UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                   FORM 10-QSB

         X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
       ----  OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

       ----  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT


                           COMMISSION FILE NO. 0-22321
                                               _______
                            WHEELS SPORTS GROUP, INC.
             (Exact name of registrant as specified in its charter)

         NORTH CAROLINA                                56-2007717
         (State of other jurisdiction of               (I. R .S. Employer
         incorporation or organization)                Identification No.)

              1368 SALISBURY ROAD, MOCKSVILLE, NORTH CAROLINA 27028
                    (Address of principal executive offices)
                                 (704) 634-3000
               (Registrant's telephone number including area code)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
                                                                           -   -
         State the number of shares outstanding in each of the issuer's classes
of common stock, as of the latest practicable date.

                  CLASS                      OUTSTANDING AT OCTOBER 31, 1997
                  COMMON STOCK                               4,664,445

       Transitional Small Business Disclosure Format (check one): Yes    No X
                                                                     ----  ----




<PAGE>





                                      INDEX




 PART I - FINANCIAL INFORMATION

          ITEM 1 - Financial Statements (Unaudited)

                  Consolidated Financial Statements
                  Consolidated Balance Sheets as of December 31, 1996
                           and September 30, 1997                          3
                  Consolidated Statements of Operations for the quarters
                           ended September 30, 1996 and 1997, and for the
                           nine months ended September 30, 1996 and 1997   4

                  Consolidated Statements of Cash Flows for the nine
                           months ended September 30, 1996 and 1997        5

                  Notes to Consolidated Financial Statements               6-11

          ITEM 2  Management's Discussion and Analysis of
                  Financial Condition and Results
                  of Operations                                            12-16


 PART II - OTHER INFORMATION                                               17


 SIGNATURES                                                                19

                                       2
<PAGE>

WHEELS SPORTS GROUP, INC.
CONSOLIDATED BALANCE SHEETS


                                               December 31,       September 30,
                                                   1996                1997
                                           -------------------      -----------
                                               (Unaudited)          (Unaudited)
ASSETS                                      (Restated, Note 2)

Current assets:
   Cash                                         $      257,750     $ 1,297,938
   Accounts receivable, net of allowances            2,120,079       1,583,469
   Inventories                                         570,081       1,020,974
   Other current assets                                101,664         165,336
                                                   -----------      ----------
     Total current assets                            3,049,574       4,067,717

   Property and equipment, net                         579,615         832,746
   Other assets                                        267,289         587,692
                                                   -----------      ----------
     Total assets                               $    3,896,478     $ 5,488,155
                                                   ===========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable                                $     138,500      $
   Current maturities of long term debt               173,266           11,040
   Loans from shareholders and officers               150,000
   Accounts payable and accrued expenses            1,742,630        1,082,319
   Deferred revenues                                  255,845          141,728
   Net liabilities of discontinued operations                          114,644
                                                   -----------      ----------
    Total current liabilities                       2,460,241        1,349,731

Long-term debt, net of current portion                484,919          134,478
    Total liabilities                               2,945,160        1,484,209
                                                   -----------      ----------
Stockholders' equity:
  Note receivable from World of Racing,
     Inc. (Note 9)                                   (95,436)
  Common stock                                        26,350            40,450
  Additional paid in capital                         339,670         6,627,165
  Retained earnings/(Accumulated deficit)            680,734        (2,663,669)
                                                   ---------        ----------
     Total stockholders' equity                      951,318         4,003,946
                                                   ---------        ----------
     Total liabilities and
       stockholders' equity                     $  3,896,478       $ 5,488,155
                                                   =========        ==========

                 See notes to Consolidated Financial Statements

                                                                              
                                        3
<PAGE>

<TABLE>
<CAPTION>

WHEELS SPORTS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                             Nine Months Ended
                                           Quarter Ended September 30,         September 30,
                                           (Restated, Note 2)            (Restated, Note 2)
                                              1996           1997            1996           1997
                                           ----------     ----------       ----------    ----------
                                           (Unaudited)    (Unaudited)     (Unaudited)    (Unaudited)
 

<S>                                       <C>            <C>             <C>            <C>       
Net revenues                              $  730,177     $1,476,955      $3,271,609     $4,510,324

Cost of sales                                764,468      1,055,606       2,176,346      3,769,847
                                             -------      ---------       ---------      ---------
  Gross margin                               (34,291)       421,349       1,095,263        740,477

Selling, general and administrative expense  258,146        842,551         869,196      1,846,505

Other income/(expense), net                   (1,490)        28,192          (1,490)        55,378
                                             -------      ---------       ---------      ---------
  Operating income (loss)                   (293,927)      (393,010)        224,577     (1,050,650)

Interest expense (income), net                10,352        (17,880)         10,262         37,041
                                             -------      ---------       ---------      ---------
  Net income (loss) from continuing
  operations before income tax (benefit)    (304,279)      (375,130)        214,315     (1,087,691)

Income taxes (Note 5)                          -              -               -              -
                                             -------      ---------       ---------      ---------
  Net income (loss) from continuing         (304,279)      (375,130)        214,315     (1,087,691)
     operations

Discontinued operations
  Loss from discontinued operations, net
    of income tax (benefit) of $0              -              -               -           (427,730)

  Loss from disposition of discontinued
    operations, net of income tax
    (benefit) of $0                            -              -               -          (1,032,350)
                                             -------      ---------       ---------      -----------
  Net income (loss)                       $ (304,279)    $ (375,130)     $  214,315     $(2,547,771)
                                             =======      =========       =========      ===========

