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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, 2003

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.)

1480 South Hohokam Drive
Tempe, AZ 85281

---

(Address, including zip code, of executive offices)


(602) 337-3700

---

(Registrants telephone number, including area code)


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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 JANUARY 29, 2004
|                              |       |                   |                                
|Common Stock, $0.01 par value |       | 18,322,816 Shares





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TABLE OF CONTENTS



|                              |                                                                                               |                                                                                           |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION
|                              | ITEM 1. Financial Statements                                                                 
|                              |                                                                                               | Unaudited Condensed Consolidated Balance Sheets                                          
|                              |                                                                                               | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
|                              |                                                                                               | Unaudited Condensed Consolidated Statements of Cash Flows                                
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                     
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II - OTHER INFORMATION  
|                              | ITEM 1. Legal Proceedings                                                                    
|                              | ITEM 2. Changes in Securities and Use of Proceeds                                            
|                              | ITEM 3. Defaults Upon Senior Securities                                                      
|                              | ITEM 4. Submissions of Matters to a Vote of Security Holders                                 
|                              | ITEM 5. Other Information                                                                    
|                              | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



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PART I- FINANCIAL INFORMATION




ITEM 1. Financial Statements

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
December 31, 2003 and September 30, 2003
(in thousands, except per share data)

|                                     |  |                                                                                         |                             |   |              |         |               |   |         |         | 
|------------------------------------ |  | --------------------------------------------------------------------------------------- | --------------------------- | - | ------------ | ------- | ------------- | - | ------- | ------- | 
|                                     |  |                                                                                         |                             |   | December 31, |         | September 30,
|                                     |  |                                                                                         |                             |   | 2003         |         | 2003         
|                                     |  |                                                                                         |                             |   |              |         |              
|ASSETS                               |  |                                                                                         |                             |   |              |         |               |  
|Current Assets:                      |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | Cash and cash equivalents                                                               |                             | $ | 35,751       |         |               | $ | 49,462  |        
|                                     |  | Accounts receivable, net                                                                |                             |   | 54,015       |         |               |   | 69,890  |        
|                                     |  | Inventories                                                                             |                             |   | 52,465       |         |               |   | 43,232  |        
|                                     |  | Prepaid royalties                                                                       |                             |   | 6,805        |         |               |   | 6,540   |        
|                                     |  | Taxes receivable                                                                        |                             |   | 1,014        |         |               |   |        |        
|                                     |  | Deferred income taxes                                                                   |                             |   | 5,295        |         |               |   | 5,291   |        
|                                     |  | Prepaid expenses and other                                                              |                             |   | 4,259        |         |               |   | 3,161   |        
|                                     |  |                                                                                         |                             |   |              |         |               |  
|                                     |  |                                                                                         | Total current assets        |   |              | 159,604 |               |   |         | 177,576 | 
|                                     |  |                                                                                         |                             |   |              |         |               |  
|Long-Term Assets                     |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | Property and equipment, net                                                             |                             |   | 65,583       |         |               |   | 62,951  |        
|                                     |  | Goodwill                                                                                |                             |   | 88,877       |         |               |   | 87,448  |        
|                                     |  | Licenses and other intangibles, net                                                     |                             |   | 41,675       |         |               |   | 44,426  |        
|                                     |  | Other                                                                                   |                             |   | 2,804        |         |               |   | 2,357   |        
|                                     |  |                                                                                         |                             |   |              |         |               |  
|                                     |  |                                                                                         | Total long-term assets      |   |              | 198,939 |               |   |         | 197,182 | 
|                                     |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | $                                                                                       | 358,543                     |   |              | $       | 374,758       |  
|                                     |  |                                                                                         |                             |   |              |         |               |  
|LIABILITIES AND SHAREHOLDERS EQUITY |  |                                                                                         |                             |   |              |         |               |  
|Current Liabilities:                 |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | Accounts payable                                                                        |                             | $ | 34,687       |         |               | $ | 36,734  |        
|                                     |  | Accrued royalties                                                                       |                             |   | 5,186        |         |               |   | 11,762  |        
|                                     |  | Accrued expenses                                                                        |                             |   | 8,062        |         |               |   | 11,764  |        
|                                     |  | Taxes payable                                                                           |                             |   |             |         |               |   | 3,156   |        
|                                     |  | Current portion of long-term debt                                                       |                             |   | 328          |         |               |   | 567     |        
|                                     |  |                                                                                         |                             |   |              |         |               |  
|                                     |  |                                                                                         | Total current liabilities   |   |              | 48,263  |               |   |         | 63,983  | 
|                                     |  |                                                                                         |                             |   |              |         |               |  
|Long-Term Liabilities:               |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | Long-term debt                                                                          |                             |   | 34,715       |         |               |   | 34,425  |        
|                                     |  | Deferred income taxes and other                                                         |                             |   | 12,094       |         |               |   | 11,816  |        
|                                     |  |                                                                                         |                             |   |              |         |               |   |         |        
|                                     |  |                                                                                         | Total long-term liabilities |   |              | 46,809  |               |   |         | 46,241  | 
|                                     |  |                                                                                         |                             |   |              |         |               |  
|Commitments and Contingencies        |  |                                                                                         |                             |   |              |         |               |  
|Minority Interests                   |  |                                                                                         | 2,371                       |   |              |         | 2,941         |  
|Shareholders Equity:                |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | Common stock, $.01 par value: 62,500 shares authorized; 18,513 and
18,464 shares issued |                             |   | 185          |         |               |   | 185     |        
|                                     |  | Additional paid-in capital                                                              |                             |   | 158,023      |         |               |   | 157,301 |        
|                                     |  | Treasury stock, at cost, 190 and 190 shares                                             |                             |   | (3,999       | )       |               |   | (3,999  | )      
|                                     |  | Accumulated other comprehensive loss                                                    |                             |   | (1,083       | )       |               |   | (2,488  | )      
|                                     |  | Retained earnings                                                                       |                             |   | 107,974      |         |               |   | 110,594 |        
|                                     |  |                                                                                         |                             |   |              |         |               |   |         |        
|                                     |  |                                                                                         | Total shareholders equity  |   |              | 261,100 |               |   |         | 261,593 | 
|                                     |  |                                                                                         |                             |   |              |         |               |  
|                                     |  | $                                                                                       | 358,543                     |   |              | $       | 374,758       |  
|                                     |  |                                                                                         |                             |   |              |         |               |  

