UNITED STATES
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 March 31, 2001

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period ended _____________

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___

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

|                              |  |                              
|----------------------------- |  | -----------------------------
|CLASS                         |  | OUTSTANDING AT APRIL 30, 2001
|Common Stock, $0.01 Par Value |  | 16,023,625 shares            



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PART I- FINANCIAL INFORMATION

ITEM 1. Financial Statements

2



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ACTION PERFORMANCE COMPANIES, INC.
Condensed Consolidated Balance Sheets
March 31, 2001 and September 20, 2000
(in thousands, except per share data)

|                                         |                                                                                         |                            |         |             |         |   |           |         |         | 
|---------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------- | ------- | - | --------- | ------- | ------- | 
|                                         |                                                                                         |                            |         | March 31,   |         |   | Sept. 30, |        
|                                         |                                                                                         |                            |         | 2001        |         |   | 2000      |        
|                                         |                                                                                         |                            |         |             |         |   |           |        
|                                         |                                                                                         |                            |         | (Unaudited) |        
|ASSETS                                  
|                                        
|                                        
|                                        
|                                        
|Current Assets:                         
|                                        
|                                        
|                                        
|                                        
|                                         | Cash and cash equivalents                                                               |                            | $       | 35,559      |         |   | $         | 22,758  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts receivable, net                                                                |                            |         | 32,453      |         |   |           | 22,901  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Inventories                                                                             |                            |         | 26,255      |         |   |           | 32,017  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Prepaid royalties                                                                       |                            |         | 10,223      |         |   |           | 7,262   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Estimated income tax receivable                                                         |                            |         |            |         |   |           | 14,000  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Deferred tax asset                                                                      |                            |         | 3,257       |         |   |           | 5,905   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Prepaid expenses and other assets                                                       |                            |         | 1,742       |         |   |           | 1,942   |        
|                                         |                                                                                         |                            |         |             |         |  
|                                         |                                                                                         | Total Current Assets       |         |             | 109,489 |   |           |         | 106,785 | 
|                                        
|                                        
|                                        
|                                        
|Property and Equipment, net              |                                                                                         |                            | 43,324  |             |         |   | 46,066    |        
|                                        
|                                        
|                                        
|                                        
|Goodwill and Other Intangibles, net      |                                                                                         |                            | 89,188  |             |         |   | 94,894    |        
|                                        
|                                        
|                                        
|                                        
|Long-Term Deferred Tax Asset             |                                                                                         |                            |        |             |         |   | 1,423     |        
|                                        
|                                        
|                                        
|                                        
|Other Assets                             |                                                                                         |                            | 5,082   |             |         |   | 6,749     |        
|                                         |                                                                                         |                            |         |             |         |  
|                                         |                                                                                         | $                          | 247,083 |             |         | $ | 255,917   |        
|                                         |                                                                                         |                            |         |             |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY    
|                                        
|                                        
|                                        
|                                        
|Current Liabilities:                    
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts payable                                                                        |                            | $       | 15,867      |         |   | $         | 16,510  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Accrued royalties                                                                       |                            |         | 11,099      |         |   |           | 9,998   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Accrued expenses and other                                                              |                            |         | 14,377      |         |   |           | 14,250  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Current portion of long-term debt                                                       |                            |         | 1,541       |         |   |           | 1,503   |        
|                                         |                                                                                         |                            |         |             |         |  
|                                         |                                                                                         | Total Current Liabilities  |         |             | 42,884  |   |           |         | 42,261  | 
|                                         |                                                                                         |                            |         |             |         |  
|4 3/4% Convertible Subordinated Notes    |                                                                                         |                            | 81,900  |             |         |   | 100,000   |        
|                                        
|                                        
|                                        
|                                        
|Other Long-term Debt and Liabilities     |                                                                                         |                            | 9,243   |             |         |   | 8,340     |        
|                                        
|                                        
|                                        
|                                        
|Commitments and Contingencies            |                                                                                         |                            | 3,433   |             |         |   | 2,598     |        
|                                        
|                                        
|                                        
|                                        
|Minority Interests Shareholders Equity:
|                                        
|                                        
|                                        
|                                        
|                                         | Common stock, $.01 par value, 25,000 shares authorized, 16,968 and
16,964 shares issued |                            |         | 170         |         |   |           | 170     |        
|                                        
|                                        
|                                        
|                                        
|                                         | Additional paid-in capital                                                              |                            |         | 103,298     |         |   |           | 102,813 |        
|                                        
|                                        
|                                        
|                                        
|                                         | Treasury stock at cost, 962 and 592 shares                                              |                            |         | (7,895      | )       |   |           | (6,520  | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Accumulated other comprehensive loss                                                    |                            |         | (7,454      | )       |   |           | (6,639  | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Retained earnings                                                                       |                            |         | 21,504      |         |   |           | 12,894  |        
|                                         |                                                                                         |                            |         |             |         |  
|                                         |                                                                                         | Total Shareholders Equity |         |             | 109,623 |   |           |         | 102,718 | 
|                                         |                                                                                         |                            |         |             |         |  
|                                         |                                                                                         | $                          | 247,083 |             |         | $ | 255,917   |        
|                                         |                                                                                         |                            |         |             |         |  

The accompanying notes are an integral part of these consolidated balance sheets.

