SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

[X]      QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934


                For the quarterly period ended December 31, 1997

                         Commission file number 0-21630


                       ACTION PERFORMANCE COMPANIES, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

         ARIZONA                                         86-0704792
------------------------                    ------------------------------------
(State of Incorporation)                    (I.R.S. Employer Identification No.)

                              4707 E. Baseline Road
                                Phoenix, AZ 85040
                                 (602) 337-3700
    ------------------------------------------------------------------------
    (Address, including zip code, and telephone number, including area code,
                        of principal executive offices)




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No
                                      ---   ---

As of  February  10,  1998,  there  were  outstanding  16,034,044  shares of the
registrant's Common Stock, par value $.01 per share.
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                 As of December 31, 1997 and September 30, 1997
                        (in thousands, except share data)


                                                    December 31,   September 30,
                                                        1997           1997
                                                    -----------    ------------
                                                    (Unaudited)
ASSETS                                                            
------                                                            
                                                                  
CURRENT ASSETS:                                                   
  Cash and cash equivalents .......................  $  8,482        $ 29,318
  Accounts receivable, net of allowance for                       
   doubtful accounts of $895 and $837,                            
   respectively ...................................    22,524          17,802
  Inventories, net ................................    24,479          17,855
  Prepaid royalties ...............................     8,329           4,967
  Prepaid expenses and other assets ...............     1,829           2,603
                                                     --------        --------
                                                                  
    Total current assets ..........................    65,643          72,545
                                                                  
PROPERTY AND EQUIPMENT, net .......................    25,512          20,017
                                                                  
GOODWILL AND OTHER INTANGIBLES, net ...............    71,341          46,409
                                                                  
NOTES RECEIVABLE AND OTHER ASSETS .................     2,468           2,354
                                                     --------        --------
                                                     $164,964        $141,325
                                                     ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY                              
------------------------------------                              
                                                                  
CURRENT LIABILITIES:                                              
  Accounts payable ................................    11,780        $  6,680
  Accrued royalties ...............................     5,871           5,098
  Accrued expenses and other ......................     6,312           3,792
                                                     --------        --------
                                                                  
    Total current liabilities .....................    23,963          15,570
                                                                  
LONG-TERM DEBT:                                                   
  Senior notes payable ............................    20,000          20,000
  Other long-term debt ............................    13,002           2,586
                                                     --------        --------
    Total long-term debt ..........................    33,002          22,586
                                                                  
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; 16,012,296 and 15,952,083 shares                   
   issued and outstanding, respectively ...........       160             160
  Additional paid-in capital ......................    86,158          84,984
  Retained earnings ...............................    21,681          18,025
                                                     --------        --------
    Total shareholders' equity ....................   107,999         103,169
                                                     --------        --------
                                                     $164,964        $141,325
                                                     ========        ========
                                                                 
                 The accompanying notes are an integral part of
                        these consolidated balance sheets
                                        2
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              For The Three Months Ended December 31, 1997 and 1996

                      (in thousands, except per share data)

                                                          1997           1996
                                                       --------       --------
                                                      (Unaudited)    (Unaudited)

Sales:
  Collectibles .................................       $ 19,925       $  9,872
  Apparel and souvenirs ........................         21,390          5,212
  Promotional ..................................          1,014             50
  Other ........................................            589             41
                                                       --------       --------
    Net sales ..................................         42,918         15,175

Cost of sales ..................................         27,862          8,780
                                                       --------       --------

Gross profit ...................................         15,056          6,395

Operating expenses:
  Selling, general and
   administrative expenses .....................          8,200          3,398
  Amortization of goodwill and
   other intangibles ...........................            481            154
                                                       --------       --------
    Total operating expenses ...................          8,681          3,552
                                                       --------       --------
Income from operations .........................          6,375          2,843


Other income (expense):
  Interest income and other, net ...............            292             72 
  Interest expense .............................           (574)          (302)
                                                       --------       -------- 
    Total other income (expense) ...............           (282)          (230)
                                                       --------       -------- 
                                                       
Income before provision for
  income taxes .................................          6,093          2,613

Provision for income taxes .....................          2,437          1,045
                                                       --------       --------

NET INCOME .....................................       $  3,656       $  1,568
                                                       ========       ========

NET INCOME PER COMMON SHARE:        
  Basic ........................................       $   0.23       $   0.12 
                                                       ========       ========
  Diluted ......................................       $   0.22       $   0.12 
                                                       ========       ======== 
                                                                               
