       <C>               <C>              <C>              <C>             <C>               <C>
Outstanding at
  beginning of
                           121,500          $6.693           121,500          $6.693           128,700          $6.666
year.....................
Options cancelled
  or expired............   (27,500)         $7.010                                             (6,000)          $6.417
Options exercised                                                                              (1,200)          $5.375
Outstanding
  at year end...........   94,000           $6.600           121,500          $6.693           121,500          $6.693
Exercisable
  at year end...........   94,000                              99,200                          76,900
Available for
  future grant..........   110,000                             87,500                          87,500
</TABLE>

    At June 28, 1997, 204,000 shares of Common Stock were reserved for issuance
under the Company's stock option plans

NOTE 10.  LEASES

    Property,  plant and equipment includes the following amounts for leases of
manufacturing facilities that have been capitalized:
<TABLE>
<CAPTION>
                                                                      1997                              1996
<S>                                                               <C>                              <C>
Building, building improvements
                and               machinery               and $      443,308          $             446,308
equipment...............................................
Less                                              accumulated      (288,487)                       (217,949)
amortization................................................
                                                        $            154,821          $             228,359
</TABLE>

                              Page 21 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued


    Lease  amortization is included in depreciation  expense  and  amounted  to
$70,680 in 1997,  $69,320  in  1996 and $72,643 in 1995.  During 1996 and 1995,
the Company acquired $103,371 and  $10,888  respectively,  of  equipment  under
capital  lease  arrangements.   No  equipment  was acquired under capital lease
arrangements in 1997.

    The  future  minimum  rental  commitments  as of  June  28,  1997  for  all
noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
                                                                                         TRUCKS AND
                                                TOTAL            REAL ESTATE                 TRAILERS
<S>                                               <C>             <C>                     <C>
1998............................................. $835,569        $331,741       $         503,828
1999.............................................  610,958         107,130                 503,828
2000.............................................  567,036          63,208                 503,828
2001.............................................  558,353          54,525                 503,828
2002.............................................  364,656          23,000                 341,656
Thereafter.........................................  654,020                               654,020
                                  $       3,590,592      $         579,604       $        3,010,988
</TABLE>
    Total rental expense for all operating leases was:

<TABLE>
<CAPTION>
                                               1997                   1996                      1995
<S>                                         <C>                     <C>                     <C>
Minimum Rental                      $       1,262,284      $        1,322,209      $        1,309,206
Contingent Rentals                          595,715                 616,760                 592,707
Less: Sublease Rental                       (130,780)               (113,710)               (114,629)
                                    $       1,727,219      $        1,825,259      $        1,787,284
</TABLE>

     The contingent rentals are based on additional truck miles driven over a
                              specified minimum.

                       NOTE 11.  EMPLOYEE BENEFIT PLANS

      The Company maintains the Arrow Automotive Industries Hourly and Sales
  Employees' Retirement Plan (Hourly Plan) for substantially all hourly paid
   employees and contract salesmen.  Monthly benefits are based on years of
   benefit service multiplied by the applicable dollar rate.  Annual Company
  contributions to the Hourly Plan are determined using the entry age normal
 actuarial cost method and are equal to or exceed the minimum required by law.

                              Page 22 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued


    The  assets of the Hourly Plan are primarily shares of mutual funds holding
stocks, bonds  and  cash.  A financial institution is the investment manager of
these plan assets.

    The  Company  maintains   Supplemental   Benefit  Agreements  (Supplemental
Agreements) which provide retirement and death  benefits  to  certain executive
officers and their beneficiaries.  The annual benefit is equal  to a percentage
of  the executive's average final salary.  The benefits will be funded  by  the
proceeds  of  certain  life  insurance policies purchased by the Company on the
lives of these executives.  The  Company  is  the  beneficiary under these life
insurance   policies.   The  Company's  obligations  under   the   Supplemental
Agreements are limited in all events to an amount not greater than the benefits
available to  the  Company  under  these  life  insurance  policies,  less  the
aggregate  net outlay by the Company on such policies.  As of June 28, 1997 and
June 29, 1996,  the accrued pension cost of the Supplemental Benefit Agreements
totaled $1,581,932 and $1,418,167 respectively.