Pro forma data (Note 5):
  Net income (loss) from continuing
    operations, as reported               $ (304,279)    $ (375,130)     $  214,315     $(1,087,691)

  Pro forma income tax expense              (121,712)         -              85,726          -
                                             --------     ----------       ---------     ----------
  Pro forma net income (loss) from
    continuing operations                 $ (182,567)    $ (375,130)     $  128,589     $(1,087,691)
                                             ========     ==========       =========     ===========
Per share data:
  Net income (loss) from continuing           ($0.12)        ($0.09)          $0.08         ($0.30)
    operations

  Pro forma income (loss) from continuing
    operations                                ($0.07)        ($0.09)          $0.05         ($0.30)

  Loss from discontinued operations           -              -               -             ($0.39)

  Net income (loss)                           ($0.12)        ($0.09)          $0.08         ($0.69)

Weighted average number of shares used
    to compute per share data              2,635,000      4,128,732       2,635,000      3,671,435
                                           =========      =========       =========      =========
</TABLE>

                 See notes to Consolidated Financial Statements

                                        4

<PAGE>

<TABLE>
<CAPTION>

WHEELS SPORTS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                        Nine Months Ended September 30,
                                                     (Restated, Note 2)
                                                           1996                 1997
                                                     ------------------     -------------
                                                         (Unaudited)           (Unaudited)
<S>                                                      <C>                   <C>
Cash flows from operating activities:
   Net income (loss)                                      $    214,315         $  (2,547,771)
   Adjustments to reconcile net income
      (loss) to net cash flows used in
       operating activities:
       Depreciation and amortization                             31,222               69,149
       Provision for allowances for doubtful accounts
         and returns                                            (80,296)             347,610
       Write down of goodwill related to acquisition
         of World of Racing, Inc.                                                    657,350
       Stock option granted and charged to expense                                    96,102
       Loss on dispositions                                       1,490

   Changes in operating assets and liabilities:
       Accounts receivable, net of allowances                   296,855              189,000
       Note receivable                                         (100,000)
       Inventories                                             (526,812)            (450,893)
       Other current assets                                     128,899              (63,672)
       Accounts payable and accrued expenses                     47,780             (660,311)
       Deferred revenues                                       (122,520)            (114,117)
       Other assets                                              57,589               53,118
       Discontinued operations-net liabilities                                       114,644
                                                              ----------        -------------
           Net cash (used in) operating activities              (51,478)          (2,309,791)
                                                              ----------        -------------

Cash flows from investing activities:
    Acquisition of property and equipment                       (31,956)            (297,068)
    Proceeds from disposition of assets                          20,012
    Cash investment in World of Racing, Inc., net of value
        of assets acquired                                                           (52,350)
    Cash investment in Emerald Sports Group                                          (44,475)
                                                              ----------        -------------
            Net cash (used in) investing activities             (11,944)            (393,893)
                                                              ----------        -------------

Cash flows from financing activities:
     Increase in short term borrowings                                               600,000
     Reductions in short term borrowings                                            (890,000)
     Loans from shareholders                                                         125,000
     Payments on loans from shareholders                         (3,446)            (275,000)
     Proceeds from long term debt                               277,205
     Payments on long-term debt                                 (56,883)            (361,167)
     Purchase of treasury stock                                 (25,000)
     Distributions to shareholders                                                  (436,000)
     Proceeds of public offering, net of expenses               (78,794)           4,981,039
                                                               ---------           ---------
            Net cash provided by financing activities           113,082            3,743,872
                                                               ---------           ---------

Net increase in cash                                             49,660            1,040,188
Cash, beginning of period                                       203,090              257,750
                                                               ---------           ---------
Cash, end of period                                           $ 252,750          $ 1,297,938
                                                               =========           =========

</TABLE>
                 See notes to Consolidated Financial Statements


                                        5
<PAGE>

                            WHEELS SPORTS GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1           CONDENSED FINANCIAL STATEMENTS
                 ------------------------------

                  The accompanying unaudited consolidated financial statements
                  include the accounts of Wheels Sports Group, Inc. and its
                  subsidiaries, Wheels Sports Group Acquisition, Inc. (a
                  discontinued business segment which operated as World of
                  Racing), Diamond Sports Group, Inc. and Emerald Sports Group,
                  Inc. These financial statements have been prepared by Wheels
                  Sports Group, Inc. (the "Company") without audit, pursuant to
                  the rules and regulations of the Securities and Exchange
                  Commission. Certain information and footnote disclosures
                  normally included in financial statements prepared in
                  accordance with generally accepted accounting principles have
                  been condensed or omitted as allowed by such rules and
                  regulations. The Company believes that the disclosures are
                  adequate to make the information presented not misleading.
                  However, it is suggested that these financial statements be
                  read in conjunction with the Company's audited financial
                  statements for the year ended December 31, 1996.

                  In the opinion of the management, the accompanying unaudited
                  condensed financial statements prepared in conformity with
                  generally accepted accounting principles which require the use
                  of management estimates, contain all adjustments (including
                  normal recurring adjustments) necessary to present fairly the
                  financial position and results of operations and cash flows
                  for the periods presented.