WEIGHTED AVERAGE SHARES OUTSTANDING: 
  Basic ........................................         15,994         12,903
                                                       ========       ========
  Diluted ......................................         16,568         13,464 
                                                       ========       ========

                 The accompanying notes are an integral part of
                    these consolidated financial statements.
                                        3
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              For The Three Months Ended December 31, 1997 and 1996

                                 (in thousands)


                                                          1997           1996
                                                       ---------      ---------
                                                      (Unaudited)    (Unaudited)
Cash Flows from Operating Activities:                              
Net income .........................................   $  3,656       $  1,568
  Adjustments to reconcile net income to                           
   net cash provided by operating activities:                      
  Depreciation and amortization ....................      1,722            769
  Change in assets and liabilities, net of                         
   businesses acquired:                                            
    Accounts receivable ............................     (1,414)           (50)
    Inventories ....................................     (4,473)          (336)
    Prepaid royalties ..............................     (2,519)        (1,477)
    Prepaid expenses and other assets ..............        546            (92)
    Accounts payable ...............................      4,201         (1,172)
    Accrued royalties ..............................        773          1,078
    Accrued expenses and other .....................      1,530            702
                                                       --------       --------
     Net cash provided by operating activities .....      4,022            990
                                                                   
Cash Flows from Investing Activities:                              
  Purchase of property and equipment ...............     (4,417)        (1,022)
  Proceeds from sale of equipment ..................          5           --
  Acquisition of businesses and other                              
   intangibles, less cash acquired .................    (20,306)           956
                                                       --------       --------
    Net cash used in investing activities ..........    (24,718)           (66)
                                                                   
Cash Flows from Financing Activities:                              
  Borrowings on line of credit .....................       --            1,279
  Payments on line of credit .......................       --           (1,279)
  Net proceeds from exercise of stock options ......        174            418
  Payments on long-term debt .......................       (319)          (246)
  Collections on notes receivable ..................          5           --
                                                       --------       --------
    Net cash provided by (used in)                                 
     financing activities ..........................       (140)           172
                                                       --------       --------
                                                                   
  Net change in cash and cash equivalents ..........    (20,836)         1,096
  Cash and cash equivalents,                                       
   beginning of year ...............................     29,318          4,983
                                                       --------       --------
  Cash and cash equivalents, end of year ...........   $  8,482       $  6,079
                                                       ========       ========

                 The accompanying notes are an integral part of
                    these consolidated financial statements.
                                       4
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


(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, 1997 are not necessarily  indicative of the operating results
that may be expected  for the entire year ending  September  30,  1998.  Certain
prior period amounts have been  reclassified to conform to the December 31, 1997
presentation.  These financial statements should be read in conjunction with the
Company's Form 10-K for the fiscal year ended September 30, 1997.

(2)  SUPPLEMENTAL CASH FLOW INFORMATION

The  supplemental  cash  flow  disclosures  and  non-cash  transactions  for the
three-month  periods  ended  December  31,  1997  and 1996  are as  follows  (in
thousands):

                                                             1997          1996
                                                           -------       -------

Supplemental disclosures:
  Interest paid ....................................       $   126       $    49
  Income taxes paid ................................           853           531

Non-cash transactions:
  Common stock issued in acquisitions ..............       $  --         $ 4,881

  Common stock issued in license agreement .........         1,000          --
  Debt and liabilities incurred or
    assumed in acquisitions ........................        12,625        29,617

  Sale of equipment for notes receivable ...........            35          --

(3)  RECENT ACQUISITIONS AND LICENSE AGREEMENTS

On October 3, 1997, the Company entered into a ten-year  license  agreement with
Richard  Childress  Racing  Enterprises,  Inc.  ("RCR")  with respect to various
rights used in connection  with race vehicles  owned by RCR. In connection  with
this  agreement,  the  Company  paid RCR a license fee  consisting  of cash plus
34,940 shares of the Company's Common Stock. The license agreement also requires
the Company to pay to RCR royalties based on sales of licensed  products in each
year  during  the  term of the  agreement, subject  to  certain  minimum  annual
payments.