    The following  table  sets  forth  the  Hourly  Plan  and  the Supplemental
Agreements  (Plans)  funded  status  and  amounts  recognized  in the Company's
balance sheet at June 28, 1997 and June 29, 1996 (in thousands):

<TABLE>
<CAPTION>
                                                                       PLANS IN WHICH ACCUMULATED BENEFITS
                                                                                          EXCEED ASSETS
                                                                         1997                             1996
<S>                                                 <C>         <C>                   <C>         <C>

Actuarial present value of benefit obligations:
   Accumulated benefit obligations,
    including vested benefits of $6,283
           in        1997       and       $5,531       in  $          (6,926)          $               (6,081)
1996..........................................
          Recognition       of       future        salary               (309)                            (349)
increases..........................
   Projected benefit obligation for
               service             rendered            to             (7,235)                          (6,430)
date..............................................
            Plan          assets          at         fair               5,479                            4,602
value...............................................
   Projected benefit obligation in excess
                           of                        plan             (1,756)                          (1,828)
assets..............................................................
                   Unrecognized                transition               (585)                            (650)
asset.......................................
                      Unrecognized                    net                 554                              382
loss..................................................
             Unrecognized          prior          service                 479                              517
cost....................................
         Adjustment        to        record       minimum               (734)                            (531)
liability.........................
   Accrued pension cost included in the
                                                  balance  $          (2,042)          $               (2,110)
sheet..............................................................
</TABLE>

                              Page 23 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued


    Net pension expense includes the following components (in thousands):

<TABLE>
<CAPTION>
                                                       1997                1996               1995
<S>                                            <C>    <C>        <C>      <C>        <C>     <C>
Service    cost--benefits    earned    during    the $  312       $        259        $       237
period............
Interest      cost      on     projected     benefit   562                 490                434
obligation..................
Return                    on                    plan   (571)               (441)              (412)
assets...................................................
Deferred                  asset                 gain   182                 95                  78
(loss)...............................................
Amortization              of              transition   (65)                (65)               (65)
asset.....................................
Amortization        of        unrecognized       net   15                  (3)                (22)
gain..........................
Amortization    of    unrecognized   prior   service   38                  37                   23
costs..........
Total pension expense                          $       473        $        372        $        273
</TABLE>

    In  accordance  with  Statement  of  Financial Accounting Standards No. 87,
EMPLOYERS  ACCOUNTING  FOR  PENSION,  (FAS87)   the  Company  has  recorded  an
additional minimum liability representing the excess  of  unfunded  accumulated
benefit  obligations  over  previously  recorded  pension cost liabilities.   A
corresponding amount is recognized as an intangible  asset except to the extent
that  these  additional liabilities exceed related unrecognized  prior  service
cost  and net transition  obligations,  in  which  case  the  increase  in  the
liabilities  is  charged  directly  to stockholders' equity.  At June 28, 1997,
$255,353 of the excess minimum liability resulted in a charge to equity.

    The  weighted-average  discount rate  used  in  determining  the  actuarial
present value of the projected  benefit  obligation  for the Plans was 8%.  The
rate  of  increase  in  future  compensation  levels  used in  determining  the
actuarial  present  value  of  the  projected  benefit  obligation   under  the
Supplemental Agreements was 6%.  The expected long-term rate of return  on plan
assets of the Hourly Plan was 8%.

    The  Company  maintains The Arrow Automotive Industries, Inc. Salaried  and
Clerical Employees' Profit Sharing Plan (Profit Sharing Plan) for substantially
all clerical and salaried  employees.   Under  the  terms of the Profit Sharing
Plan,  the  amount  of  the Company's contribution is determined  at  the  sole
discretion  of the Board of  Directors.   There  were  no  amounts  charged  to
operations under the Plan in 1997, 1996 and 1995.