3



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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three and Six Months Ended March 31, 2001 and 2000
(in thousands, except per share data)

|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |        |        |   |         |        |        |  
|------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------------------ | ------ | - | ---------------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                      |                                     |                          |        | Three Months Ended |        |   | Six Months Ended |       
|                                                                                      |                                     |                          |        |                    |        |   |                  |       
|                                                                                      |                                     |                          |        | 2001               |        |   | 2000             |        |        | 2001 |         |        | 2000   |  
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |        |        |  
|Sales                                                                                 |                                     | $                        | 70,711 |                    |        | $ | 58,069           |        |        | $    | 120,965 |        |        | $ | 122,850 |       
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Cost of sales                                                                         |                                     |                          | 46,724 |                    |        |   | 39,904           |        |        |      | 78,896  |        |        |   | 84,790  |       
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Gross profit                                                                          |                                     |                          | 23,987 |                    |        |   | 18,165           |        |        |      | 42,069  |        |        |   | 38,060  |       
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Operating expenses:                                                                  
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Selling, general and administrative |                          |        | 16,632             |        |   |                  | 22,351 |        |      |         | 31,499 |        |   |         | 42,698 |       
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Amortization of intangibles         |                          |        | 1,485              |        |   |                  | 2,331  |        |      |         | 3,238  |        |   |         | 4,227  |       
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|                                                                                      |                                     | Total operating expenses |        |                    | 18,117 |   |                  |        | 24,682 |      |         |        | 34,737 |   |         |        | 46,925 |  
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Income (loss) from operations                                                         |                                     |                          | 5,870  |                    |        |   | (6,517           | )      |        |      | 7,332   |        |        |   | (8,865  | )     
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Other income (expense):                                                              
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Minority interests                  |                          |        | (517               | )      |   |                  | (341   | )      |      |         | (835   | )      |   |         | (551   | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Interest and other, net             |                          |        | 518                |        |   |                  | 582    |        |      |         | 696    |        |   |         | 1,361  |       
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Interest expense                    |                          |        | (1,541             | )      |   |                  | (1,427 | )      |      |         | (2,986 | )      |   |         | (3,167 | )     
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|                                                                                      |                                     | Total other expense, net |        |                    | (1,540 | ) |                  |        | (1,186 | )    |         |        | (3,125 | ) |         |        | (2,357 | )
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Income (loss) before provision for (benefit from)
income taxes and extraordinary gain |                                     |                          | 4,330  |                    |        |   | (7,703           | )      |        |      | 4,207   |        |        |   | (11,222 | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Provision for (benefit from) income taxes                                             |                                     |                          | 1,734  |                    |        |   | (3,565           | )      |        |      | 1,684   |        |        |   | (4,955  | )     
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Income (loss) before extraordinary gain                                               |                                     |                          | 2,596  |                    |        |   | (4,138           | )      |        |      | 2,523   |        |        |   | (6,267  | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Extraordinary gain, net of tax                                                        |                                     |                          | 6,087  |                    |        |   |                 |        |        |      | 6,087   |        |        |   |        |       
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|Net income (loss)                                                                     |                                     |                          | 8,683  |                    |        |   | (4,138           | )      |        |      | 8,610   |        |        |   | (6,267  | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Other comprehensive loss            |                          |        | (2,314             | )      |   |                  | (692   | )      |      |         | (815   | )      |   |         | (1,934 | )     
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|                                                                                      | Comprehensive income (loss)         |                          | $      | 6,369              |        |   | $                | (4,830 | )      |      | $       | 7,795  |        |   | $       | (8,201 | )     
|                                                                                      |                                     |                          |        |                    |        |   |                  |        |        |      |         |       
|EARNINGS PER COMMON SHARE:                                                           
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Income (Loss) Before Extraordinary Gain-                                             
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Basic                               |                          | $      | 0.16               |        |   | $                | (0.25  | )      |      | $       | 0.16   |        |   | $       | (0.38  | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Diluted                             |                          | $      | 0.16               |        |   | $                | (0.25  | )      |      | $       | 0.16   |        |   | $       | (0.38  | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Extraordinary Gain-                                                                  
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Basic                               |                          | $      | 0.38               |        |   | $                |       |        |      | $       | 0.38   |        |   | $       |       |       
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Diluted                             |                          | $      | 0.38               |        |   | $                |       |        |      | $       | 0.37   |        |   | $       |       |       
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Net Income (Loss)-                                                                   
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Basic                               |                          | $      | 0.54               |        |   | $                | (0.25  | )      |      | $       | 0.53   |        |   | $       | (0.38  | )     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Diluted                             |                          | $      | 0.53               |        |   | $                | (0.25  | )      |      | $       | 0.53   |        |   | $       | (0.38  | )     

