U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


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

                For the quarterly period ended December 31, 1996

                         Commission File Number 0-21630

                       Action Performance Companies, Inc.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)



           Arizona                                        86-0704792
           -------                                        ----------
 
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)



                        2401 W. 1st St., Tempe, AZ 85281
                        --------------------------------
                    (Address of Principal Executive Offices)

                                 (602) 894-0100
                                 --------------
              (Registrant's telephone number, including area code)




Indicate by check 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  xx     No
   ------     ------


                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date:  13,693,485  shares of common
stock (as of February 12, 1997).
<PAGE>
PART I, ITEM 1     FINANCIAL STATEMENTS


                       ACTION PERFORMANCE COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEET
                 As of December 31, 1996 and September 30, 1996
<TABLE>
<CAPTION>

                                                              December 31,              September 30,
                                                                  1996                      1996
                                                              -----------               -------------
                                                              (Unaudited)
                                     ASSETS
                                     ------
<S>                                                           <C>                        <C>        
CURRENT ASSETS:
  Cash..................................................      $ 6,078,591                $ 4,983,382
  Accounts receivable, net of allowance for doubtful
    accounts of $823,324 and $256,324, respectively.....        9,037,646                  7,496,988
  Inventories...........................................        8,756,680                  5,833,812
  Deferred income taxes.................................        1,031,619                  1,031,619
  Prepaid royalties.....................................        3,772,629                  2,295,505
  Prepaid expenses and other assets.....................          733,464                    739,723
                                                              -----------                -----------

    Total current assets................................       29,410,629                 22,381,029

PROPERTY AND EQUIPMENT, at cost less accumulated
  depreciation of $4,326,189 and $3,362,939, respectively       9,581,925                  8,188,441

GOODWILL, net of accumulated amortization...............       26,196,955                     56,370

NOTES RECEIVABLE AND OTHER ASSETS.......................        1,017,294                  1,022,794
                                                              -----------                -----------

                                                              $66,206,803                $31,648,634
                                                              ===========                ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
  Accounts payable......................................      $ 2,580,609                $ 2,188,343
  Accrued royalties.....................................        2,872,108                  1,180,038
  Income taxes payable..................................        1,073,467                    521,547
  Accrued expenses and other............................          918,919                    397,529
                                                              -----------                -----------

    Total current liabilities...........................      $ 7,445,103                $ 4,287,457

LONG TERM DEBT:
  Notes payable.........................................      $24,000,000                $      -
  Other long term debt..................................          898,711                    364,725
                                                              -----------                -----------

    Total long term debt................................      $24,898,711                $   364,725

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Preferred stock, no par value, 5,000,000 shares
  authorized, no shares issued and outstanding..........             -                          -
Common stock, $.01 par value, 25,000,000 shares
  authorized; 13,107,462 and 12,609,769 shares,
    respectively, issued and outstanding................          131,075                    126,098
  Additional paid-in capital............................       24,284,723                 18,991,296
  Retained earnings.....................................        9,447,191                  7,879,058
                                                              -----------                -----------
    Total shareholders' equity..........................       33,862,989                 26,996,452
                                                              -----------                -----------

                                                              $66,206,803                $31,648,634
                                                              ===========                ===========
</TABLE>
 The accompanying notes are an integral part of this consolidated balance sheet
                                       2
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.


                      CONSOLIDATED STATEMENTS OF OPERATIONS

              For the Three Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
                                                        1996                                1995
                                                     -----------                         -----------
                                                     (Unaudited)                         (Unaudited)
<S>                                                  <C>                                 <C>        
Collectible sales...................                 $ 9,921,727                         $ 7,697,301
Apparel and souvenir sales..........                   5,253,475                             308,935
                                                     -----------                         -----------
    Net sales.......................                  15,175,202                           8,006,236

Cost of sales.......................                   8,780,439                           4,764,816
                                                     -----------                         -----------
Gross profit........................                   6,394,763                           3,241,420

Selling, general and
  administrative expenses...........                   3,551,721                           1,871,734
                                                     -----------                         -----------

Income from operations..............                   2,843,042                           1,369,686