NOTE 2            BUSINESS COMBINATIONS
                  ---------------------
                  On January 28, 1997, the Company's newly incorporated
                  wholly-owned subsidiary, Wheels Sports Group Acquisition,
                  Inc., merged with World of Racing ("WOR") by exchanging
                  310,000 shares of the Company's common stock for 100% of the
                  common stock of WOR, a privately held South Carolina
                  corporation incorporated August 26, 1996, to operate a fantasy
                  race game. The transaction has been accounted for as a
                  purchase with the 310,000 shares valued at $620,000. On August
                  18, 1997 the Company's board of directors voted to discontinue
                  the operations of WOR and dispose of its assets. The $657,350
                  unamortized excess of the purchase price over the $43,086
                  value of the net assets acquired was written off as of June
                  30, 1997. The operations of WOR are presented as discontinued
                  operations. The acquisition of WOR was originally accounted
                  for as a pooling-of-interests, but the discontinuance of its
                  operations required the use of purchase accounting, thus the
                  1996 financial statements have been restated to reflect the
                  purchase method of accounting.

                  On June 30, 1997, the Company acquired 100% of the common
                  stock of Diamond Sports Group, Inc. ("Diamond"), a privately
                  held corporation located in Charlotte,

                                       6
<PAGE>


NOTE 2            BUSINESS COMBINATIONS - CONTINUED
                  ---------------------------------

                  North Carolina, in exchange for 485,000 shares of the
                  Company's common stock. Diamond is engaged in merchandising
                  NASCAR oriented products and in providing hospitality and
                  other services to corporations involved in NASCAR stock car
                  racing. This transaction has been accounted for as a
                  pooling-of-interests. The December 31, 1996 balances have been
                  restated to reflect the acquisition of Diamond.  A
                  reconciliation of the unaudited December 31, 1996 amounts
                  reported in the September 30, 1997 Form 10-QSB to the audited
                  amounts reported in the Form SB-2 is as follows:


                         December 31, 1996                   December 31, 1996
                              Amounts           Diamond        Amounts per
                          per Audited SB-2  Sports Group   Unaudited Form 10-QSB

Current assets               $2,770,703        $278,871        $3,049,574
Total assets                 $3,266,320        $630,158        $3,896,478
Current liabilities          $2,097,755        $362,486        $2,460,241
Total liabilities            $2,235,124        $710,036        $2,945,160
Equity                       $1,031,196        $(79,878)       $  951,318


                  Details of the operations of the previously separate companies
                  before the June 30, 1997 acquisition of Diamond are as
                  follows:


<TABLE>
<CAPTION>
                                  Six months ended June 30, 1996                          Six months ended June 30, 1997

                              Wheels            Diamond                             Wheels            Diamond
                           Sports Group      Sports Group        Total           Sports Group      Sports Group        Total

<S>                         <C>                <C>              <C>              <C>                  <C>            <C>
Revenues                    $2,078,706         $462,726         $2,541,432       $1,433,129           $1,600,240     $3,033,369
Net income (loss) from
   continuing operations    $  463,478         $ 55,116         $  518,594       $ (314,463)          $  101,902     $ (712,561)
Pro Forma income
      tax expense           $  185,392         $ 22,046         $  207,438              -             $   40,761     $   40,761
Pro Forma net income
   (loss) from continuing
    operations              $  278,086         $ 33,070         $  311,156        $(514,463)          $   61,141     $ (753,322)

</TABLE>


                  On August 5, 1997 the Company acquired 100% of the common
                  stock of Emerald Sports Group, a recently formed privately
                  held corporation located in Charlotte, North Carolina, in
                  exchange for 65,000 shares of the Company's common stock
                  valued at $364,000. The transaction has been accounted for as
                  a purchase. The $408,475 excess of cost over the value of net
                  assets acquired is being amortized on the straight line method
                  over ten years.


NOTE 3           NEW ACCOUNTING PRONOUNCEMENTS
                 -----------------------------
                 In early 1997 the Financial Accounting Standards Board issued
                 SFAS 128, Earnings per Share", SFAS 130, "Reporting
                 Comprehensive Income" and SFAS 131, "Disclosures about Segments
                 of an Enterprise and Related Information". Both pronouncements
                 are effective for periods beginning after December 15, 1997.
                 Adoption of these Statements is not expected to have a material
                 impact on the financial statements of the Company. Basic
                 earnings per share under SFAS 128 for the interim three and
                 nine month periods ended September 30, 1997 would be ($.09) and
                 ($.71).
                                       7
<PAGE>


NOTE 4           INVENTORIES
                 -----------

                 Inventories consisted of the following:

                                                      12-31-96         9-30-97
                                                    ------------    ------------

                 Raw materials                        $ 19,595      $         0
                 Work in process                       488,594          534,264
                 Finished goods                         61,892          486,710
                                                    ----------        ---------
                                                     $ 570,081       $1,020,974
                                                     =========       ==========


NOTE 5            INCOME TAXES
                  ------------

                  Wheels Sports Group, Inc. and World of Racing, Inc. elected
                  under Subchapter S of the Internal Revenue Code to have their
                  taxable income included in the income tax returns of their
                  individual shareholders for all periods prior to January 1,
                  1997. Diamond Sports Group, Inc. made a similar election for
                  all periods prior to July 1, 1997. Subsequent to those dates,
                  the companies were taxable as regular Subchapter C
                  corporations.