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

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three Months Ended December 31, 2003 and 2002
(in thousands, except per share data)

|                                  |                                                |   |                          |        |      |        |        |        |  |        | 
|--------------------------------- | ---------------------------------------------- | - | ------------------------ | ------ | ---- | ------ | ------ | ------ |  | ------ | 
|                                  |                                                |   |                          |        | 2003 |        | 2002  
|                                  |                                                |   |                          |        |      |        |       
|Net sales                         |                                                | $ | 71,439                   |        |      | $      | 85,799 |       
|Cost of sales                     |                                                |   | 54,251                   |        |      |        | 55,277 |       
|                                  |                                                |   |                          |        |      |        |        |       
|Gross profit                      |                                                |   | 17,188                   |        |      |        | 30,522 |       
|                                  |                                                |   |                          |        |      |        |        |       
|Operating expenses:               |                                                |   |                          |        |      |        |        |       
|                                  | Selling, general, and administrative           |   |                          | 20,138 |      |        |        | 17,362 | 
|                                  | Amortization of licenses and other intangibles |   |                          | 941    |      |        |        | 900    | 
|                                  |                                                |   |                          |        |      |        |        |       
|                                  |                                                |   | Total operating expenses |        |      | 21,079 |        |        |  | 18,262 | 
|                                  |                                                |   |                          |        |      |        |        |       
|Income (loss) from operations     |                                                |   | (3,891                   | )      |      |        | 12,260 |       
|Interest expense                  |                                                |   | (431                     | )      |      |        | (579   | )     
|Foreign currency gains and losses |                                                |   | 829                      |        |      |        | 1,361  |       
|Earnings from joint venture       |                                                |   | 564                      |        |      |        |       |       
|Other income and expenses         |                                                |   | 188                      |        |      |        | (235   | )     
|                                  |                                                |   |                          |        |      |        |        |       
|Income (loss) before income taxes |                                                |   | (2,741                   | )      |      |        | 12,807 |       
|Income taxes                      |                                                |   | (1,036                   | )      |      |        | 4,841  |       
|                                  |                                                |   |                          |        |      |        |        |       
|Net income (loss)                 |                                                |   | (1,705                   | )      |      |        | 7,966  |       
|                                  | Other comprehensive income                     |   |                          | 1,405  |      |        |        | 783    | 
|                                  |                                                |   |                          |        |      |        |        |       
|                                  | Comprehensive income (loss)                    |   | $                        | (300   | )    |        | $      | 8,749  | 
|                                  |                                                |   |                          |        |      |        |        |       
|Earnings (Loss) Per Common Share: |                                                |   |                          |        |      |        |        |       
|                                  | Basic                                          |   | $                        | (0.09  | )    |        | $      | 0.45   | 
|                                  | Diluted                                        |   | $                        | (0.09  | )    |        | $      | 0.44   | 