The accompanying notes are an integral part of these consolidated statements.

4



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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 2001 and 2000
(in thousands)

|                                      |                                                                 |                                                   |                                       |         |                         |        |        |         |         |         |  
|------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------- | ------- | ----------------------- | ------ | ------ | ------- | ------- | ------- | -
|                                      |                                                                 |                                                   |                                       |         | Six Months Ended March, |       
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      |                                                                 |                                                   |                                       |         | 2001                    |        |        | 2000    |        
|                                      |                                                                 |                                                   |                                       |         |                         |        |        |         |        
|CASH FLOWS FROM OPERATING ACTIVITIES:
|                                     
|                                     
|                                     
|                                     
|Net Income (Loss)                     |                                                                 | $                                                 | 8,610                                 |         |                         | $      | (6,267 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income to cash used in operations-
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Deferred income taxes                             |                                       |         | 5,907                   |        |        |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Depreciation and amortization                     |                                       |         | 13,659                  |        |        |         | 14,154  |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Undistributed earnings from minority shareholders |                                       |         | 835                     |        |        |         | 551     |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Gain on extinguishment of debt                    |                                       |         | (9,663                  | )      |        |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Gain on disposal of assets, net                   |                                       |         | (85                     | )      |        |         | (176    | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Changes in assets and liabilities, net-                        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Increase in accounts receivable                   |                                       |         | (9,603                  | )      |        |         | 8,427   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Decrease in income tax receivable                 |                                       |         | 17,819                  |        |        |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Decrease in inventories                           |                                       |         | 5,700                   |        |        |         | 1,753   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Other                                             |                                       |         | (7,172                  | )      |        |         | (28,198 | )      
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      |                                                                 |                                                   | Net cash from (used in) operations    |         |                         | 26,007 |        |         |         | (9,756  | )
|                                      |                                                                 |                                                   |                                       |         |                         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures, net                                       |                                                   |                                       | (7,792  | )                       |        |        | (11,721 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of businesses and intangibles, net           |                                                   |                                       | 3,847   |                         |        |        |        |        
|                                     
|                                     
|                                     
|                                     
|                                      | Acquisitions of businesses and intangibles, net                 |                                                   |                                       |        |                         |        |        | (3,062  | )      
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      |                                                                 |                                                   | Net cash used in investing activities |         |                         | (3,945 | )      |         |         | (14,783 | )
|                                      |                                                                 |                                                   |                                       |         |                         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:
|                                     
|                                     
|                                     
|                                     
|                                      | Repayments of long-term debt                                    |                                                   |                                       | (7,841  | )                       |        |        | (1,981  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Treasury stock repurchases                                      |                                                   |                                       | (1,375  | )                       |        |        | (6,514  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Other                                                           |                                                   |                                       | 18      |                         |        |        | (689    | )      
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      |                                                                 |                                                   | Net cash used in financing activities |         |                         | (9,198 | )      |         |         | (9,184  | )
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      | Effect of exchange rates on cash and cash equivalents           |                                                   |                                       | (63     | )                       |        |        | 668     |        
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      | Net change in cash and cash equivalents                         |                                                   |                                       | 12,801  |                         |        |        | (33,055 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents, beginning of period                  |                                                   |                                       | 22,758  |                         |        |        | 58,523  |        
|                                      |                                                                 |                                                   |                                       |         |                         |       
|                                      | Cash and cash equivalents, end of period                        |                                                   | $                                     | 35,559  |                         |        | $      | 25,468  |        
|                                      |                                                                 |                                                   |                                       |         |                         |       
|Supplemental Disclosures:            
|                                     
|                                     
|                                     
|                                     
|                                      | Interest paid                                                   |                                                   | $                                     | 2,923   |                         |        | $      | 1,091   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Income taxes paid (refunded), net                               |                                                   |                                       | (19,600 | )                       |        |        | 3,417   |        

The accompanying notes are an integral part of these consolidated statements.