                  For periods in which the companies were subject to the
                  Subchapter S elections, no taxes on income have been provided.
                  However, for informational purposes, the statements of
                  operations include a proforma income tax provision on taxable
                  income for financial statement purposes using statutory
                  federal and state rates that would have applied had the
                  companies been taxed as regular Subchapter C corporations.

                  For periods in which the companies were taxable as regular
                  corporations, no provision for an income tax benefit has been
                  recognized because the realization of such a benefit is
                  dependent on future taxable income. The Company intends to
                  record such a benefit when its realization is considered
                  assured.


NOTE 6            DISTRIBUTIONS TO SHAREHOLDERS
                  -----------------------------

                  In connection with the termination of the Subchapter S
                  elections of Wheels Sports Group, Inc. and Diamond Sports
                  Group, Inc., distributions of $400,000 and $36,000 were made
                  to those individual shareholders required to report on their
                  personal tax returns the taxable incomes of the respective
                  companies. These distributions represent the Company's
                  estimate of the shareholders' tax liability on the
                  corporations' income.

                                       8

<PAGE>




NOTE 7            INITIAL PUBLIC OFFERING
                  -----------------------

                  On April 16, 1997, the Company's Registration Statement for
                  the sale of 1,035,000 shares of common stock and 1,035,000
                  warrants for the purchase of a total of 517,500 shares of
                  common stock was declared effective by the Securities and
                  Exchange Commission. Gross proceeds from the sale of the
                  shares and warrants were $6,210,000 and expenses of the
                  offering were $1,477,740. Of these expenses, $248,778 were
                  paid in 1996 and $1,228,962 were paid in 1997.


NOTE 8            STOCK OPTIONS
                  -------------

                  Between April 16, 1997 and September 30, 1997, the Company
                  awarded 764,500 options to purchase common stock to certain
                  employees and others. Options are exercisable at various dates
                  from September 10, 1997 to October 1, 2007, and at prices
                  ranging from $5.02 to $6.49 per share, with a weighted average
                  exercise price of $6.15 per share. As of September 30, 1997,
                  options to purchase 372,000 shares were exercisable at prices
                  ranging from $5.02 to $7.02 per share, with a weighted average
                  exercise price of $6.56 per share.

                  For options on 107,000 shares granted to non-employees, the
                  Company will recognize expense at $4.20 per optioned share
                  over the vesting period or, for options granted in connection
                  with royalty agreements with NASCAR personalities, over the
                  royalty period. The vesting period is generally one year and
                  the current average royalty period is three years. Expense of
                  $73,380 and $121,100 was recognized in the quarter and the
                  nine months ended September 30, 1997, respectively.

                  The remaining 657,500 options to employees will be accounted
                  for using the intrinsic value method whereby expense is
                  recognized only when the option price is lower than the market
                  price at the date of the grant. Disclosure of the value of the
                  options under Statement 123 of the Financial Accounting
                  Standards Board will be provided in the 1997 audited financial
                  statements.


                                       9
<PAGE>


NOTE 9            RESTATEMENTS  OF AND CHANGES IN EQUITY ACCOUNTS
                  -----------------------------------------------

                  The following table presents the restatements of and changes
                  in the equity accounts of the Company as a result of the
                  pooling-of-interests of Diamond Sports Group, the purchase of
                  World of Racing, Inc., and of other transactions during the
                  nine months ended September 30, 1997.



<TABLE>
<CAPTION>

                                                  Note Receivable                                     (Accumulated
                                                      from                                              Deficit)/
                                      Shares         World of         Common           Additional       Retained
                                   Outstanding     Racing, Inc.        Stock         Paid in Capital    Earnings
                                   ------------   ---------------     -------        ----------------   -----------
<S>                                  <C>            <C>              <C>               <C>               <C>
Balances, December 31, 1996, as
     originally reported             2,150,000      $(95,436)        $  21,500         $ 344,500         $ 760,632
Pooling of Diamond Sport Group, Inc.   485,000                           4,850            (4,830)          (79,898)
                                      --------       --------         -------           --------          --------
Balances, December 31, 1996,
     as restated                     2,635,000       (95,436)           26,350           339,670           680,734

Issuance of common stock in
  connection with purchase of:
        World of Racing, Inc.          310,000                           3,100           616,900
        Emerald Sports Group, Inc.      65,000                             650           363,350

Distribution to shareholders for payment
     of Subchapter S tax liabilities                                                                    (436,000)

Write off of note upon termination
     of WOR.                                         95,436

Effect of converting from Subchapter S
     to regular corporation for tax purposes                                            360,632         (360,632)

Net proceeds from initial
     public offering                 1,035,000                          10,350        4,721,911

Stock options granted                                                                   224,702

Net loss through September 30, 1997                                                                   (2,547,771)
                                     ----------    ----------        ---------       ----------      -----------
Balances, September 30, 1997         4,045,000     $    -            $  40,450       $6,627,165      $(2,663,669)
                                     =========     ==========        =========       ==========      ===========


</TABLE>


NOTE 10           SUBSEQUENT EVENTS
                  -----------------

                  On October 4, 1997, the Company acquired Greens Racing
                  Souvenirs, Inc., ("GRS") a privately held company located in
                  South Boston, Virginia, and which sells NASCAR oriented racing
                  souvenirs at race tracks and by mail. Consideration was
                  175,000 shares of stock of the Company. The transaction
                  will be accounted for as a pooling-of-interests.

                  The following table presents the pro forma effect of including
                  the acquisition of GRS in these financial statements.