On December 9, 1997, the Company  acquired  certain  assets and assumed  certain
liabilities  related  to sales of  motorsports  merchandise  licensed  by NASCAR
Winston Cup driver Rusty Wallace from an affiliate of Mr. Wallace.  The purchase
price paid by the  Company  for the  acquired  assets  consists  of cash of $6.0
million,  of which $2.5 million was paid at the closing and the  remaining  $3.5
million will be paid during fiscal 1998. In connection  with the  acquisition of
the assets  and  assumption  of the  liabilities,  the  Company  entered  into a
seven-year  license agreement with another affiliate of Mr. Wallace for the name
and likeness of Mr.  Wallace and acquired a five-year  sublicense  with a wholly
owned subsidiary of Penske Motorsports, Inc. The
                                       5
<PAGE>
license agreement and sublicense  agreement both contain options that permit the
Company to renew those agreements for two five-year terms. The license agreement
with the affiliate of Mr. Wallace requires the Company to pay royalties on sales
of licensed products,  plus a license fee if sales of licensed products exceed a
specified  amount  each  year  during  the  initial  term of the  license.  This
transaction was accounted for as a purchase.

On December  19,  1997,  the  Company  acquired  the assets and assumed  certain
liabilities  related to the motorsports  die-cast  collectible  product lines of
Revell-Monogram,  Inc.  ("Revell").  The  preliminary  purchase  price  of $24.8
million,  which is subject to certain  adjustments,  consists of an initial cash
payment of $14.8  million and $1.0  million per year for 10 years  beginning  on
January 1, 1998,  provided that certain  conditions are met. Revell  distributed
die-cast  collectibles  through  a  network  of  wholesale  distributors  and  a
collectible  club,  which  together  generated  die-cast  collectible  sales  of
approximately  $20.0  million  during 1997.  The Company and Revell also entered
into a  10-year  license  agreement  under  which the  Company  has the right to
utilize  certain  "Revell"  trademarks in connection  with sales of its die-cast
products. This transaction was accounted for as a purchase.

(4)  UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS

The following unaudited pro forma combined statements of operations data for the
three-month  periods  ended  December  31, 1997 and 1996  present the results of
operations  of the Company as if the  acquisitions  of the  businesses  acquired
during  fiscal  1997 and the first  quarter of fiscal  1998 had  occurred  as of
October 1, 1996.  These  acquisitions  include  Sports Image,  Inc.,  Motorsport
Traditions,   Ltd.,   Creative  Marketing  &  Promotions,   Inc.,  Robert  Yates
Promotions,  Inc.,  Image  Works,  Inc.,  the  collectibles  business of Simpson
Products, Inc., the Rusty Wallace acquisition,  and the Revell acquisition.  Pro
forma results are as follows (in thousands, except per share data):

                                       Three Months Ended    Three Months Ended
                                        December 31, 1997     December 31, 1996
                                       -------------------   -------------------
                                                            
     Revenues........................       $ 48,505              $ 35,341
     Net income......................          3,974                 1,189
     Net income per common share.....       $   0.24              $   0.08
                                                          
(5)  CREDIT FACILITY

On January 2, 1997 the Company entered into a $16.0 million credit facility (the
"Credit Facility") with First Union National Bank of North Carolina.  The Credit
Facility,  as amended in April 1997, consists of a revolving line of credit (the
"Line of Credit") for up to $10.0 million  through  September 30, 1997 and up to
$6.0  million  from  September  30, 1997 to March 31,  1998 and a $10.0  million
letter  of  credit/bankers'  acceptances  facility  (the  "Letter  of  Credit/BA
Facility").  Effective  February 5, 1998,  the Line of Credit was  reinstated to
$10.0  million  from $6.0  million.  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 the Company's
subsidiaries. The Company had no outstanding borrowings under the Line of Credit
as of December 31,  1997.  The Letter of  Credit/BA  Facility is  available  for
issuances of letters of credit and eligible bankers' acceptances in an aggregate
amount up to $10.0  million  to enable  the  Company  to  finance  purchases  of
products  from its  overseas  vendors.  The  Company  had  outstanding  purchase
commitments of approximately $7.7 million under the Letter of Credit/BA Facility
as of December 31, 1997. The Credit  Facility will mature on March 31, 1998. The
Credit Facility  contains certain  provisions that, among other things,  require
the Company to comply with certain  financial ratios and net worth  requirements
and limit the ability of the Company and its  subsidiaries  to incur  additional
indebtedness, to sell assets, or to engage in certain mergers or consolidations.
                                       6
<PAGE>
(6)  COMMITMENTS AND CONTINGENCIES

The Company is subject to certain asserted and unasserted claims  encountered in
the normal  course of business.  The  imposition  of damages in certain of those
matters could have a material adverse effect on the Company's financial position
and results of operations.