Other income (expense):
  Interest income and other, net....                      71,917                             101,709
  Interest expense..................                    (301,406)                             (8,437)
                                                     -----------                         -----------
    Total other income (expense)....                    (229,489)                             93,272
                                                     -----------                          ----------

Income before provision for
  income taxes......................                   2,613,553                           1,462,958

Provision for income taxes..........                   1,045,420                             585,183
                                                     -----------                         -----------

NET INCOME..........................                 $ 1,568,133                         $   877,775
                                                     ===========                         ===========

NET INCOME PER COMMON SHARE:
  Primary...........................                 $      0.12                         $      0.07
                                                     ===========                         ===========
  Fully Diluted ....................                 $      0.12                         $      0.07
                                                     ===========                         ===========

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Primary...........................                  13,455,352                          12,839,544
                                                     ===========                         ===========
  Fully Diluted ....................                  13,476,148                          12,839,544
                                                     ===========                         ===========
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       3
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.


                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  For the Three Months Ended December 31, 1996

                                   (Unaudited)
<TABLE>
<CAPTION>
                                           Common Stock
                                           ------------             Additional
                                     Shares                           Paid-In           Retained
                                     Issued           Amount          Capital           Earnings          Total
                                     ------           ------          -------           --------          -----

<S>                                 <C>              <C>            <C>               <C>              <C>        
BALANCE, September 30, 1996         12,609,769       $126,098       $18,991,296       $ 7,879,058      $26,996,452
                                    ----------       --------       -----------       -----------      -----------


Common stock issued upon
 exercise of employee options...        94,332            943           416,793              -             417,736

Common stock issued upon
purchase of business............       403,361          4,034         4,876,634              -           4,880,668

Net Income......................          -              -                 -            1,568,133        1,568,133
                                    ----------       --------       -----------        ----------      -----------

BALANCE, December 31, 1996          13,107,462       $131,075       $24,284,723       $ 9,447,191      $33,862,989
                                    ==========       ========       ===========       ===========      ===========
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       4
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              For the Three Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
                                                          1996                       1995
                                                      -----------                -----------
                                                      (Unaudited)                (Unaudited)
<S>                                                  <C>                        <C>        
Cash Flows from Operating Activities:
Net Income....................................       $ 1,568,133                $   877,775
  Adjustments to reconcile net income to
   net cash provided by (used in) operating
   activities:
   Depreciation and amortization..............           768,637                    316,688
   Change in assets and liabilities:
     Accounts receivable......................           (50,199)                  (379,462)
     Inventories..............................          (335,683)                  (848,770)
     Prepaid royalties........................        (1,477,124)                   (31,497)
     Prepaid expense and other assets.........           (91,827)                  (145,142)
     Accounts payable.........................        (1,172,068)                  (919,542)
     Income taxes payable.....................           551,920                   (732,160)
     Accrued royalties .......................         1,077,744                   (176,091)
     Accrued expenses and other...............           150,385                     88,304
                                                     -----------                -----------
      Net cash provided by (used in)
       operating activities...................           989,918                 (1,949,897)

Cash Flows from Investing Activities:
  Acquisition of property and equipment.......        (1,022,411)                (1,206,994)
  Cash acquired in purchase of business ......           956,397                      -
                                                     -----------                -----------
    Net cash used in investing activities.....           (66,014)                (1,206,994)

Cash Flows from Financing Activities:
  Borrowings on line of credit................         1,278,583                  1,830,962
  Payments on line of credit..................        (1,278,583)                  (919,663)
  Proceeds from issuance of common stock......           417,736                    301,613
  Payments on notes payable...................          (218,167)                     -
  Collections on notes receivable.............              -                         9,472
  Principal payments on capital lease
   obligation and other.......................           (28,264)                   (15,110)
                                                     -----------                -----------

    Net cash provided by financing activities            171,305                  1,207,274
                                                     -----------                -----------

  Increase (Decrease) in Cash.................         1,095,209                 (1,949,617)
  Cash, Beginning of Period...................         4,983,382                  6,759,984
                                                     -----------                -----------
  Cash, End of Period.........................       $ 6,078,591                $ 4,810,367
                                                     ===========                ===========
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements
                                       5
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