5



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ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001

INTERIM FINANCIAL REPORTING

The accompanying condensed consolidated financial statements for Action
Performance Companies, Inc. and subsidiaries (the Company) have been prepared
without audit by independent public accountants pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all normal recurring adjustments necessary for a fair statement of
the results of operations for the interim periods included herein have been
made. Certain information and note disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements pursuant to
such rules and regulations. Accordingly, these financial statements should be
read in conjunction with the Companys Form 10-K for the fiscal year ended
September 30, 2000, as amended. The results of operations for the interim periods are not necessarily
indicative of the operating results that may be expected for the fiscal year
ending September 30, 2001.

Certain immaterial prior period amounts have been reclassified to conform to
the current year presentation.

GAIN ON EXTINGUISHMENT OF DEBT

The Company repurchased 4 3/4% convertible subordinated notes with a face value
of $18.1 million in the three and six months ended March 31, 2001, at a gain of
$6.1 million, net of tax. Since March 31, 2001, the Company has repurchased
additional notes with a face value of $1.9 million, at a gain of $0.4 million,
net of tax.

ISSUANCE OF WARRANTS

In March 2001, the Company issued warrants to purchase 75,000 shares of common
stock at an exercise price of $6.875 per share, the market price on the grant
date, in connection with a license agreement. The warrants had a fair value of
$472,500, as determined by the Black-Scholes option pricing method. Issuance
resulted in increases in additional paid-in-capital and intangible assets. The
intangible asset is being amortized through 2007.

EARNINGS PER COMMON SHARE (EPS)

Reconciliations of the denominators in the EPS computations for income (loss)
before extraordinary gain for the periods ended March 31 follow:

|                                                                  |  |                    |        |  |                  |  |        |      |  |  |        |  |  |  |        | 
|----------------------------------------------------------------- |  | ------------------ | ------ |  | ---------------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                                  |  | Three Months Ended |        |  | Six Months Ended | 
|                                                                  |  |                    |        |  |                  | 
|                                                                  |  | 2001               |        |  | 2000             |  |        | 2001 |  |  | 2000   | 
|                                                                  |  |                    |        |  |                  |  |        |      |  |  |        | 
|Basic weighted average shares                                    |  |                    | 16,043 |  |                  |  | 16,748 |      |  |  | 16,141 |  |  |  | 16,666 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Effect of dilutive stock options                                  |  |                    | 162    |  |                  |  |       |      |  |  | 97     |  |  |  |       | 
|                                                                  |  |                    |        |  |                  |  |        |      |  |  |        | 
|Diluted adjusted weighted average shares and
assumed conversions |  |                    | 16,205 |  |                  |  | 16,748 |      |  |  | 16,238 |  |  |  | 16,666 | 
|                                                                  |  |                    |        |  |                  |  |        |      |  |  |        | 

The numerator in the basic and diluted EPS computations for income (loss)
before extraordinary gain is the income (loss) before extraordinary gain for
the period. The impacts of outstanding 4 3/4 % convertible subordinated notes,
warrants and other stock options could potentially dilute basic EPS in the
future, but were not included in the calculation of diluted EPS because to do
so would have been antidilutive for the periods presented.

COMMITMENTS AND CONTINGENCIES

In the ordinary course of business the Company is subject to certain lawsuits
and asserted and unasserted claims. Management believes that the resolution of
any such matters will not have a material adverse effect on the Companys
financial position or results of operations.

6



---



SALE OF FANTASY SPORTS ENTERPRISES, INC.

In October 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of Fantasy Sports Enterprises, Inc. (Fantasy
Sports) for approximately $3.5 million in cash. Fantasy Sports operates
Fantasy Cup Auto Racing through its Web site at
www.fantasycup.com. In
connection with the acquisition, the Company recorded goodwill of approximately
$4 million, to be amortized straight-line over a 15-year life. This
transaction was accounted for as a purchase. In November 2000, Fantasy Sports
was sold to Leisure Holdings LTD. for an aggregate sale price of $4.2 million.
This transaction resulted in net proceeds to the Company of approximately $4
million, which approximated Fantasy Sports recorded book value of net assets.

RESTRUCTURING CHARGES

During fiscal year 2000, the Company recorded significant charges from
restructuring and other activities. The charges included provisions for the
write-off of goodwill and other assets, endorsements, sponsorship commitments,
employee severance and termination costs, and the withdrawal of the initial
public offering of goracing.com. The initial accruals of $5.8 million relating
to these restructuring activities had been paid down to $0.7 million as of
September 30, 2000. There are no remaining accruals related to these charges
as of March 31, 2001, all amounts having been paid in cash.