(7)  SUBSEQUENT EVENTS

On January 8, 1998,  the Company  acquired  certain  assets and assumed  certain
liabilities of Brookfield  Collectors Guild, Inc.  ("Brookfield").  The purchase
price  consisted  of (i)  approximately  $800,000  in cash and (ii) up to 27,397
shares of Common  Stock,  subject  to  certain  adjustments,  to be issued on or
before  December 31, 1998. In addition,  the Company repaid  approximately  $1.8
million  of  the  assumed  liabilities  at  the  time  of  closing.   Brookfield
distributes  various motorsport  die-cast  collectibles and ensembles as well as
various other die-cast replicas.
                                       7
<PAGE>
ITEM 2.           MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS,
                  AND RESULTS OF OPERATIONS

Overview

         The  Company  designs  and  markets  licensed   motorsports   products,
including  die-cast  scaled  replicas  of  motorsports  vehicles,  apparel,  and
souvenirs.  The Company  also  develops  promotional  programs  for  sponsors of
motorsports that feature the Company's  die-cast  replicas or other products and
are  intended to increase  brand  awareness  of the  products or services of the
corporate sponsors. In addition, the Company 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.  The Company's  motorsports  collectibles and most of the
Company's  apparel and souvenirs are  manufactured  by third parties,  generally
utilizing the Company's designs,  tools, and dies. The Company screen prints and
embroiders a portion of the licensed motorsports apparel that it sells.

         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  licensed
motorsports consumer products.

         In November  1996, the Company  acquired  Sports Image,  Inc.  ("Sports
Image") and in January 1997 the Company acquired  Motorsport  Traditions Limited
Partnership and Creative Marketing and Promotions,  Inc.  (together  "Motorsport
Traditions"),  each of  which  marketed  and  distributed  licensed  motorsports
apparel,  die-cast  collectibles  and other  souvenir  items.  In July 1997, the
Company acquired Robert Yates  Promotions,  Inc.  ("RYP"),  which had operations
similar to those of Sports  Image and  Motorsport  Traditions,  and Image Works,
Inc.  ("Image  Works"),  which  manufactures  and markets  licensed  motorsports
apparel through the  mass-merchandising  markets.  The Company  acquired certain
assets and assumed certain  liabilities  related to the mini-helmet  collectible
business of Simpson Products, Inc. ("Simpson") in August 1997.

         In December  1997,  the  Company  acquired  certain  assets and assumed
certain liabilities  related to sales of motorsports merchandise for Winston Cup
driver Rusty Wallace (the "Rusty Wallace  Acquisition").  These  operations were
similar to those of Sports  Image and  included  both  wholesale  and  trackside
distribution  of apparel and  souvenirs.  In  December  1997,  the Company  also
acquired  certain assets and assumed  certain  liabilities  associated  with the
motorsports die-cast collectible business of Revell-Monogram,  Inc. (the "Revell
Acquisition").  This transaction  also creates a strategic  alliance between the
Company and  Revell-Monogram,  Inc.  ("Revell") for the use of certain  "Revell"
trademarks  and the marketing of Revell's  plastic model kits. The operations of
the Rusty  Wallace-related  merchandise  will be consolidated  into the existing
Sports Image  facility in Charlotte,  North  Carolina  while the  Revell-related
operations  will be  consolidated  into the Company's  headquarters  in Phoenix,
Arizona.

Results of Operations

         The  following  table  sets  forth,  for  the  periods  indicated,  the
percentage of total revenue represented by certain expense and revenue items.

                                                          Three Months Ended
                                                             December 31,
                                                       -------------------------
                                                          1997          1996
                                                          ----          ----
                                                       (Unaudited)   (Unaudited)
Sales:                                                               
    Collectibles sales,net .........................      46.4%         65.1%
    Apparel and souvenir sales, net ................      49.8%         34.3%
    Promotional sales, net .........................       2.4%           .3%
    Other sales, net ...............................       1.4%           .3%
                                                         ------        ------
        Net sales ..................................     100.0%        100.0%
Cost of sales ......................................      64.9%         57.9%
                                                         ------        ------
Gross Profit .......................................      35.1%         42.1%
Selling, general and administrative expenses .......      19.1%         22.4%
Amortization of goodwill and other intangibles .....       1.1%          1.0%
                                                         ------        ------
Income from operations .............................      14.9%         18.7%
Interest income (expense) and other, net ...........       (.7)%        (1.5)%
                                                         ------        ------
Income before provision for income taxes ...........      14.2%         17.2%
Provision for income taxes .........................      (5.7)%        (6.9)%
                                                         ------        ------
Net income .........................................       8.5%         10.3%
                                                         ======        ======
                                       8
<PAGE>
Three Months Ended  December 31, 1997 Compared with Three Months Ended  December
31, 1996