(1)      INTERIM FINANCIAL REPORTING

The  accompanying   unaudited   Consolidated  Financial  Statements  for  Action
Performance  Companies,  Inc. (the  "Company")  have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and the  instructions  to Form 10-Q.  Accordingly,  they do not  include all the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(which include only normal  recurring  adjustments)  necessary to present fairly
the financial  position,  results of  operations  and cash flows for the periods
presented have been made. The results of operations for the  three-month  period
ended December 31, 1996 are not necessarily  indicative of the operating results
that may be expected  for the entire year ending  September  30,  1997.  Certain
prior period amounts have been  reclassified to conform to the December 31, 1996
presentation.  These financial statements should be read in conjunction with the
Company's Form 10-KSB for the fiscal year ended September 30, 1996.

(2)      INVENTORIES

Inventories are stated at lower of cost (first-in,  first-out method) or market,
and consist of the following at December 31, 1996:

         Raw materials.............................. $  585,133
         Finished goods.............................  8,171,547
                                                     ----------
                                                     $8,756,680
                                                     ==========

(3)      PROPERTY AND EQUIPMENT

Property  and  equipment  are  recorded  at  cost  and  depreciated   using  the
straight-line  method over the estimated useful lives of the respective  assets,
which range from three to ten years.

Property and equipment consist of the following at December 31, 1996:

         Tooling and molds.......................... $ 9,050,547
         Furniture, fixtures and equipment..........   3,124,626
         Autos and trucks...........................   1,130,325
         Leasehold improvements.....................     602,616
                                                     -----------
                                                      13,908,114
         Less - accumulated depreciation............  (4,326,189)
                                                     -----------
                                                     $ 9,581,925
                                                     ===========

The cost of renewals and betterments that materially  extend the useful lives of
assets or increase their productivity are capitalized.

(4)      NET INCOME PER COMMON SHARE

Net income per common share is computed based on the weighted  average number of
common shares and common share equivalents  outstanding using the treasury stock
method,  except when common share equivalents have an antidilutive  effect.  All
share amounts and per share data have been  restated to reflect the  two-for-one
stock split effected as a stock dividend on May 28, 1996.

(5)      SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments  during the three months ended December 31, 1996 and 1995 included
interest of $49,287 and $8,437,  respectively,  and income taxes of $531,000 and
$1,370,000, respectively.
                                       6
<PAGE>
In November  1996,  the Company  purchased  substantially  all of the assets and
certain  liabilities of Sports Image,  Inc.  ("Sports Image") for  approximately
$30,000,000, consisting of a $24,000,000 promissory note due January 2, 1997 and
403,361 shares of the Company's common stock. Non-cash financing, investing, and
operating  activities for the three months ended December 31, 1996 include (i) a
$4,880,668  increase  to  common  stock  issued  for  the  acquisition;  (ii)  a
$29,616,620  increase  of  debt  and  liabilities  incurred  or  assumed  in the
acquisition;  and (iii) a $7,246,116 increase of assets, net of cash, assumed in
the acquisition.

During  the three  months  ended  December  31,  1995,  non-cash  financing  and
investing  activities included assets acquired under capital lease agreements of
approximately $233,000.

(6)      INCOME TAXES

Income taxes for the three month period ended December 31, 1996 were  calculated
by applying the  estimated  effective tax rate for the fiscal year to the income
before taxes.

(7)      BUSINESS COMBINATIONS

In November  1996,  the Company  purchased  substantially  all of the assets and
assumed   certain   liabilities   of  Sports  Image.   The  purchase  price  was
approximately  $30,000,000,  consisting  of a  $24,000,000  promissory  note due
January 2, 1997 and 403,361 shares of the Company's  Common Stock. On January 2,
1997, the Company repaid the $24,000,000  promissory note with the proceeds from
the issuance of senior notes and a portion of the borrowings under the Company's
new credit facility. See Note 8. Sports Image sells and distributes a variety of
licensed motorsports products through wholesale distributor networks,  corporate
sponsors,  and trackside  events.  Terms of this  acquisition were determined by
arms-length   negotiations   between   representatives   of  Sports   Image  and
representatives  of the Company.  In fiscal 1996, the Company derived 16% of its
net sales from Sports Image, a distributor of the Company's die-cast collectible
products.  Sports  Image  had sales of  approximately  $41,800,000  of  apparel,
die-cast replicas, souvenirs, and other motorsports consumer products during the
period  from  January  1, 1996 to  November  7, 1996  (which  includes  sales of
die-cast  collectibles  purchased  from  the  Company  at an  aggregate  cost of
approximately $5,800,000). This transaction was accounted for as a purchase.