<TABLE>
<CAPTION>

                                       Quarter Ended September 30,               Nine Months Ended September

                                      1996              1997                       1996              1997
                                   (Unaudited)       (Unaudited)                (Unaudited)       (Unaudited)
                                   -----------        ----------                ----------         ----------     
<S>                                  <C>               <C>                     <C>                 <C>  
Revenues                            $1,195,536         $1,882,266              $4,755,136          $5,899,535

Net income (loss) from
  continuing operations             $ (288,406)         $(390,893)               $499,932           $(395,019)

Loss  from continuing operations                                                                  $(1,460,080)

Net income (loss)                   $ (288,408)         $(390,893)               $499,932         $(2,395,099)

Per share data:

Net income (loss) from
  continuing operations               ($0.11)           ($0.09)                     $0.19             ($0.25)

Loss  from continuing operations         -                 -                          -               ($0.40)

Net income (loss)                     ($0.11)           ($0.09)                     $0.19             ($0.65)

</TABLE>

                                       10

<PAGE>


NOTE 10        SUBSEQUENT EVENTS - CONTINUED


                  On October 3, 1997, the Company announced it had signed
                  definitive agreements to acquire High Performance Sports
                  Marketing ("HPSM") of Mooresville, North Carolina, a privately
                  held distributor of NASCAR merchandise and apparel, and Press
                  Pass Partners, of Dallas, Texas, a privately held company
                  which designs and markets collectible sports trading cards.
                  The acquisition of HPSM was completed on October 24, 1997.
                  Included in the consideration for HPSM is $3,250,000 in notes
                  which are payable on November 28, 1997. Should the notes not
                  be paid when due, the sellers of HPSM have the right to
                  rescind the transaction. The acquisition of Press Pass is
                  contingent on the Company's obtaining financing for the
                  transaction, and is expected to close before December 31,
                  1997. The Company will be required to obtain additional
                  financing to meet the terms of both acquisitions, and it has
                  engaged the investment banking firm of Morgan Keegan & Company
                  to advise it in obtaining the capital required for the
                  acquisitions and for funding post acquisition working capital
                  needs.

                  Consideration for High Performance Sports Marketing was
                  444,445 shares of the Company's common stock, cash of
                  $1,672,000, and notes of $1,000,000, plus an additional cash
                  payment of $3,250,000 due by November 28, 1997. The
                  acquisition of HPSM resulted in goodwill (the excess of
                  purchase price over the fair value of assets acquired) of
                  approximately $8 million. Consideration for Press Pass is
                  expected to be 600,000 shares of the Company's common stock,
                  cash of $3,000,000, and notes of $1,000,000. The acquisition
                  of Press Pass is expected to result in goodwill of
                  approximately $8 million. Both acquisitions will be accounted
                  for as purchases.


                  .

                                       11


<PAGE>


                            WHEELS SPORTS GROUP, INC.
                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


GENERAL

The Company's business is seasonal in nature and therefore the results of
operations for any one or more quarters or its financial condition at any
specific time are not necessarily indicative of annual results, continuing
trends, or future financial condition. Historically, the Company's net sales
have been highest in the early and middle of the NASCAR Winston Cup season which
starts in February and ends in November.


CORPORATE ACQUISITIONS

On June 30, 1997, the Company acquired Diamond Sports Group, ("Diamond") a
privately held Charlotte, North Carolina company involved in merchandising
NASCAR oriented products. On August 5, 1997 the Company acquired Emerald Sports
Group, ("Emerald") a privately held Charlotte, North Carolina company involved
in merchandising NASCAR related home decor fabric products. On October 4, 1997,
the Company acquired Greens Racing Souvenirs, ("GRS") a privately held South
Boston, Virginia company that sells NASCAR merchandise trackside at NASCAR races
and by mail. On October 24, 1997 the Company acquired High Performance Sports
Marketing, ("HPSM") a privately held Mooresville, North Carolina company that
distributes NASCAR merchandise. On October 3, 1997 the Company signed a
definitive agreement to acquire the business of Press Pass Partners, ("Press
Pass"), a Dallas, Texas partnership which designs and distributes collectible
items, primarily NASCAR trading cards. The acquisition of Press Pass is expected
to close prior to December 31, 1997. The terms of these acquisitions are
described in Notes 2 and 10 to the financial statements.


DISCONTINUED OPERATIONS

Revenues for the fantasy race game operated by the Company's subsidiary, World
of Racing ("WOR") were significantly below anticipated levels during the second
quarter and the first part of the third quarter. By early August it had become
apparent that revenues for the balance of the year would not improve and that
the game would not become profitable without significant investment and
restructuring. Consequently, on August 18, 1997 the Company's board of directors
decided to terminate operations of WOR. The January 1997 acquisition of WOR was
originally accounted for as a pooling-of-interests, but the decision to
terminate its operations required that the acquisition be accounted for as a
purchase. Since the decision to terminate operations was made prior to the
original issuance of the June 30 financial statements, the June 30, 1997
financial statements were reissued to present the financial position and results
of operations of WOR as discontinued operations.

                                       12


<PAGE>



FINANCIAL CONDITION

As of September 30, 1997, the Company's principal sources of liquidity included
cash of $1,298,000 and net accounts receivable of $1,583,000. As of such date,
current assets were $4,068,000 as compared to current liabilities of $1,350,000.
Current liabilities included a $375,000 accrual for future costs related to the
discontinued operations of WOR. Long-term debt net of current maturities was
$135,000.