SEGMENT REPORTING

The Company has two reportable segments based on geographic points of
distribution: Domestic and Foreign. The reportable segments are based on
operating divisions operating geographically within the continental United
States as Domestic and abroad as Foreign. The Company evaluates
performance and allocates resources based on segment profits. Segment profits
are comprised of segment sales less cost of sales and selling, general and
administrative expenses. Excluded from segment profits, however, are
non-recurring costs, interest income, and interest expense. Financial
information for the Companys reportable segments follows, in thousands:

|                                                         |  |                              |        |  |         |   |        |       |  |   |          |  |  |         |        |   |       |   |       |   |  |   |        |  
|-------------------------------------------------------- |  | ---------------------------- | ------ |  | ------- | - | ------ | ----- |  | - | -------- |  |  | ------- | ------ | - | ----- | - | ----- | - |  | - | ------ | -
|                                                         |  | Three Months Ended March 31, |       
|                                                         |  |                              |       
|                                                         |  | 2001                         |        |  | 2000    |  
|                                                         |  |                              |        |  |         |  
|                                                         |  | Domestic                     |        |  | Foreign |   |        | Total |  |   | Domestic |  |  | Foreign |        |   | Total |  
|                                                         |  |                              |        |  |         |   |        |       |  |   |          |  |  |         |        |   |       |  
|Total segment revenue                                    |  | $                            | 58,832 |  |         | $ | 11,879 |       |  | $ | 70,711   |  |  | $       | 49,589 |   |       | $ | 8,480 |   |  | $ | 58,069 |  
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and
amortization
included in segment
profit |  |                              | 6,416  |  |         |   | 1,027  |       |  |   | 7,443    |  |  |         | 7,729  |   |       |   | 239   |   |  |   | 7,968  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Segment profit (loss)                                    |  |                              | 3,989  |  |         |   | 1,881  |       |  |   | 5,870    |  |  |         | (6,474 | ) |       |   | (43   | ) |  |   | (6,517 | )

|                                                         |  |                            |         |  |         |   |        |       |  |   |          |  |  |         |         |   |       |   |        |  |  |   |         |  
|-------------------------------------------------------- |  | -------------------------- | ------- |  | ------- | - | ------ | ----- |  | - | -------- |  |  | ------- | ------- | - | ----- | - | ------ |  |  | - | ------- | -
|                                                         |  | Six Months Ended March 31, |        
|                                                         |  |                            |        
|                                                         |  | 2001                       |         |  | 2000    |  
|                                                         |  |                            |         |  |         |  
|                                                         |  | Domestic                   |         |  | Foreign |   |        | Total |  |   | Domestic |  |  | Foreign |         |   | Total |  
|                                                         |  |                            |         |  |         |   |        |       |  |   |          |  |  |         |         |   |       |  
|Total segment revenue                                    |  | $                          | 100,988 |  |         | $ | 19,977 |       |  | $ | 120,965  |  |  | $       | 108,571 |   |       | $ | 14,279 |  |  | $ | 122,850 |  
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and
amortization
included in segment
profit |  |                            | 11,716  |  |         |   | 1,943  |       |  |   | 13,659   |  |  |         | 13,665  |   |       |   | 489    |  |  |   | 14,154  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Segment profit (loss)                                    |  |                            | 4,776   |  |         |   | 2,556  |       |  |   | 7,332    |  |  |         | (6,791  | ) |       |   | 177    |  |  |   | (6,614  | )

Segment profit (loss) totals equal consolidated income (loss) from operations
except for the six months ended March 31, 2000. In that period, charges of
$2.3 million related to the abandonment of goaracing.com were excluded from
segment profit (loss).

7



---



RECENT ACCOUNTING PRONOUNCEMENTS

In September 2000, the Emerging Issues Task Force reached a consensus on Issue
00-10, Accounting for Shipping and Handling Fees and Costs (Issue 00-10).
Issue 00-10, requires that all amounts billed to customers related to shipping
and handling should be classified as sales. In addition, Issue 00-10,
specifies that the classification of shipping and handling cost is an
accounting policy decision that should be disclosed pursuant to APB 22,
Disclosure of Accounting Policies. A company may adopt a policy of including
shipping and handling costs in cost of sales. If shipping and handling costs
are not included in cost of sales, a company should disclose both the amount of
such costs and the line item in the statement of operations which includes
those costs. Issue 00-10 will be effective for the Company no later than the
fourth quarter of the fiscal year ending September 30, 2001. The Company has
yet to quantify the impact of adopting Issue 00-10 on Sales and Cost of Sales.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company designs and markets licensed motorsports products, including
collectible die-cast scaled replicas of motorsports vehicles apparel, and
souvenirs. The die-cast vehicles are replicas of cars driven by individual
drivers and are principally NASCAR, Formula One and NHRA replicas. Third
parties manufacture all of the motorsports vehicles and most of the apparel and
souvenirs, generally utilizing the Companys designs, tools, and dies. The
Company screen-prints and embroiders a portion of the apparel in an Atlanta
facility. Formula One vehicles and apparel are designed and marketed by
subsidiaries in Germany and the United Kingdom.