         Net sales  increased  183% to $42.9  million for the three months ended
December 31, 1997 from $15.2  million for the three  months  ended  December 31,
1996. The Company  attributes the  improvement in sales during the first quarter
of  fiscal  1998  primarily  to (i)  revenue  from  the  Company's  fiscal  1997
acquisitions,  (ii) the Company's  ability to capitalize on the continued strong
growth in the base of motorsports  enthusiasts and to produce and sell increased
quantities of souvenirs,  apparel,  and die-cast collectible goods; and (iii) an
increase in membership in the Company's Racing  Collectables  Club of America to
approximately  108,000  members at December 31, 1997 from  approximately  79,000
members at December 31, 1996.

         Gross profit  increased to $15.1 million in the first quarter of fiscal
1998 from $6.4 million in the first quarter of fiscal 1997,  representing  35.1%
and  42.1%  of net  sales,  respectively.  The  decrease  in gross  profit  as a
percentage of net sales resulted from increased  sales of apparel and souvenirs,
which  typically  provide  lower  margins than sales of the  Company's  die-cast
collectible products.  Sales of apparel and souvenirs grew to 49.8% of net sales
in the three  months  ended  December  31,  1997 from 34.3% for the  three-month
period  ended  December  31,  1996,  primarily  as a result of the  acquisitions
completed in fiscal 1997.

         Selling,  general and administrative expenses increased to $8.2 million
in the  three-month  period  ended  December  31, 1997 from $3.4  million in the
three-month period ended December 31, 1996,  representing 19.1% and 22.4% of net
sales,  respectively.  The decrease in such  expenses as a  percentage  of sales
resulted   primarily  from  cost  savings  achieved  with  the  integration  and
consolidation  of  operations  of the  businesses  acquired in fiscal 1997.  The
integration and consolidation  included the relocation of Motorsport  Traditions
into Sport Image's facility,  the integration of management information systems,
and a reduction in excess labor.

         Amortization  of goodwill and other  intangibles  increased to $481,000
for the  three-month  period  ended  December  31,  1997 from  $154,000  for the
three-month  period ended  December 31, 1996.  The increase in  amortization  of
goodwill and other  intangibles is related to the  acquisitions of Sports Image,
Motorsport  Traditions,  and other entities.  The Company recorded  goodwill and
other   intangibles  of  $47.7  million  in  connection  with  the  fiscal  1997
acquisitions,  and recorded an  additional  $25.4  million of goodwill and other
intangibles  from the  acquisitions  completed in the  three-month  period ended
December 31, 1997. The Company is amortizing the goodwill and other  intangibles
over a period of 10 to 25 years.

         The change in interest income  (expense) and other,  net, was primarily
attributable  to an  increase  in  interest  expense of  approximately  $272,000
related to debt incurred in connection with the acquisitions of Sports Image and
Motorsport Traditions, offset by an increase in interest income of approximately
$220,000  related to proceeds from the Company's  Common Stock  offering in June
1997.

Pro Forma Results of Operations

         The following table sets forth the unaudited pro forma income statement
data of the Company for the three-month period ended December 31, 1997 and 1996,
giving effect to the acquisitions of Sports Image,  Motorsport Traditions,  RYP,
Image Works, Simpson, the Rusty Wallace Acquisition, and the Revell Acquisition,
as if they had  occurred  on  October  1,  1996,  using the  purchase  method of
accounting for business  combinations.  The unaudited pro forma income statement
data presented  herein does not purport to represent  what the Company's  actual
results of operations  would have been had those  acquisitions  occurred on that
date or to project the Company's results of operations for any future period.