Unaudited pro forma income statement data

The  following  unaudited pro forma  combined  financial  information  of Action
Performance Companies, Inc. for the fiscal year ended September 30, 1996 and the
three-month period ending December 31, 1996,  gives effect to the acquisition of
Sports Image,  as if it occurred on October 1, 1995 using the purchase method of
accounting for business combinations. The unaudited pro forma combined financial
information  presented  herein does not purport to represent  what the Company's
actual results of operations would have been had the acquisition of Sports Image
occurred on that date or to project the Company's  results of operations for any
future period.

                                        Fiscal Year Ended     Three Months Ended
                                        September 30, 1996    December 31, 1996
                                        ------------------    ------------------
                                          (Unaudited)            (Unaudited)

     Net Sales                             $82,787,000            $20,298,000

     Operating Income                       14,627,000              3,239,000

     Net Income                              7,572,000              1,802,000

     Net Income Per Common Share                 $0.56                  $0.13

                                       7
<PAGE>
(8)      SUBSEQUENT EVENTS

Business Combinations

On January 8, 1997, the Company acquired the business and  substantially  all of
the assets and assumed specified  liabilities of Motorsport  Traditions  Limited
Partnership  ("MTL") and acquired all of the capital stock of Creative Marketing
& Promotions,  Inc. ("CMP" and, together with MTL, "Motorsport Traditions") from
1995 Nascar Winston Cup Champion driver Jeff Gordon,  Kenneth R. Barbee, certain
entities controlled by Mr. Barbee, and certain other persons. The effective date
of the  acquisition  of Motorsport  Traditions is January 1, 1997.  The purchase
price paid by the Company for Motorsport Traditions consisted of (i) cash in the
amount  of  $5,400,000;  (ii) a  promissory  note  in the  principal  amount  of
$1,600,000  issued by a wholly owned  subsidiary  of the  Company;  and (iii) an
aggregate of 342,857 shares of the Company's  Common Stock.  The promissory note
bears  interest at 4% per annum,  matures on  December  31,  1998,  and has been
guaranteed by the Company. The terms of the acquisition, including the valuation
of the assets,  liabilities,  and capital  stock  acquired by the Company,  were
determined by arms-length  negotiations  between  representatives of the sellers
and representatives of the Company.  Motorsport Traditions sells and distributes
licensed  motorsports  products through a network of wholesale  distributors and
trackside  events.  Prior to the  acquisitions,  MTL and CMP together  generated
approximately  $25,000,000 in annual revenues from their design,  manufacturing,
and sales and distribution activities. This transaction will be accounted for as
a purchase.

Credit Facility

On January 2, 1997, the Company entered into a $16,000,000  credit facility with
First Union National Bank of North Carolina (the "Credit Facility").  The Credit
Facility  consists of a revolving line of credit for up to  $10,000,000  through
September 30, 1997,  and up to $6,000,000  from  September 30, 1997 to March 31,
1998  (the  "Line  of  Credit")  and  a  $6,000,000  letter  of  credit/bankers'
acceptances  facility (the "Letter of Credit/BA  Facility").  The Line of Credit
bears  interest,  at the  Company's  option,  at a rate  equal to either (i) the
greater  of (a) the  bank's  publicly  announced  prime  rate or (b) a  weighted
average  Federal  Funds  rate plus 0.5%,  or (ii)  LIBOR plus 1.9%.  The Line of
Credit is  guaranteed  by Sports Image and  Motorsport  Traditions.  The Company
utilized $4,000,000 of the Line of Credit to provide part of the cash portion of
the purchase price for Motorsport Traditions and an additional $4,000,000 of the
Line of Credit to repay a portion of the  $24,000,000  promissory note issued in
connection  with the  acquisition  of Sports  Image.  The  Letter  of  Credit/BA
facility is available for  issuances of letters of credit and eligible  bankers'
acceptances  in an aggregate  amount up to  $6,000,000  to enable the Company to
finance  purchases of products from its overseas  vendors.  The Credit  Facility
will mature on March 31, 1998. The Credit Facility  contains certain  provisions
that,  among other  things,  will  require  the  Company to comply with  certain
financial  ratios and net worth  requirements  and will limit the ability of the
Company and its subsidiaries to incur additional  indebtedness or to sell assets
or engage in cetain mergers or consolidations.