                              Page 24 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

The Company also  maintains  The  Arrow Automotive Industries, Inc. 401(K) Plan
for all employees.  The cost of providing  matching  contributions for the year
ended June 28, 1997 and June 29, 1996 was $61,612 and $45,314, respectively.

    The Company provides for the continuation of health care and life insurance
benefits upon retirement for certain of its active and  retired  employees.  In
accordance  with  the  Statement  of  Financial  Accounting  Standards No.  106
EMPLOYERS'  ACCOUNTING  FOR  POSTRETIREMENT  BENEFITS OTHER THAN PENSIONS  (FAS
106), the Company elected to recognize the FAS 106 liability of $2.4 million on
a prospective basis to be amortized over 20 years  as  a  part  of  the  future
annual  postretirement  benefit  cost.  The  following  represents the unfunded
accumulated   postretirement   benefit  obligation  reconciled   with   amounts
recognized in the Company's balance  sheet  at  June 28, 1997 and June 29, 1996
(in thousands):


<TABLE>
<CAPTION>
                                                                          1997                       1996
<S>                                                           <C>       <C>             <C>        <C>
Accumulated postretirement benefit obligation:
                                                              $          (1,397)        $            (1,602)
Retirees..............................................................................................
            Fully           eligible           active          plan      (140)                       (220)
participants...................................................
                  Other                 active                 plan      (292)                       (353)
participants.............................................................
Accumulated                  postretirement                 benefit      (1,829)                    (2,175)
obligation......................................
Unrecognized                                             transition      1,927                       2,048
obligation........................................................
Unrecognized                                                    net      (610)                       (316)
gain..........................................................................
Accrued                    postretirement                   benefit $    (512)          $            (443)
cost......................................................
</TABLE>


    Net periodic postretirement  benefit cost includes the following components
(in thousands):

<TABLE>
<CAPTION>
                                                                  1997             1996              1995
<S>                                                     <C>     <C>        <C>    <C>        <C>    <C>
Service cost--benefits earned during
                                                          the $   22       $        19       $        20
period...................................................................................
Interest cost on projected benefit
                                                                 142               168               156
obligation....................................................................................
Amortization of transition
                obligation               over              20    121               121               121
years..............................................................
Amortization                  of                 unrecognized    (30)              (7)               (18)
gain................................................
Net periodic postretirement
                                                      benefit $  255       $       301       $       279
cost.................................................................................
</TABLE>


    The cost of covered health care benefits was assumed  to  increase 8.5% for
retirees less than 65 years old and 6.0% for retirees 65 years  and  older  for
fiscal 1997.  These rates are assumed to decrease incrementally to 5.5% in 2001
and  remain  at that level thereafter.  The weighted average discount rate used
in determining the accumulated postretirement benefit obligation was 8%.





ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

    An increase  of  1%  in  the assumed medical trend rates would result in an
increase to the accumulated postretirement  benefit  obligation  of $501,000 at
June 29, 1996 and a 1997 net periodic postretirement benefit cost of $295,000.

    The  Company  maintains a severance pay plan for its clerical and  salaried
employees.  The Company's  obligation  for  these postemployment benefits as of
June 28, 1997 is not material.


NOTE 12.  INCOME TAXES

    The (benefit) provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                            1997                        1996                     1995
<S>                                         <C>     <C>               <C>      <C>               <C>      <C>
Current:
                                            $        (1,140,000)      $          (426,000)       $          (225,000)
Federal.............................................................
  State                                                                                                     (22,000)
Deferred.............................................................  543,000  (399,000)                    144,000
                                            $        (597,000)        $          (825,000)       $          (103,000)
</TABLE>

    The  Company  recorded  a current income tax benefit which will be realized
with  the  carryback  of the 1997  net  operating  loss.   Net  operating  loss
carryforwards can be carried forward to fiscal year 2012.