Revenue is impacted positively and negatively by the popularity and performance
of drivers and teams under license, the popularity of motorsports, particularly
NASCAR, and the general demand for licensed sports merchandise.

Cost of sales consists primarily of the cost of products procured from
third-party manufacturers, royalty payments to licensors, and depreciation of
tooling and dies. Significant factors affecting cost of sales as a percentage
of net sales include:



| |  | the overall percentage of net sales represented by sales of die-cast
collectible products, which typically carry higher gross margins than
our other products,                                                    
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the percentage of sales of die-cast collectible products represented
by sales through the Collectors Club, which typically carry higher
gross margins than sales of such products through wholesale
distributors,
| 
| |  | the effect of amortizing the fixed cost components of cost of sales,
primarily depreciation of tooling and dies, over varying levels of net
sales,                                                                
| 
| |  | freight charges, and                                                                                                                                                                                              
| 
| |  | additional charges related to lower than minimum order quantities,
cancellation of specific purchase orders, and discounted sales.                                                                                

Because the auto racing season is concentrated between the months of February
and November, the second and third calendar quarters of each year (the third
and fourth fiscal quarters) are historically characterized by higher sales of
motorsports products and the first quarter is characterized by lower sales.

8



---



Results of Operations

The following table sets forth the percentage of total revenue represented by
certain expense and revenue items for the periods ended March 31:

|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |   |  |  |       |  
|-------------------------------------------------------- |  | ------------------ | ----- | - | ---------------- |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                         |  | Three Months Ended |       |   | Six Months Ended | 
|                                                         |  |                    |       |   |                  | 
|                                                         |  | 2001               |       |   | 2000             |  |       | 2001 |  |  | 2000  |  
|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |  
|Sales                                                    |  |                    | 100.0 | % |                  |  | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                                                        
|                                                        
|                                                        
|                                                        
|Cost of sales                                            |  |                    | 66.1  |   |                  |  | 68.7  |      |  |  | 65.2  |   |  |  | 69.0  |  
|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |  
|Gross profit                                             |  |                    | 33.9  |   |                  |  | 31.3  |      |  |  | 34.8  |   |  |  | 31.0  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Selling, general and administrative expenses             |  |                    | 23.5  |   |                  |  | 38.5  |      |  |  | 26.0  |   |  |  | 34.8  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Amortization of intangibles                              |  |                    | 2.1   |   |                  |  | 4.0   |      |  |  | 2.7   |   |  |  | 3.4   |  
|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |  
|Income (loss) from operations                            |  |                    | 8.3   |   |                  |  | (11.2 | )    |  |  | 6.1   |   |  |  | (7.2  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Minority interests                                       |  |                    | (0.7  | ) |                  |  | (0.6  | )    |  |  | (0.7  | ) |  |  | (0.4  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Interest income (expense) and other, net                 |  |                    | (1.5  | ) |                  |  | (1.5  | )    |  |  | (1.9  | ) |  |  | (1.5  | )
|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |  
|Income (loss) before income taxes and
extraordinary gain |  |                    | 6.1   |   |                  |  | (13.3 | )    |  |  | 3.5   |   |  |  | (9.1  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Income taxes                                             |  |                    | 2.5   |   |                  |  | (6.2  | )    |  |  | 1.4   |   |  |  | (4.0  | )
|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |  
|Income (loss) before extraordinary gain                  |  |                    | 3.6   |   |                  |  | (7.1  | )    |  |  | 2.1   |   |  |  | (5.1  | )
|                                                         |  |                    |       |   |                  |  |       |      |  |  |       |  

Three Months Ended March 31, 2001 Compared with Three Months Ended March 31 2000

Sales increased 21.8% to $70.7 million for the three months ended March 31,
2001 from $58.1 million in the prior year period. The sales growth reflects
increasing consumer awareness of NASCAR racing in part as a result of increased
media coverage of motorsports in the United States and new tracks opening this
fiscal year. As a result of increased demand, the Company experienced strong
sales in trackside and apparel operations. The Company, however, did not
realize the full benefit from increased die-cast demand because of the 90-120
day lead-time required to produce die-cast replicas. Management anticipates
that it will realize increased revenues from die-cast products in the third and
fourth fiscal quarters because of increased scheduled production.