Sale of Senior Notes

On January 2, 1997,  the Company  issued an aggregate of  $20,000,000  principal
amount of senior notes (the "Senior  Notes") to three insurance  companies.  The
Senior  Notes  bear  interest  at the  rate of  8.05%  per  annum,  provide  for
semi-annual  payments of accrued  interest,  and will mature on January 2, 1999.
The  Company  may not prepay the Senior  Notes  prior to  maturity,  but will be
required  to offer to redeem  the  Senior  Notes in the  event of a  "Change  of
Control"  of the  Company,  as  defined in the Senior  Notes.  The Senior  Notes
contain certain provisions that, among other things, will require the Company to
comply with certain  financial ratios and net worth  requirements and will limit
the ability of the Company and its subsidiaries to incur additional indebtedness
or to sell  assets or engage in certain  mergers or  consolidations.  The Senior
Notes are  guaranteed  by Sports Image and  Motorsport  Traditions.  The Company
utilized  the  proceeds  from the  Senior  Notes to repay the  remainder  of the
promissory note issued in connection with the acquisition of Sports Image.
                                       8
<PAGE>
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
                            AND RESULTS OF OPERATIONS

Introduction

        The  Company  designs  and  markets  collectible   die-cast  and  pewter
miniature  replicas of  motorsports  vehicles  and designs and markets  licensed
apparel,  souvenirs,  and other motorsports consumer items,  including t-shirts,
hats, jackets,  mugs, key chains, and drink bottles. The Company also represents
popular   race  car   drivers  in  a  broad   range  of   licensing   and  other
revenue-producing   opportunities,   including   product   licenses,   corporate
sponsorships,  endorsement  contracts,  and speaking  engagements,  and develops
marketing and product promotional programs for corporate sponsors of motorsports
that feature the Company's die-cast replicas or other products as premium awards
intended  to  increase  brand  awareness  of the  products  or  services  of the
corporate  sponsors.  The  Company's  motorsports  collectibles  and apparel and
souvenir  products are  manufactured by third parties,  generally  utilizing the
Company's designs, tools, and dies.

        The Company was  incorporated in Arizona in May 1992 and began marketing
die-cast collectibles in July 1992. In August 1994, the Company acquired certain
assets and liabilities of Fan Fueler,  Inc. and began marketing product lines of
licensed motorsports  consumer products.  In November 1996, the Company acquired
the business of Sports Image, which markets and distributes licensed motorsports
apparel and other souvenir items.

Results of  Operations  of the Company for the Three Months  Ended  December 31,
1995 and 1996

        The Company had net income of  $1,568,000,  or $0.12 per share,  for the
three months ended December 31, 1996,  compared with net income of $878,000,  or
$0.07 per share,  for the three  months ended  December  31,  1995.  The Company
attributes the improvement in net income during the first quarter of fiscal 1997
primarily to (i) additional  revenue provided by Sports Image, which the Company
acquired in November 1996; (ii) growth in the motorsports collectible market and
the capture of additional market share, which enabled the Company to produce and
sell increased quantities of collectibles, and (iii) increased sales as a result
of growth in the Company's  retail  collector club,  which provides higher gross
margins.

        During the three  months ended  December  31, 1996 and 1995,  sales were
$15,175,000 and $8,006,000,  respectively.  The $7,169,000,  or 90%, increase in
sales  resulted from an increase of $4,945,000 in apparel and souvenir sales and
a $2,224,000 increase in collectible sales. The increase in apparel and souvenir
sales is a result of the business  activities of Sports Image, which the Company
acquired in  November  1996.  The  increase in  collectible  sales is  primarily
attributable to the continued growth in the motorsports  collectible  market and
the Company's ability to satisfy consumer demand for high-quality collectibles.