    A reconciliation of  the  statutory  federal  income tax rate to the annual
effective income tax rate follows:

<TABLE>
<CAPTION>
                                                               1997                  1996                 1995
<S>                                               <C>     <C>           <C>     <C>          <C>     <C>
Income       tax       (benefit)      at      statutory    (34.0)%               (34.0)%              (34.0)%
rate...............................
Valuation         allowance         on        temporary     16.5
differences.................
      Tax      loss     with     no     current     tax     12.0
benefit................................
Nondeductible portion of
            travel           and          entertainment      0.2                  0.2                   4.4
expenses................................
State income tax
        benefit,      net      of      federal      tax                          (2.6)
benefit...................................
Other..............................................................................  (0.2)
                                                            (5.5)%               (36.4)%              (29.6)%
</TABLE>






                              Page 25 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued


    Deferred  income taxes reflect the net tax effects of temporary differences
between the carrying  amount  of assets and liabilities for financial reporting
purposes and the amounts used for  income tax purposes.  Significant components
of the Company's deferred tax assets  and  liabilities  as of June 28, 1997 and
June 29, 1996 are as follows:


<TABLE>
<CAPTION>
                                                                    1997                         1996
<S>                                                            <C>                          <C>   
Deferred tax assets:
                                                    $          2,880,000         $          1,543,000
Inventory.........................................................................
               Net             operating             loss      1,744,000
carryforwards.....................................
                     Accrued                   retirement        680,000                      653,000
benefits............................................
                      Accrued                     medical        229,000                      376,000
benefits................................................
                                                 Accounts        217,000                      210,000
receivable.......................................................
                                                                 493,000                      161,000
Other..............................................................................
Total deferred tax asset                                       6,243,000                    2,943,000
Deferred tax liabilities:
                                                 Book/tax      2,386,000                    2,296,000
depreciation.....................................................
                                                                 104,000                      104,000
Other..............................................................................
Total deferred tax liabilities                                 2,490,000                    2,400,000
Net deferred tax asset before
                                                valuation      3,753,000                      543,000
reserve............................................................
Valuation                                                      (3,753,000)
reserve..............................................................
Net                      deferred                     tax $            0         $            543,000
asset......................................................
</TABLE>


    Income taxes paid (refunded) amounted to $(678,193) during 1997, $(645,554)
during 1996, and $1,365,465 during 1995.





                              Page 26 of 83 Pages


<PAGE>




ARROW AUTOMOTIVE INDUSTRIES, INC.

                   NOTES TO FINANCIAL STATEMENTS - Continued

NOTE 13.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                                                   Fiscal Quarter 1997                              
                                         1ST                       2ND                     3RD                      4TH
                                                                     (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>                      <C>                       <C>                     <C>
Net                        $            24,481        $           21,230         $          22,481        $         19,309
sales............................
Gross                                    5,454                     4,211                      (36)                   3,551
margin.....................
Net                                      (584)                   (1,019)                   (6,120)                 (3,274)
loss.............................
Net loss  per
                           $               (.20)      $              (.35)       $           (2.13)       $          (1.15)
share...............................
Weighted average
  shares outstanding...........          2,873                     2,873                     2,873                   2,873
</TABLE>


<TABLE>
<CAPTION>
                                                                               FISCAL QUARTER 1996
                                              1ST                        2ND                     3RD                    4TH
                                          (14 wks)                    (13 wks)                (13 wks)                (13 wks)
                                                               (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>                        <C>                       <C>                    <C>
Net                        $           29,137         $           23,738         $          26,226        $        24,502
sales............................
Gross                                   6,271                      4,504                     5,484                  5,182
margin......................
Net(loss) income................          332                      (793)                     (359)                  (624)
Net (loss) income per
                           $               .12        $             (.28)        $            (.13)       $           (.22)
share................................
Weighted average
  shares outstanding...........         2,873                      2,873                     2,873                  2,873
</TABLE>



    In  the  first  quarter  of  1997,  the  Company  recorded  a  $1.2 million
restructuring   charge   for   the  closure  of  its  Santa  Maria,  California
manufacturing facility of which  $100,000  was  reversed  in the third quarter.
The Company incurred one-time period costs relating to the restructuring in the
first,  second  and  third  quarters  of fiscal 1997 of $10,000,  $880,000  and
$952,000 respectively.