                                           (in thousands, except per share data)
                                                For the Three Months Ended
                                           -------------------------------------
                                           December 31, 1997   December 31, 1996
                                           -----------------   -----------------
                                              (Unaudited)         (Unaudited)

Net sales ................................      $48,505             $35,341
Net income ...............................        3,974               1,189
Net income per common share ..............      $  0.24             $  0.08
                                       9
<PAGE>
         The pro forma  results  shown  above do not  account  for  efficiencies
gained upon the  consolidation  of  operations,  including  the  elimination  of
duplicative functions and reduction of salaries expense and other related costs.
The pro forma results of operations  for the  three-month  period ended December
31, 1997 and 1996 reflect the  amortization  of goodwill  and other  intangibles
arising from the acquisitions  described above and include  additional  interest
expense  associated  with the financing of the  acquisitions of Sports Image and
Motorsport Traditions.

Seasonality

         Because the auto racing  season is  concentrated  between the months of
February and November,  the second and third calendar quarters of each year (the
Company's  third and fourth  fiscal  quarters)  generally are  characterized  by
higher sales of motorsports  products.  The Company believes,  however, that the
acquisitions described above have provided additional distribution channels that
increase holiday sales, with the effect of reducing seasonal fluctuations.

Liquidity and Capital Resources

         The Company's  working capital  position  decreased to $41.7 million at
December  31, 1997 from $57.0  million at September  30,  1997.  The decrease of
$15.3  million  is  primarily  attributable  to the  purchase  prices  paid  and
liabilities assumed in the Rusty Wallace Acquisition and the Revell Acquisition.

         Capital expenditures for the three-month period ended December 31, 1997
totaled  approximately  $4.4 million,  of which  approximately  $3.5 million was
utilized for the Company's continued investment in tooling.

         During the  three-month  period ended  December  31, 1997,  the Company
issued  25,273  shares of  Common  Stock  upon the  exercise  of stock  options,
resulting in total proceeds to the Company of approximately $200,000.

         On October 3, 1997 the Company  issued 34,940 shares of common stock to
RCR as a portion of the license fee pursuant to a license agreement entered into
between the Company and RCR on that date.

         On January 2, 1997 the  Company  entered  into a $16.0  million  credit
facility  (the  "Credit  Facility"),  with First  Union  National  Bank of North
Carolina. The Credit Facility, as amended in April 1997, consists of a revolving
line of credit (the "Line of Credit") for up to $10.0 million through  September
30, 1997 and up to $6.0 million from  September 30, 1997 to March 31, 1998 and a
$10.0 million  letter of  credit/bankers'  acceptances  facility (the "Letter of
Credit/BA  Facility").  Effective  February  5,  1998,  the Line of  Credit  was
reinstated  to  $10.0  million  from  $6.0  million.  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 the Company's  subsidiaries.  The Company had no outstanding borrowings under
the Line of Credit as of December 31,1997.  The Letter of Credit/BA  Facility is
available for issuances of letters of credit and eligible  bankers'  acceptances
in an  aggregate  amount up to $10.0  million to enable  the  Company to finance
purchases of products  from its overseas  vendors.  The Company had  outstanding
purchase commitments of approximately $7.7 million under the Letter of Credit/BA
Facility as of December 31, 1997.  The Credit  Facility will mature on March 31,
1998. The Credit Facility contains certain  provisions that, among other things,
require  the  Company  to comply  with  certain  financial  ratios and net worth
requirements  and limit the ability of the Company and its subsidiaries to incur
additional  indebtedness,  to sell  assets,  or to engage in certain  mergers or
consolidations.

         On January 2, 1997,  the Company  issued an aggregate of $20.0  million
principal  amount of senior  notes to three  insurance  companies  (the  "Senior
Notes").  The Senior Notes bear interest at the rate of 8.05% per annum, provide
for semi-annual payments of accrued interest, and mature on January 2, 1999. The
Company  may not prepay the Senior  Notes prior to  maturity,  but must 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,  require the Company to comply with certain financial ratios
and net  worth  requirements  and  limit  the  ability  of the  Company  and its
subsidiaries  to incur  additional  indebtedness,  to sell  assets  or engage in
certain  mergers or  consolidations.  The  Senior  Notes are  guaranteed  by the
Company's subsidiaries.