        Cost of  sales  increased  to  $8,780,000  for the  three  months  ended
December 31, 1996,  compared with $4,765,000 for the three months ended December
31, 1995, representing 58% and 60% of net sales,  respectively.  The decrease in
cost of sales as a percentage of sales resulted  primarily from (i) higher gross
margins associated with increased sales through the Company's retail collectors'
club and (ii) the effect of higher sales volume on fixed cost components of cost
of sales,  primarily  depreciation  charges  related  to the  Company's  tooling
equipment.  The decrease in cost of sales as a percentage of sales for the three
months ended  December 31, 1996, is partially  offset by the increase of apparel
and souvenir  sales,  which  provide  lower  margins than sales of the Company's
collectible products.

        During the three  months  ended  December  31,  1996 and 1995,  selling,
general,   and   administrative   expenses  were   $3,552,000  and   $1,872,000,
respectively,  representing  23% of net sales  during each of the  periods.  The
increase in such expenses resulted from the operating  expenses of Sports Image,
which the Company acquired in November 1996, and increased expenditures in sales
and marketing,  particularly increased advertising consistent with the Company's
strategy to increase collectors' club memberships and distributor sales.
                                       9
<PAGE>
        Interest  expense  increased  to  $301,000  for the three  months  ended
December 31, 1996,  compared with $8,000 for the three months ended December 31,
1995. The increase in interest  expense  resulted from accrued interest on notes
payable issued for the acquisition of Sports Image in November 1996.

Seasonality

        Sales of collectibles  and motorsports  consumer  products  historically
have been lowest in the fourth calendar quarter,  corresponding  with the end of
the racing  season.  The Company  believes,  however,  that holiday sales of its
products are increasing,  which has the effect of reducing seasonal fluctuations
in its sales.

Liquidity and Capital Resources

        The Company's  working  capital  position  increased to  $21,966,000  at
December  31, 1996 from  $18,094,000  at  September  30,  1996.  The increase of
$3,872,000 is primarily  attributable to the Company's results of operations and
working  capital  acquired  from the  purchase of Sports Image by the Company in
November 1996.

        The Company's  operations  provided net cash of  approximately  $990,000
during the three months ended December 31, 1996. The major elements contributing
to net operating  cash flow include  earnings from  operations  and uses of cash
from (i) decreases in accounts  payable  related to the payments for inventories
received  during the latter part of the fourth  quarter of fiscal 1996, and (ii)
royalty advances paid on new and existing multi-year license agreements.

        Capital  expenditures  for the three  months  ended  December  31,  1996
totalled approximately  $1,022,000, of which approximately $861,000 was utilized
for the Company's continued investment in tooling.

        During the three months ended  December  31,  1996,  the Company  issued
94,332  shares of Common  Stock upon the  exercise  of employee  stock  options,
resulting in total proceeds to the Company of approximately $418,000.

        In May 1996,  the Company  entered  into a new credit  agreement  with a
foreign bank. The credit agreement  provided the Company's  supplier of die-cast
collectible  products with security for the Company's  purchase orders,  up to a
limit of $5.0 million,  an increase of $1.5 million from the Company's  previous
agreement. The agreement also provided for an import cash line of credit of $1.0
million, which enabled the Company to finance its imports for up to 90 days from
the date of shipment. As of December 31, 1996, there were no amounts outstanding
on the import cash line of credit.  Total purchase  commitments of approximately
$1,801,000  at December 31, 1996 were  secured by the assets of the Company.  In
January 1997, the Company entered into the new Credit Facility and issued Senior
Notes, as described  below, to replace the previous credit  agreement as well as
to provide financing for recent acquisitions.