    In the third quarter of fiscal 1997,  the  Company  recorded  a  $4 million
charge to write down certain inventories to a net realizable value.

    In  the fourth quarter of fiscal 1997, the Company recorded $437,000  as  a
result of the adoption of Statement of Position 96-1, ENVIRONMENTAL REMEDIATION
LIABILITIES.

                              Page 27 of 83 Pages


<PAGE>




 ARROW AUTOMOTIVE INDUSTRIES, INC.


                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                     YEARS ENDING JUNE 1997, 1996 AND 1995




<TABLE>
<CAPTION>
                                                               ADDITIONS



                                                CHARGED            CHARGED TO
                         BALANCE AT             TO COSTS               OTHER                    (1)            BALANCE
                         BEGINNING                 AND               ACCOUNTS-          DEDUCTIONS-          AT END OF
   DESCRIPTION           OF PERIOD            EXPENSES               DESCRIBE               DESCRIBE            PERIOD
<S>                <C>   <C>            <C>   <C>            <C>   <C>            <C>   <C>            <C>   <C>
Allowance for
Doubtful Accounts-Accounts Receivable:
Year Ended
June 24, 1995...... $     552,622       $       41,376       $         0          $      116,712       $      477,286
Year Ended
June 29, 1996...... $     477,286       $      109,840       $         0          $       62,725       $      524,401
Year Ended
June 28, 1997...... $     524,401       $       22,754       $         0          $        5,138       $      542,017
</TABLE>



(1)  Uncollectible accounts written off, net of recoveries.





                              Page 28 of 83 Pages


<PAGE>




                                                     LIST AND INDEX OF EXHIBITS

<TABLE>
<CAPTION>
                                                                                            Filed with This
       ITEM                                                   Incorporated by                Form 10-K at
      NUMBER                  Description                  Reference To       or            Page Indicated

<S>                <C>                               <C>                              <C>
3.1                Restated Articles of Organization Form 10-Q for quarter ended
                   as amended to date                December 31, 1983, Exhibit 3.1
3.2                By-Laws as amended to date                                         Page 43
4.                 Copies of Stock Certificates      Form 10-K for year ended June
                                                     29, 1991, Exhibit 4
9.1                Arrow Automotive Industries, Inc. Form 10-K for year ended June
                   Voting Trust Agreement            29, 1991, Exhibit 9

9.2                Extension of Term of Arrow        Form 10-K for year ended June
                   Automotive Industries, Inc.       27, 1992, Exhibit 9.2
                   Voting Trust Agreement Dated May
                   20, 1992

10.1               Agreement and Lease Amendment     Form 10-K for year ended June
                   dated March 15, 1984 with         30, 1984, Exhibit 10.2
                   Holzwasser Realty Trust

10.2*              Exec-U-Care Participation         Form 10-K for year ended June
                   Agreement dated December 22, 1982 30, 1984, Exhibit 10.21

10.3*              Arrow Automotive Industries, Inc. Proxy Statement for 1983 Special
                   Stock Option Plan for Non-        Meeting of Stockholders in Lieu
                   Employee Directors                of Annual Meeting
10.4*              Supplemental Benefit Plan         Form 10-K for year ended June
                   Agreement                         28, 1985, Exhibit 10.15
10.5               $450,000 demand promissory note   Form 10-K for year ended June
                   from Harry A. Holzwasser          29, 1985, Exhibit 10.25
10.6*              Executive Life Insurance Plan     Form 10-K for year ended June
                   Agreement                         27, 1987, Exhibit 10.28
10.7               Lease with CFMS General           Form 10-Q for quarter ended
                   Partnership dated July 14, 1987   December 30, 1995, Exhibit 10.2
                   re:  8000 New Jersey Avenue,
                   Hammond, Indiana
</TABLE>