Gross profit improved to $24.0 million in the second quarter of fiscal 2001
from $18.2 million in the fiscal 2000 period. The gross profit percentage
improved to 33.9% of sales from 31.3% of sales. The increase in gross profit
as a percentage of sales resulted from reduced freight and production costs.

Selling, general and administrative expense decreased to $16.6 million in the
three months ended March 31, 2001 from $22.4 million in the prior year period,
and represents 23.5% and 38.5% of sales, respectively. The decrease as a
percentage of sales resulted primarily from cost reductions realized from
management and restructuring changes made in the third and fourth quarter of
fiscal 2000.

Amortization of goodwill and other intangibles decreased to $1.5 million for
the three months ended March 31, 2001 from $2.3 million for the three months
ended March 31, 2000. The decrease is related to the elimination of goodwill
and related amortization from the sale of Fantasy Sports and impairment
write-offs of goodwill and other intangibles recorded in the third and fourth
quarter of fiscal 2000.

Interest expense for the three months ended March 31, 2001 approximated
interest expense for the comparable period in the prior year. The Company
expects reductions in interest expense in the third and fourth quarter as a
result of the repurchase of convertible subordinated notes discussed further in
Liquidity and Capital Resources.

The Companys effective tax rate of 40% in the 2001 three month periods
compares to an effective tax rate of 46% for the 2000 quarter, and is
consistent with the effective tax rate for the first quarter of 2001.

Six Months Ended March 31, 2001 Compared with Six Months Ended March 31 2000

Sales decreased 1.5% to $121.0 million for the six months ended March 31, 2001
from $122.9 million in the prior year period. During the first fiscal quarter
2001 the Company experienced softness in demand continuing from that
experienced in fiscal 2000. In the first quarter, year-over-year sales
decreased 22.4%. Strong demand in second quarter of 2001 allowed recovery of
most of the shortfall.

9



---



Gross profit improved to $42.1 million in the first half of fiscal 2001 from
$38.1 million in the fiscal 2000 period. The gross profit percentage improved
to 34.8% of sales from 31.0% of sales. The increase in gross profit as a
percentage of net sales resulted from reduced freight costs, change orders and
other production costs.

Selling, general and administrative expense decreased to $31.5 million in the
six months ended March 31, 2001 from $42.7 million in the prior year period,
and represents 26.0% and 34.8% of sales, respectively. The decrease as a
percentage of sales resulted primarily from cost reductions realized from
management and restructuring changes made in the third and fourth quarter of
fiscal 2000. Results for the prior-year period also included $2.3 million of
charges related to abandonment of the goracing.com IPO.

Amortization of goodwill and other intangibles decreased to $3.2 million for
the six months ended March 31, 2001 from $4.2 million in the prior year period.
The decrease is related to the elimination of goodwill and related
amortization from the sale of Fantasy Sports and impairment write-offs of
goodwill and other intangibles recorded in the third and fourth quarter of
fiscal 2000.

Interest expense for the six months ended March 31, 2001 approximated interest
expense for the comparable period in the prior year. The Company expects
reductions in interest expense in the third and fourth quarter as a result of
the repurchase of convertible subordinated notes (see Liquidity and Capital
Resources).

The Companys effective tax rate of 40% in the 2001 six month period compares
to an effective tax rate of 44% for the 2000 six month period.

Liquidity and Capital Resources

Working capital improved $2.1 million to $66.6 million at March 31, 2001 from
$64.5 million at September 30, 2000. Cash increased $12.8 million to $35.6
million at March 31, 2001 from $22.8 million at September 30, 2000. Cash
increased as a result of the Fantasy Sports sales proceeds of $3.8 million,
receipt of a $17.8 million income tax refund and other operating activities,
including net inventory reductions since September 30, 2000. The increases in
cash were offset by reductions in cash for repurchases of convertible
subordinated notes ($7.8 million), treasury stock ($1.4 million), expenditures
for equipment ($7.8 million) and seasonal increases in accounts receivable and
prepaid royalties ($12.5 million).

In March 2001, the Company issued warrants to purchase 75,000 shares of common
stock at an exercise price of $6.875 per share, the market price on the grant
date, in connection with a license agreement. The warrants had a fair value of
$472,500, as determined by the Black-Scholes option pricing method. Issuance
resulted in increases in additional paid-in-capital and intangible assets. The
intangible asset is being amortized through 2007.

The Company repurchased convertible subordinated notes with a face value of
$18.1 million in the three and six months ended March 31, 2001, at a gain of
$6.1 million, net of tax. Since March 31, 2001, the Company has repurchased
additional notes with a face value of $1.9 million, at a gain of $0.4 million,
net of tax.