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

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 2003 and 2002
(in thousands)

|                                      |                                                                                      |                                           |                                                     |         |        |        |      |         |        |         |  
|------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | --------------------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------- | -
|                                      |                                                                                      |                                           |                                                     |         | 2003   |        | 2002
|                                      |                                                                                      |                                           |                                                     |         |        |        |     
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Net income (loss)                                                                    |                                           | $                                                   | (1,705  | )      |        | $    | 7,966   |       
|                                      | Adjustments to reconcile net income (loss) to cash provided by (used in)
operations- |                                           |                                                     |         |        |        |      |         |       
|                                      |                                                                                      | Depreciation and amortization             |                                                     |         | 7,566  |        |      |         | 6,249  |        
|                                      |                                                                                      | Stock option tax benefits                 |                                                     |         | 74     |        |      |         | 407    |        
|                                      |                                                                                      | Undistributed earnings from joint venture |                                                     |         | (564   | )      |      |         |       |        
|                                      |                                                                                      | Other                                     |                                                     |         | 433    |        |      |         | 226    |        
|                                      | Changes
in assets and liabilities, net of businesses acquired and disposed-          |                                           |                                                     |         |        |        |      |         |       
|                                      |                                                                                      | Accounts receivable, net                  |                                                     |         | 16,211 |        |      |         | 17,465 |        
|                                      |                                                                                      | Accounts payable and accrued expenses     |                                                     |         | (3,835 | )      |      |         | (8,473 | )      
|                                      |                                                                                      | Income taxes receivable and payable       |                                                     |         | (4,264 | )      |      |         | 3,833  |        
|                                      |                                                                                      | Inventories                               |                                                     |         | (8,081 | )      |      |         | 170    |        
|                                      |                                                                                      | Prepaid royalties and accrued royalties   |                                                     |         | (6,841 | )      |      |         | (4,358 | )      
|                                      |                                                                                      | Other                                     |                                                     |         | (2,723 | )      |      |         | (2,267 | )      
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      |                                                                                      |                                           | Net cash provided by (used in) operating activities |         |        | (3,729 | )    |         |        | 21,218  |  
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Capital expenditures, net                                                            |                                           |                                                     | (7,703  | )      |        |      | (11,135 | )     
|                                      | Other                                                                                |                                           |                                                     | (298    | )      |        |      | (407    | )     
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |         |       
|                                      |                                                                                      |                                           | Net cash used in investing activities               |         |        | (8,001 | )    |         |        | (11,542 | )
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Long-term debt borrowings  German mortgage                                          |                                           |                                                     |        |        |        |      | 3,001   |       
|                                      | Long-term debt repayments                                                            |                                           |                                                     | (320    | )      |        |      | (365    | )     
|                                      | Common stock purchases for treasury                                                  |                                           |                                                     |        |        |        |      | (2,024  | )     
|                                      | Dividends paid - common shareholders                                                 |                                           |                                                     | (915    | )      |        |      | (532    | )     
|                                      | Dividends paid - minority interest shareholders                                      |                                           |                                                     | (1,003  | )      |        |      | (349    | )     
|                                      | Stock option and other exercise proceeds                                             |                                           |                                                     | 100     |        |        |      | 251     |       
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |         |       
|                                      |                                                                                      |                                           | Net cash used in financing activities               |         |        | (2,138 | )    |         |        | (18     | )
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Effect of exchange rates on cash and cash equivalents                                |                                           |                                                     | 157     |        |        |      | 380     |       
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Net change in cash and cash equivalents                                              |                                           |                                                     | (13,711 | )      |        |      | 10,038  |       
|                                      | Cash and cash equivalents, beginning of period                                       |                                           |                                                     | 49,462  |        |        |      | 69,585  |       
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Cash and cash equivalents, end of period                                             |                                           | $                                                   | 35,751  |        |        | $    | 79,623  |       
|                                      |                                                                                      |                                           |                                                     |         |        |        |      |        
|Supplemental Disclosures:             |                                                                                      |                                           |                                                     |         |        |        |      |        
|                                      | Interest paid                                                                        |                                           | $                                                   | 785     |        |        | $    | 990     |       
|                                      | Income taxes paid, net                                                               |                                           |                                                     | 3,830   |        |        |      | 303     |       