         On December 9, 1997,  the Company  acquired  certain assets and assumed
certain  liabilities  related to sales of  motorsports  merchandise  licensed by
NASCAR Winston Cup driver Rusty Wallace for approximately  $6.0 million in cash.
The  Company  paid $2.5  million  at  closing,  with the  remainder  due in four
installments ending September 30, 1998. In connection with the acquisition,  the
Company entered into a seven-year license agreement for the name and likeness of
Mr.  Wallace.  The terms of this  acquisition  were  determined  by  arms-length
negotiations  between  representatives of Mr. Wallace and representatives of the
Company.
                                       10
<PAGE>
         On December 19, 1997,  the Company  completed  the Revell  Acquisition,
pursuant  to  which  the  Company   acquired  the  assets  and  assumed  certain
liabilities related to Revell's  motorsports die-cast collectible product lines.
The  preliminary  purchase price of $24.8  million,  which is subject to certain
adjustments,  consists  of an initial  cash  payment of $14.8  million  and $1.0
million  per year for 10 years  beginning  on  January 1,  1998,  provided  that
certain  conditions  are met.  Revell  had  sales of  die-cast  collectibles  of
approximately $20.0 million during 1997. The Company currently intends to market
the Revell-trademarked  products through its existing distribution channels, but
with different  features and at different price points from its current lines of
die-cast  collectibles.  The  Company  and Revell  also  entered  into a 10-year
license  agreement  under  which the  Company  has the right to utilize  certain
Revell  trademarks  in  connection  with  sales  of its  die-cast  products.  In
addition,  the Company and Revell  have  formed a long-term  strategic  alliance
under which (i) the Company will assist Revell to obtain  licenses with top race
car drivers for Revell's line of plastic  model kits;  (ii) Revell has appointed
the Company as the exclusive  distributor  for trackside sales of Revell plastic
model kits and as a non-exclusive distributor for retail sales of Revell plastic
model kits through the Company's wholesale  distribution  network; and (iii) the
Company will manufacture  certain  Revell-trademarked  die-cast  collectibles to
enable Revell to fulfill commitments for 1998 mass market sales, and the Company
will manufacture other licensed motorsports die-cast products for Revell's sales
as  promotional  and  premium  products.  The  terms  of this  acquisition  were
determined by arms-length  negotiations  between  representatives  of Revell and
representatives of the Company.

         The  Company  is  subject to certain  asserted  and  unasserted  claims
encountered  in the normal  course of  business.  The  imposition  of damages in
certain of those matters could have a material  adverse  effect on the Company's
financial position and results of operations.

         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  additional  acquisitions.
However,  the Company may be required to obtain  additional  capital to fund its
planned  growth during the next 12 months and beyond.  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 effect on the Company's business.

         This report contains forward-looking  statements,  including statements
regarding the Company's business  strategies,  the Company's  business,  and the
industry in which the Company  operates.  These  forward-looking  statements are
based  primarily on the  Company's  expectations  and are subject to a number of
risks and uncertainties,  some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking  statements as a result
of numerous  factors,  including  those set forth in the Company's Form 10-K for
the year ended  September  30, 1997, as filed with the  Securities  and Exchange
Commission.
                                       11
<PAGE>
           PART II - OTHER INFORMATION

           ITEM 1.  Legal Proceedings

                  Not applicable

           ITEM 2.  Changes in Securities

                  On October 3, 1997 the Company  issued 34,940 shares of common
                  stock valued at $28.62 per share to Richard  Childress  Racing
                  Enterprises,  Inc. as a portion of the license fee pursuant to
                  a license  agreement  entered into between the Company and RCR
                  on that date.

           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

                            10.51  Asset Purchase Agreement dated as of December
                                   19,   1997   between    Action    Performance
                                   Companies, Inc. and Revell-Monogram, Inc. (1)
                            11.1   Computation of Basic Earnings Per Share
                            11.2   Computation of Diluted Earnings Per Share
                            27     Financial Data Schedule

                     (1)    Incorporated   by   reference   to   the   Company's
                            Registration Statement on Form S-3 (Registration No.
                            333-45991),   as  filed  with  the   Securities  and
                            Exchange Commission on February 10, 1998.

                     (b)    Reports on Form 8-K

                            Not applicable
                                       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 13, 1998
-------------------------         Chief Executive Officer
Fred W. Wagenhals                 (Principal Executive Officer)
                               
                               
/s/ Christopher S. Besing         Vice President, Chief Financial Officer,           February 13, 1998
-------------------------         Treasurer, and Director
Christopher S. Besing             (Principal Financial and Accounting Officer)
</TABLE>
                            
                                       13