During the nine months ended September 30, 1997 the Company's financial
condition strengthened as a result of its successful initial public offering of
1,035,000 shares of common stock and 1,035,000 warrants, which resulted in net
proceeds of $4,732,000. This was in part offset by losses from the discontinued
operations of WOR, operating losses in the Company's trading card business,
substantial reductions in both bank debt and trade accounts payable, and capital
expenditures. Proceeds of the public offering were used to repay $890,000 in
short term bank borrowings, fund approximately $630,000 in costs relating to the
subsequently discontinued operations of WOR, and pay $150,000 for the
acquisition of land for the construction of an office and warehouse building. An
additional $309,000 of the proceeds was used to pay off a capitalized lease
obligation and obtain title to a building occupied by Diamond. Of the $890,000
in bank borrowings, $400,000 had been incurred to fund a distribution to
shareholders to pay their personal tax liabilities on income of the Company, as
disclosed in Note 6 to the Consolidated Financial Statements, and $490,000 had
been incurred to provide working capital. The balance of the proceeds were used
to increase working capital, including funding a reduction of $1,100,000 in
accounts payable and accrued expenses. The remaining working capital will be
used for anticipated expansion of the business of the Company's subsidiaries,
Diamond, Emerald, GRS, and HPSM, for expansion of marketing and promotional
activities, and for general corporate purposes.

The acquisitions of HPSM and Press Pass will require the Company to raise
additional capital to fund the acquisitions, retire certain short term notes
issued and to be issued in conjunction with those acquisitions, and to provide
working capital for those companies. The Company has engaged the investment
banking firm of Morgan Keegan & Company to advise it in obtaining additional
capital. As of this date, the Company has received proposals from several
possible sources of capital, but has not reached a definitive agreement to
obtain the financing required by the acquisitions of HPSM and Press Pass. There
is no assurance that such financing will be obtained. Should financing not be
obtained, the previous owners of HPSM have the right to rescind the completed
acquisition of HPSM and the owners of Press Pass have the right to terminate
their acquisition agreement. Should the Company become involved in additional
new business ventures requiring additional working capital, the Company would be
required to obtain additional financing.

During the first quarter of 1997, the Company experienced slightly slower than
usual collections and higher than usual returns on a trading card set sold in
late 1996, Crown Jewels Elite. During that quarter, the Company accepted product
returns totaling $56,000 and increased its reserves for additional returns by
$54,000. During the second quarter of 1997, it became apparent that the Crown
Jewels Elite product had been improperly packaged by the Company's contract
packager and that there was a substantial problem collecting accounts receivable
relating to that product line. The Company recognized that the packaging of
Crown Jewels Elite did not meet industry standards and therefore the product was
less salable by its dealers and distributors. The Company
                                       13
<PAGE>

was constrained to accept product returns and issued approximately $334,000 in
credits and price concessions to its customers. As a result, during the six
months ended June 30, 1997, the Company increased its reserves for returns by
$347,000, of which $54,000 was in the first quarter and $293,000 was in the
second quarter. During the third quarter, the Company accepted returns and
granted price concessions on Crown Jewels Elite of $317,000, all of which was
charged to the reserve. Management does not anticipate any further significant
returns or price concessions. The Company has filed suit against the packager of
Crown Jewels Elite seeking unspecified damages.

The $1,087,000 net loss from continuing operations was primarily funded by the
proceeds of the initial public offering. Accounts receivable decreased by
$537,000 which was largely offset by an increase in inventories of $451,000. The
increase in inventories includes finished goods increases of $118,000 at Diamond
and $306,000 at Wheels, results of the growth in Diamond's business and the
unsold balance of products which Wheels introduced in the third quarter
($187,000) and the first half of 1997 ($119,000). Accounts payable decreased by
$660,000, the result of a $239,000 increase at Diamond and a $899,000 decrease
at Wheels. The decrease at Wheels resulted from an unusually high level of trade
payables at December 31, 1996, based on special extended trade terms granted by
vendors compared to an unusually low level of trade payables as Wheels took
advantage of cash discounts on invoices for products to be released in the
fourth quarter of 1997. Deferred revenues, which represents advance payments of
royalties and fees by corporate customers of Diamond, decreased by $106,000.
Other assets increased $320,000, primarily as a result of an increase from
recording $408,000 of goodwill in connection with the purchase of Emerald Sports
Group.

Capital expenditures were $297,000, including $150,000 for the acquisition of
land. Payments on long term debt totaled $361,000, including payment in full of
a capitalized lease obligation of $289,000. Short term debt, including loans
from shareholders and officers, was reduced by $440,000.

The Company is currently evaluating its needs for office and warehouse space in
light of the corporate acquisitions described above. In particular, the
Company's management expects that the two parcels of vacant land in Mocksville,
North Carolina on which the Company had planned to construct an office and
warehouse facility will be sold and the Company's headquarters will move to the
HPSM facility in Mooresville, North Carolina.