        In November 1996, the Company purchased  substantially all of the assets
and  assumed  certain  liabilities  of  Sports  Image,  Inc.  The  purchase  was
approximately  $30,000,000,  consisting  of a  $24,000,000  promissory  note due
January 2, 1997 and 403,361 shares of the Company's  Common Stock. On January 2,
1997, the Company repaid the promissory note with the proceeds from the issuance
of Senior  Notes and a  portion  of the  borrowings  under the  Credit  Facility
described  below.  Sports  Image  sells and  distributes  a variety of  licensed
motorsports products through wholesale distributor networks, corporate sponsors,
and  trackside  events.  The  terms  of  this  acquisition  were  determined  by
arms-length   negotiations   between   representatives   of  Sports   Image  and
representatives  of the Company.  In fiscal 1996, the Company derived 16% of its
net sales from Sports Image, a distributor of the Company's die-cast collectible
products.
                                       10
<PAGE>
        In January 1997, the Company  acquired  substantially  all of the assets
and certain liabilities of Motorsport  Traditions Limited Partnership and all of
the capital  stock of Creative  Marketing & Promotions,  Inc. for  approximately
$13,000,000 consisting of cash in the amount of $5,400,000, a promissory note in
the principal  amount of  $1,600,000,  and an aggregate of 342,857 shares of the
Company's  Common  Stock.  The  terms of the  acquisitions  were  determined  by
arms-length   negotiations   between   representatives   of  the   sellers   and
representatives  of the Company.  Motorsports  Traditions  sells and distributes
licensed  motorsports  products through a network of wholesale  distributors and
trackside events.  Prior to the acquisition,  Motorsports  Traditions  generated
approximately $25,000,000 in annual revenues from its design, manufacturing, and
sales and distribution activities.

        On January 2, 1997,  the Company  entered  into the  $16,000,000  Credit
Facility with First Union National Bank of North  Carolina.  The Credit Facility
consists of a revolving line of credit for up to $10,000,000  through  September
30, 1997,  and up to $6,000,000  from September 30, 1997 to March 31, 1998 and a
$6,000,000 letter of credit/bankers'  acceptances  facility.  The Line of Credit
bears  interest,  at the  Company's  option,  at a rate  equal to either (i) the
greater  of (a) the  bank's  publicly  announced  prime  rate or (b) a  weighted
average  Federal  Funds  rate plus 0.5%,  or (ii)  LIBOR plus 1.9%.  The Line of
Credit is  guaranteed  by Sports Image and  Motorsport  Traditions.  The Company
utilized $4,000,000 of the Line of Credit to provide part of the cash portion of
the purchase price for Motorsport Traditions and an additional $4,000,000 of the
Line of Credit to repay a portion of the  $24,000,000  promissory note issued in
connection  with the  acquisition  of Sports  Image.  The  Letter  of  Credit/BA
Facility is available for  issuances of letters of credit and eligible  bankers'
acceptances  in an aggregate  amount up to  $6,000,000  to enable the Company to
finance  purchases of products from its overseas  vendors.  The Credit  Facility
will mature on March 31, 1998. The Credit Facility  contains certain  provisions
that,  among other  things,  will  require  the  Company to comply with  certain
financial  ratios and net worth  requirements  and will limit the ability of the
Company and its subsidiaries to incur additional  indebtedness or to sell assets
or engage in certain mergers or consolidations.

        On January 2, 1997,  the  Company  issued an  aggregate  of  $20,000,000
principal amount of Senior Notes to three insurance companies.  The Senior Notes
bear interest at the rate of 8.05% per annum,  provide for semi-annual  payments
of accrued  interest,  and will  mature on January 2, 1999.  The Company may not
prepay the Senior  Notes  prior to  maturity,  but will be  required to offer to
redeem the Senior Notes in the event of a "Change of Control" of the Company, as
defined in the Senior Notes.  The Senior Notes contain certain  provisions that,
among other  things,  will require the Company to comply with certain  financial
ratios and net worth  requirements and will limit the ability of the Company and
its subsidiaries to incur additional indebtedness or to sell assets or engage in
certain  mergers or  consolidations.  The Senior Notes are  guaranteed by Sports
Image and  Motorsport  Traditions.  The Company  utilized the proceeds  from the
Senior Notes to repay the remainder of the promissory  note issued in connection
with the acquisition of Sports Image.