Capital expenditures for the six months ended March 31, 2001 totaled $7.8
million, of which $3.0 million was applicable to foreign operations, and
related principally to continued investments in tooling. Capital expenditures
for fiscal year 2001 are not anticipated to exceed $17 million.

On September 29, 2000, the Company entered into a loan and security agreement
(the Credit Facility) with a subsidiary of Bank One, providing for borrowings
of up to $30.0 million, subject to the limitation of a calculated borrowing
base. The Credit Facility replaced a previous credit agreement with First
Union National Bank of North Carolina. The Credit Facility consists of a $30.0
million revolving line of credit, which includes up to $15.0 million of
stand-by letters of credit. The line of credit bears interest at a base rate
plus 50 basis points, or LIBOR plus 250 basis points. A commitment fee of 0.5%
of the average unused line of credit and 1.75-2.5% of the average unused
letters of credit is payable annually on the loan. The Credit Facility matures
December 2002. Outstanding letters of credit totaled $2.9 million at March 31,
2001 and $4.6 million as of September 30, 2000. The Credit Facility is secured
principally by inventory, receivables, and equipment and restricts the payment
of dividends.

10



---



The Credit Facility contains covenants that require the Company to meet certain
financial tests principally related to tangible net worth and EBITDA. The
Company was in compliance with the covenants at March 31, 2001. The Company
has never borrowed under the Credit Facility and does not anticipate the need
to borrow under this facility for operating liquidity. Management believes
that the Credit Facility will be adequate to cover letter of credit and other
liquidity needs for the next 12 months after considering anticipated cash flows
from operations.

Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements, including statements regarding
the Companys business strategies, business, and the industry in which it
operates. These forward-looking statements are based primarily on management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 our Form 10-K, as amended for the year ended September 30,
2000, as filed with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in the Companys exposure to market risk
since yearend. The Companys risk is limited to interest rate risk associated
with credit instruments and foreign currency exchange rate risk associated with
foreign operations. The Company has never used derivative financial
instruments to manage or reduce market risk.

11



---



PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

On November 30, 1999, a class action lawsuit was filed against the Company in
the United States District Court for the District of Arizona, case No. CIV99
2106 PHXROS. Fred W. Wagenhals, director and officer of the Company, and Tod
J. Wagenhals and Christopher S. Besing, former directors and officers of the
Company, were also named as defendants. The lawsuit alleges that the Company
and the other defendants violated the Securities Exchange Act of 1934 by (a)
making allegedly false statements about the state of our business and shipment
of certain products to a customer, or (b) participating in a fraudulent scheme
that was intended to inflate the price of our common stock. The alleged class
of plaintiffs consists of all persons who purchased our publicly traded
securities between July 27, 1999 and December 16, 1999. The plaintiffs are
requesting an unspecified amount of monetary damages. The Company filed a
motion to dismiss this lawsuit, which is scheduled for hearing in May 2001.
Management intends to vigorously defend this lawsuit.

ITEM 2. Changes in Securities

During March 2001, the Company issued warrants to purchase 75,000 shares of
common stock at an exercise price of $6.875 per share, the market price on the
date of grant, in connection with a license agreement. The Company issued the
warrants without registration under the Securities Act in reliance on the
exemption provided by Section 4(2) of the Securities Act as a transaction by an
issuer not involving a public offering.

ITEM 3. Defaults Upon Securities

Not applicable

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

The Companys 2001 Annual Meeting of Shareholders was held on May 7, 2001. The
following nominees were elected to the Companys Board of Directors to serve as
directors until their successors are elected and qualified: Fred W. Wagenhals,
R. David Martin, Melodee L. Volosin, John S. Bickford, Sr., Jack M. Lloyd,
Edward J. Bauman, Herbert M. Baum, Lowell L. Robertson. The shareholders also
ratified the appointment of Arthur Andersen LLP as independent public
accountants of the Company for 2001, by the following vote. For:
14,562,210, Against: 373,605, Abstention: 23,409 Broker Non-Vote: 372,390.

ITEM 5. Other Information

Not applicable

ITEM 6. Exhibits and Reports on Form 8-K

|    |  |                          
|--- |  | -------------------------
|(a) |  | Exhibits Not applicable 
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K None

12



---



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.

|                                        |  |                                                                                             |  |            
|--------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | -----------
|Signature                               |  | Capacity                                                                                    |  | Date       
|                                        |  |                                                                                             |  |            
|                                       
|                                       
|/s/ Fred W. Wagenhals
Fred W. Wagenhals |  | Chairman of the Board, President, and
Chief Executive Officer
(Principal Executive Officer) |  | May 9, 2001
|                                       
|/s/ R. David Martin
R. David Martin     |  | Chief Financial Officer, Director
(Principal Financial and Accounting Officer)              |  | May 9, 2001

13