RESULTS OF OPERATIONS

Consolidated net revenues during the quarter ended September 30, 1997 were
$1,476,000 compared to $730,000 during the same quarter in the prior year, an
increase of $746,000 or 102%. Consolidated net revenues for the nine months
ended September 30, 1997 were $4,510,000 compared to $3,272,000 for the same
nine month period in the prior year, an increase of $1,238,000 or 38%. During
the third quarter of 1997, Wheels released one trading card set, Viper `97,
which produced substantially all of its $692,000 revenue. During the third
quarter of 1996, Wheels released no new trading card sets and generated $244,000
in revenues from sales of previously released cards. During the third quarter of
1997, Diamond had revenues of $784,000 compared to $498,000 in the third quarter
of 1996, an increase of $298,000 or 61%. Of this increase, $264,000 was
attributable to increased sales of merchandise, with the balance attributable to
fees from hospitality and other services. 
                                       14
<PAGE>

Consolidated cost of sales during the third quarter of 1997 was $1,056,000 as
compared to $764,000 during the third quarter, 1996, an increase of $292,000 or
38%. As a percentage of net revenues, consolidated cost of sales was 71% in the
third quarter of 1997 as compared to 105% in the third quarter of 1996. The
decrease in cost of sales as a percentage of revenues occurred at both Wheels
and Diamond, with cost of sales declining from 149% to 84% at Wheels and from
82% to 60% at Diamond. At Wheels, the third quarter of 1996 cost of sales as a
percentage of revenue was extraordinarily high because of the low volume of
revenue during the period. At Diamond, the decline in cost of sales as a
percentage of revenue resulted primarily from improvements in the margins on fee
revenues. Consolidated cost of sales for the nine months ended September 30,
1997 was $3,769,000 compared to $2,176,000 for the same period in the prior
year, an increase of $1,593,000 or 73%. Of this increase, $703,000 occurred at
Wheels and $890,000 occurred at Diamond, in both cases as a result of increased
sales volume.

Gross margin during the third quarter of 1997 was $421,000 as compared to
($34,000) during the third quarter of 1996. The improvement in gross margin was
primarily attributable to the lower revenues at Wheels in the third quarter of
1996 and the improvement in both revenues and profitability at Diamond in the
third quarter of 1997.

Selling, general and administrative expenses increased $584,000, or 226%, from
$258,000 in the third quarter of 1996 to $843,000 in the third quarter of 1997.
Of this increase, $234,000 is attributable to Diamond and $350,000 is
attributable to Wheels. As a percentage of consolidated net revenues, such
expenses increased from 35% in the third quarter of 1996 to 57% in the third
quarter of 1997. For the nine months ended September 30, 1997, selling, general
and administrative expenses increased $978,000, or 113%, from $869,000 in the
same period of 1996 to $1,847,000 in 1997. Of this increase, $481,000 is
attributable to Diamond (which had started business in late 1995 and had only
limited operations during early 1996), and $497,000 is attributable to Wheels.
The increases at Diamond resulted from its growth in revenues and operations
while the increases at Wheels resulted from costs related to its acquisition
activities and the costs involved with being a publicly owned company.


The Company had elected under Subchapter S of the Internal Revenue Code to have
its income taxed on the returns of its individual shareholders for periods prior
to 1997. Diamond made a similar election for periods ending prior to its June
30, 1997 acquisition by the Company. For that reason, no provision for income
tax expense has been made for any period prior to 1997. The operating losses
incurred by the Company in the first half of 1997 will create taxable losses
which can be deductible against taxable income in 1997, and possibly later
years. However, the Company does not intend to record any future tax benefit
from those losses until the timing and amount of their realization is
substantially assured.

As a result of the foregoing, the consolidated net loss from continuing
operations for the third quarter of 1997 was $375,000 as compared to a
consolidated net loss from continuing operations of $304,000 during the third
quarter of 1996. For the nine months ended September 30, 1997, the consolidated
net loss from continuing operations was $1,088,000 as compared to a consolidated
net income from continuing operations of $214,000 for the same period of 1996.
Included in that loss is the $130,000 net income of Diamond and the $1,218,000
net loss of Wheels.
                                       15
<PAGE>

The $427,000 loss from discontinued operations in the nine months ended
September 30, 1997 includes the operating losses of the Company's subsidiary,
World of Racing, prior to the decision to terminate its operations. The
$1,032,000 loss from disposition of discontinued operations consists of the
write off of $657,000 in goodwill which arose from the purchase of WOR and a
provision of $375,000 for losses to be incurred in connection with the
termination of operations.


 FACTORS THAT MAY AFFECT OPERATING RESULTS


The statements that are contained in this release that are not purely historical
are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Act of 1934, including
statements regarding the Company's expectations, hopes, intentions or strategies
regarding the future. Forward looking statements include expectations of trends
to continue through the remainder of the year and plans and objectives for
future operations, including operating margins. Forward looking statements
involve a number of risks and uncertainties. Among other factors that could
cause actual results to differ materially are the following: economic and market
conditions in the collectible sports trading card industry, the NASCAR race
industry, and the general economy; competitive factors, such as price pressures
or the entry of new competitors or increased competition in the collectible
sports trading card market or other NASCAR-related markets; the ability to
secure financing for acquisitions, expansion or capital expenditures;
termination or non-renewal of one or more licenses with well-known NASCAR race
drivers; inventory risks due to shifts in market demand or inaccurate production
forecasting; decrease in collectors' interest in the Company's cards; the
Company's ability to finance and conclude certain business acquisitions; and the
risk factors set forth in the Company's Registration Statement on Form SB-2
(Registration No. 333-6340). The reader should consult these risk factors as
well as risk factors listed from time to time in the Company's reports on Forms
10-QSB, 10-KSB and other filings under the Securities Act of 1934, as amended,
Annual Reports to Shareholders, and other registration statements filed pursuant
to the Securities Act of 1933, as amended. All forward looking statements
included herein are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward looking
statements. There can be no assurance that the Company will not experience
material fluctuations in future operating results on a quarterly or annual
basis, which would materially and adversely affect the Company's business,
financial condition and results of operations.