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

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ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

INTERIM FINANCIAL REPORTING

The accompanying interim condensed consolidated financial statements for Action
Performance Companies, Inc. and subsidiaries have been prepared without audit
by independent auditors pursuant to the rules and regulations of the Securities
and Exchange Commission. In our opinion, all normal and recurring adjustments
necessary for a fair statement of financial position and 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 accounting principles generally accepted in the United States
have been condensed or omitted from these statements pursuant to such rules and
regulations. Accordingly, these financial statements should be read in
conjunction with our Form 10-K for the fiscal year ended September 30, 2003.
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, 2004.

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

SHAREHOLDERS EQUITY

We account for stock-based compensation plans under APB No. 25, Accounting for
Stock Issued to Employees and related interpretations, under which no
compensation expense has been recognized, as all options have been granted with
an exercise price equal to or exceeding the fair value of the common stock on
the date of grant. For SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123), we estimated the fair value of each option grant as of the date of
grant using the Black-Scholes option pricing method with the following
assumptions:

|                         |  |                                 |     |      |  |         |      |  
|------------------------ |  | ------------------------------- | --- | ---- |  | ------- | ---- | -
|                         |  | Three Months Ended December 31,
|                         |  |                                
|                         |  | 2003 (a)                        |     | 2002
|                         |  |                                 |     |     
|Volatility               |  |                                 | N/A |      |  |         | 65.9 | %
|Risk-free interest rate  |  |                                 | N/A |      |  |         | 2.1  | %
|Dividend rate            |  |                                 | N/A |      |  |         | 0.7  | %
|Expected life of options |  |                                 | N/A |      |  | 3 years

(a)  There were no options granted during the three months ended December 31,
2003.

Options generally vest ratably over three years. Options granted to independent
directors generally vest immediately upon grant. Had compensation costs been
determined consistent with SFAS 123, utilizing the assumptions detailed above
and amortizing the resulting fair value of stock options granted over the
respective vesting period of the options, the net income and per share amounts
would have been the following pro forma amounts (in thousands, except per share
data):

|                   |             |  |                                 |        |      |  |   |       | 
|------------------ | ----------- |  | ------------------------------- | ------ | ---- |  | - | ----- | 
|                   |             |  | Three Months Ended December 31,
|                   |             |  |                                
|                   |             |  | 2003                            |        | 2002
|                   |             |  |                                 |        |     
|Net Income (Loss): |             |  |                                 |        |      |  |   |      
|                   | As Reported |  | $                               | (1,705 | )    |  | $ | 7,966 | 
|                   | Pro Forma   |  | $                               | (2,618 | )    |  | $ | 7,129 | 
|Basic EPS:         |             |  |                                 |        |      |  |   |      
|                   | As Reported |  | $                               | (0.09  | )    |  | $ | 0.45  | 
|                   | Pro Forma   |  | $                               | (0.14  | )    |  | $ | 0.40  | 
|Diluted EPS:       |             |  |                                 |        |      |  |   |      
|                   | As Reported |  | $                               | (0.09  | )    |  | $ | 0.44  | 
|                   | Pro Forma   |  | $                               | (0.14  | )    |  | $ | 0.39  | 

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In July 2002, the Board of Directors approved a one-year program under which we
may purchase up to 1.0 million shares of our common stock in the open market or
in privately negotiated transactions. In October 2002, under this program, 110
thousand shares were purchased at a price of $18.39 per share. In July 2003,
the Board of Directors approved another one-year program under which we may
purchase up to 1.0 million shares of our common stock in the open market or in
privately negotiated transactions.