<TABLE>
<CAPTION>
                                                                                            FILED WITH THIS
       ITEM                                                   Incorporated by                FORM 10-K AT
      NUMBER                  DESCRIPTION                  REFERENCE TO       OR            PAGE INDICATED
<S>                <C>                               <C>                              <C>
10.8               Lease Agreement with Point West   Form 10-K for year ended June
                   Office Center Limited Partnership 25, 1988, Exhibit 10.29
                   Associates dated July 15, 1988
                   re:  3 Speen Street, Framingham,
                   Massachusetts


10.9*              Employment Agreement with Jim L.  Form 10-K for year ended June
                   Osment dated May 14, 1991         29, 1991, Exhibit 10.15
10.10*             Employment Agreement with James   Form 10-K for year ended June
                   F. Fagan dated May 14, 1991       29, 1991, Exhibit 10.16
10.11*             Arrow Automotive Industries, Inc. Registration Statement No. 33-
                   1993 Incentive Stock Option Plan  64990 on Form S-8 filed June 25,
                                                     1993
10.12*             Employment Agreement with Harry   Form 10-Q for quarter ended
                   A. Holzwasser dated as of June    December 25, 1993, Exhibit 10.2
                   28, 1993
10.13*             Directors and Officers Liability  Form 10-Q for quarter ended
                   Insurance Policy and Excess       March 29, 1997, Exhibit 10.2
                   Policy
10.14*             Amendment No. 1 to Employment     Form 10-K for year ended June
                   Agreement with Jim L. Osment      25, 1994, Exhibit 10.17
                   dated May 3, 1994
10.15*             Amendment No. 1 to Employment     Form 10-K for year ended June
                   Agreement with James F. Fagan     25, 1994, Exhibit 10.18
                   dated May 3, 1994
10.16              Amendment No. 1 to Employment     Form 10-K for year ended June
                   Agreement with Harry A.           24, 1995, Exhibit 10.21
                   Holzwasser dated August, 1995
</TABLE>

                              Page 29 of 83 Pages


<PAGE>





<TABLE>
<CAPTION>
                                                                                            FILED WITH THIS
       ITEM                                                   Incorporated by                FORM 10-K AT
      NUMBER                  DESCRIPTION                  REFERENCE TO       OR            PAGE INDICATED
<S>                <C>                               <C>                              <C>
10.17              Amendment and Restated Revolving  Form 10-Q for quarter ended
                   Credit and Term Loan Agreement    December 28, 1996, Exhibit 10.1
                   dated December 3, 1996 among
                   Arrow Automotive Industries, Inc.
                   and the First National Bank of
                   Boston and BTM Capital
                   Corporation.
10.18              Waiver and First Amendment to     Form 10-Q for quarter ended
                   Amended and Restated Revolving    December 28, 1996, Exhibit 10.2
                   Credit and Term Loan Agreement
                   dated December 28, 1996.
10.19              Waiver and Second Amendment to    Form 10-Q for quarter ended
                   Amended and Restated Revolving    March 29, 1997, Exhibit 10.1
                   Credit and Term Loan Agreement
                   with BankBoston, N.A. and BTM
                   Capital Corporation dated as of
                   March 29, 1997.
10.20              Third Amendment to Amended and
                   Restated Revolving Credit and
                   Term Loan Agreement with
                   BankBoston, N.A.,
                   and Norwest Business Credit, Inc.
                   dated as of June 28, 1997.

                                                                                      Page 62
11.                Statement re Computation of per   Note 2 to Notes to Financial
                   share earnings (loss)             Statements filed herewith
23.                Consent of Independent Auditors
                                                                                      Page 82
27.                Financial Data Schedule                                            Page 83
</TABLE>


                              Page 30 of 83 Pages