        The  Company  believes  that its  current  cash  resources,  the  Credit
Facility,  and expected cash flow from operations will be sufficient to fund the
Company's  capital  needs  during  the next 12  months at its  current  level of
operations, apart from capital needs resulting from any additional acquisitions.
However,  the Company may be required to obtain  additional  capital to fund its
planned  growth  during the next 12 months and beyond,  particularly  to provide
guarantees under licensing  arrangements or to obtain  international  letters of
credit in connection  with purchase  orders from its off-shore  manufacturer  of
die-cast  collectibles.  Potential  sources of any such  capital may include the
proceeds from the exercise of outstanding  options,  bank  financing,  strategic
alliances,  and additional offerings of the Company's equity or debt securities.
There can be no assurance  that such  capital  will be  available  from these or
other  potential  sources,  and the lack of such  capital  could have a material
adverse affect on the Company's business.
                                       11
<PAGE>
         PART II - OTHER INFORMATION

         ITEM 1.  Legal Proceedings

                  Not applicable

         ITEM 2.  Changes in Securities

                  On  November  7, 1996,  the  Company  issued an  aggregate  of
                  403,361  shares of Common  Stock  valued  at an  aggregate  of
                  $6,000,000 to Earnhardt  Investments,  Inc., Joseph M. Mattes,
                  David M.  Furr,  Donald  G.  Hawk,  Jr.,  and  Christopher  L.
                  Williams as a portion of the consideration paid by the Company
                  for the business,  assets,  and certain  liabilities of Sports
                  Image,  Inc.  The shares of Common  Stock were issued  without
                  registration in reliance on the exemption  provided by Section
                  4(2) under the Securities Act of 1933, as amended.

         ITEM 3.  Defaults Upon Securities

                  Not applicable

         ITEM 4.  Submissions of Matters to a Vote of Security Holders

                  Not applicable

         ITEM 5.  Other Information

                  Not applicable

         ITEM 6.  Exhibits and Reports on Form 8-K

                  (a)  Exhibits

                       10.33    Asset Purchase Agreement dated as of November 7,
                                1996, among Action Performance Companies,  Inc.,
                                SII Acquisition,  Inc., Sports Image,  Inc., and
                                R. Dale Earnhardt and Teresa H. Earnhardt (1)
                       10.34    Promissory  Note dated  November 7, 1996, in the
                                principal  amount of  $24,000,000  issued by SII
                                Acquisition,  Inc.,  as Maker,  to Sports Image,
                                Inc.,  as  Payee,  together  with  Guarantee  of
                                Action Performance Companies, Inc. (1)
                       10.35    Security   Agreement  dated  November  7,  1996,
                                between Sports Image,  Inc. and SII Acquisition,
                                Inc. (1)
                       10.36    Registration  Agreement  dated November 7, 1996,
                                among Action Performance Companies, Inc., Sports
                                Image, Inc., and R. Dale Earnhardt and Teresa H.
                                Earnhardt (1)
                       10.37    License  Agreement dated as of November 7, 1996,
                                among SII Acquisition, Inc., Dale Earnhardt, and
                                Action Performance Companies, Inc. (1)
                       10.38    Employment  Agreement  dated as of  November  7,
                                1996, between Action Performance Companies, Inc.
                                and Joe Mattes (1)
                       11.1     Computation of Primary Earnings Per Share
                       11.2     Computation of Fully Diluted Earnings Per Share
                       27       Financial Data Schedule
                       ----------
                       (1)  Incorporated by reference to the  Registrant's  Form
                       8-K filed with the Securities and Exchange  Commission on
                       November  22,  1996,  as amended  by Form 8-K/A  filed on
                       January 13, 1997.

                    (b)Reports on Form 8-K 

                       On November 22, 1996,  the Company filed a Current Report
                       on Form 8-K dated  November  7, 1996,  as amended by Form
                       8-K/A  filed  on  January   13,   1997,   reporting   the
                       acquisition of Sports Image, Inc. 
                                       12
<PAGE>
                                   SIGNATURES


           Pursuant to the requirements 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.

                       ACTION PERFORMANCE COMPANIES, INC.



<TABLE>
<CAPTION>
Signature                                         Capacity                                 Date
---------                                         --------                                 ----
<S>                           <C>                                                  <C> 
/s/ Fred W. Wagenhals         Chairman of the Board, President, and                February 14, 1997
---------------------                 Chief Executive Officer      
Fred W. Wagenhals                     (Principal Executive Officer)
                                      


/s/ Christopher S. Besing     Vice President, Chief Financial Officer,             February 14, 1997
-------------------------             Treasurer, and Director (Principal 
Christopher S. Besing                 Financial and Accounting Officer)  
</TABLE>
                                       13