SEGMENT INFORMATION

Reportable segments are based on divisions operating geographically, domestic
and abroad, and specializing in either die-cast or apparel and memorabilia.
The domestic die-cast operations are based in Phoenix, Arizona and Los Angeles,
California areas. The domestic apparel and memorabilia operation is based in
Charlotte, North Carolina with a mass-market retail distribution center in
Atlanta, Georgia and warehouse and distribution facilities in Charlotte, North
Carolina, Baraboo, Wisconsin and Los Angeles, California. Trackside operations
are included in the domestic apparel and memorabilia segment. The foreign
die-cast operation is based in Aachen, Germany.

We evaluate performance and allocate resources based on segment operating
income (loss). The accounting policies of the reportable segments are the same
as those used in the consolidated financial statements. Domestic licensing
costs and certain management costs are not allocated to the domestic operating
segments and are included in corporate and other. Intangible licenses are
included in corporate and other assets. Each domestic segment is allocated
royalty expense based on the incremental royalty due on that segments sales.
Domestic royalty guarantees advanced and unearned are allocated as an expense
of the domestic segments. Financial information for the reportable segments
follows (in thousands):

|      |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |        |        |  
|----- | -------------------------------- | ------------------------------------------- | - | ------------------------------- | ------ | -------- | - | ------------ | - | ------------ | - | --------- | ----- |  | - | ------ | ------ | -
|      |                                  |                                             |   | Three Months Ended December 31,
|      |                                  |                                             |   |                                
|      |                                  |                                             |   |                                 |        |          |   | Inter-       |   | Depreciation |   | Operating
|      |                                  |                                             |   | External                        |        | segment  |   | and          |   | Income      
|      |                                  |                                             |   | Revenues                        |        | Revenues |   | Amortization |   | (Loss)      
|      |                                  |                                             |   |                                 |        |          |   |              |   |             
|2003: |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |       
|      | Domestic die-cast                |                                             | $ | 33,625                          |        |          | $ | 1,147        |   |              | $ | 3,677     |       |  | $ | 3,454  |       
|      | Domestic apparel and memorabilia |                                             |   | 27,817                          |        |          |   | 462          |   |              |   | 769       |       |  |   | (1,564 | )     
|      | Foreign die-cast                 |                                             |   | 9,437                           |        |          |   |             |   |              |   | 1,920     |       |  |   | 1,499  |       
|      | Corporate and other              |                                             |   | 560                             |        |          |   | 320          |   |              |   | 1,200     |       |  |   | (7,006 | )     
|      | Eliminations                     |                                             |   |                                |        |          |   | (1,929       | ) |              |   |          |       |  |   | (274   | )     
|      |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |       
|      |                                  | Total per consolidated
financial statements |   | $                               | 71,439 |          |   | $            |  |              |   | $         | 7,566 |  |   | $      | (3,891 | )
|      |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |       
|2002: |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |       
|      | Domestic die-cast                |                                             | $ | 40,408                          |        |          | $ | 2,070        |   |              | $ | 2,454     |       |  | $ | 12,412 |       
|      | Domestic apparel and memorabilia |                                             |   | 35,640                          |        |          |   |             |   |              |   | 870       |       |  |   | 4,402  |       
|      | Foreign die-cast                 |                                             |   | 9,152                           |        |          |   |             |   |              |   | 1,467     |       |  |   | 1,638  |       
|      | Corporate and other              |                                             |   | 599                             |        |          |   | 519          |   |              |   | 1,458     |       |  |   | (6,163 | )     
|      | Eliminations                     |                                             |   |                                |        |          |   | (2,589       | ) |              |   |          |       |  |   | (29    | )     
|      |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |       
|      |                                  | Total per consolidated
financial statements |   | $                               | 85,799 |          |   | $            |  |              |   | $         | 6,249 |  |   | $      | 12,260 |  
|      |                                  |                                             |   |                                 |        |          |   |              |   |              |   |           |       |  |   |       