                                       16

<PAGE>


-
                           PART II - OTHER INFORMATION

    ITEM 1.                LEGAL PROCEEDINGS

                                   None.

    ITEM 2.                CHANGES IN SECURITIES AND USE OF PROCEEDS

                           (a)     Not applicable

                           (b)     Not applicable

                           (c) The Company entered into an Agreement and Plan
                           of Reorganization (the "Agreement"), dated June 30,
                           1997, among Wheels Sports Group, Inc. (the
                           "Company"), Emerald Sports Group, Inc. ("Emerald"),
                           Diamond Sports Group, Inc., a wholly owned subsidiary
                           of the Company (the "Subsidiary") and the three
                           shareholders of Emerald (the "shareholders") pursuant
                           to which Emerald Sports Group, Inc. ("Emerald")
                           merged into Diamond (the "Merger"). Pursuant to the
                           Merger, which was completed on August 5, 1997, 65,000
                           unregistered shares of the Company's Common Stock
                           were issued to the Shareholders.

                           (d) The Company registered 1,035,000 shares of Common
                           Stock and 1.035,000 warrants for sale to the public
                           at a price of $6.00 per each one share and one
                           warrant unit on a Form SB-2 Registration Statement
                           (Reg. No. 333-6340) (the "Registration Statement")
                           declared effective on April 16, 1997. Two warrants
                           entitle the holder to purchase one share of Common
                           Stock at a price of $7.08. The Company also
                           registered the 517,500 shares of Common Stock
                           underlying the public warrants, and 135,000 shares of
                           Common Stock underlying certain warrants issued or
                           issuable to Schneider Securities, Inc., the
                           underwriter of the public offering.

                           The offering of 900,000 shares and 900,000 warrants
                           was completed in April 1997 and the over-allotment
                           closing on 135,000 shares and 135,000 warrants was
                           completed in May 1997, for aggregate gross proceeds
                           of $6,210,000. Expenses incurred by the Company in
                           connection with the issuance and distribution of the
                           securities registered for the underwriting discounts
                           and commissions were $621,000, expenses paid to or
                           for underwriters were $186,300, and other expenses
                           (consisting of registration fees, filing fees, legal
                           fees, printing and engraving, consulting fees,
                           accounting fees and transfer agent fees ) were
                           $680,790, for total expenses of $1,488,090. None of
                           such expenses were direct or indirect payments to
                           directors, officers or their associates or to persons
                           owning ten percent or more of any class of equity
                           securities of the Company or to affiliates of the
                           Company. The resulting net offering proceeds to the
                           Company after payment of all expenses was $4,721,910.
                                       17
<PAGE>

ITEM 2.                    CHANGES IN SECURITIES AND USE OF PROCEEDS-CONTINUED


                           The following table presents the Company's use of the
                           net offering proceeds from the effective date of the
                           Registration Statement through September 30,1997, and
                           a comparison to the Company's anticipated uses of
                           those funds as presented in the Use of Proceeds
                           section in the Registration Statement.
<TABLE>
<CAPTION>


                                                              Actual Use                Use of Proceeds
                                                              by Company                  in Registration
                                                                                             Statement

                            <S>                                    <C>                        <C>      
                           Payments on bank debt                   $ 890,000               $  650,000

                           Purchase of land and building             459,000                  250,000

                           Cash advanced to WOR
                              for working capital                    630,000                1,200,000

                           Cash invested in joint project
                               with Action Performance                80,000                  400,000

                           Additional marketing and
                               promotion expenses                     50,000                  500,000

                           Reduction in outstanding
                               current liabilities                 1,100,000                  250,000

                           Increase in working capital
                               for general corporate
                               purposes                            1,782,000                1,724,000
                                                              ------------------        --------------

                           Total proceeds in the period         $ 4,991,000               $ 4,974,000

                           Less: expenses paid prior
                                   to the period                    248,000

                                   expenses paid after
                                   the period                        11,000
                                                                ------------
                           Net proceeds from the offering       $ 4,732,000

</TABLE>

                                       18
<PAGE>




                      PART II - OTHER INFORMATION-CONTINUED




    ITEM 3.                DEFAULTS UPON SENIOR SECURITIES

                           None.

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

                           None.

    ITEM 5.                OTHER INFORMATION

                           None.

    ITEM 6.                EXHIBITS AND REPORTS ON FORM 8-K

                           (a)     Exhibits.

                                   27 Financial Data Schedule.

                           (b)     None.

                                   SIGNATURES

                  Pursuant to the requirements of the Securities Exchange Act of
                  1934, the Registrant has duly caused this Form 10-QSB to be
                  signed on its behalf by the undersigned, thereunto duly
                  authorized.

             Dated:   November 18, 1997    By:  /s/ Howard L. Correll, Jr.

                                           Howard L. Correll, Jr.
                                           President and Chief Executive Officer

             Dated:   November 18, 1997   By: /s/ F. Scott M. Chapman

                                          F. Scott M. Chapman
                                          Chief Financial Officer



<PAGE>