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|                                 |                                             |   |                     |         |                         |   |          |         |           |   |        |         |  |   |        |         | 
|-------------------------------- | ------------------------------------------- | - | ------------------- | ------- | ----------------------- | - | -------- | ------- | --------- | - | ------ | ------- |  | - | ------ | ------- | 
|                                 |                                             |   | Identifiable Assets |         | Goodwill and Trademarks
|                                 |                                             |   |                     |         |                        
|                                 |                                             |   | Dec. 31,            |         | Sept. 30,               |   | Dec. 31, |         | Sept. 30,
|                                 |                                             |   | 2003                |         | 2003                    |   | 2003     |         | 2003     
|                                 |                                             |   |                     |         |                         |   |          |         |          
|Domestic die-cast (a)            |                                             | $ | 102,157             |         |                         | $ | 98,847   |         |           | $ | 32,142 |         |  | $ | 33,953 |        
|Domestic apparel and memorabilia |                                             |   | 120,895             |         |                         |   | 131,845  |         |           |   | 62,840 |         |  |   | 62,840 |        
|Foreign die-cast                 |                                             |   | 60,851              |         |                         |   | 58,619   |         |           |   | 19,661 |         |  |   | 18,232 |        
|Corporate and other (b)          |                                             |   | 82,579              |         |                         |   | 93,387   |         |           |   |       |         |  |   |       |        
|Eliminations                     |                                             |   | (7,939              | )       |                         |   | (7,940   | )       |           |   |       |         |  |   |       |        
|                                 |                                             |   |                     |         |                         |   |          |         |           |   |        |         |  |   |        |        
|                                 | Total per consolidated
financial statements |   | $                   | 358,543 |                         |   | $        | 374,758 |           |   | $      | 114,643 |  |   | $      | 115,025 | 
|                                 |                                             |   |                     |         |                         |   |          |         |           |   |        |         |  |   |        |        



| | (a) |  | Domestic die-cast identifiable assets include the Winners Circle
trademark, purchased from Hasbro in May 2001. As additional
consideration, we pay a rate ranging from 1.5% to 3% of certain
Winners Circle product sales to Hasbro, quarterly, through May 2006.
The additional consideration is added to the cost of the trademark
quarterly. During the first quarter of fiscal 2004, $1.5 million was
accrued as additional consideration payable under the earn-out
provisions of the Funline acquisition agreement. The amount recorded
for the Funline trademarks, included in the domestic die-cast segment,
was increased by the amount of the additional consideration. In
addition, during the first quarter of fiscal 2004, a revision of the
preliminary purchase price allocation for the initial consideration for
Funline resulted in a $3.6 million reduction in the amount allocated to
the Funline trademarks.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Corporate and other identifiable assets includes $33.4 million in
cash at December 31, 2003, and $45.4 million in cash at September 30,
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

EARNINGS PER COMMON SHARE (EPS)

Reconciliations of the numerators and denominators in the EPS computations for
net income (loss) follow (in thousands):

|                                                                                                        |  |                                 |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------ | 
|                                                                                                        |  | Three Months Ended December 31,
|                                                                                                        |  |                                
|                                                                                                        |  | 2003                            |        | 2002
|                                                                                                        |  |                                 |        |     
|NUMERATOR:                                                                                              |  |                                 |        |      |  |   |        | 
|Basic  net income (loss)                                                                               |  | $                               | (1,705 | )    |  | $ | 7,966  | 
|Effect
of dilutive 43⁄4% convertible subordinated notes, tax
effected interest                            |  |                                 |       |      |  |   | 319    | 
|                                                                                                        |  |                                 |        |      |  |   |        | 
|Diluted  adjusted net income (loss) before assumed conversions                                         |  | $                               | (1,705 | )    |  | $ | 8,285  | 
|                                                                                                        |  |                                 |        |      |  |   |        | 
|DENOMINATOR:                                                                                            |  |                                 |        |      |  |   |        | 
|Basic  weighted average shares                                                                         |  |                                 | 18,281 |      |  |   | 17,791 | 
|Effect of dilutive stock options and warrants                                                           |  |                                 |       |      |  |   | 404    | 
|Effect of dilutive 43⁄4% convertible subordinated notes                                                   |  |                                 |       |      |  |   | 808    | 
|                                                                                                        |  |                                 |        |      |  |   |        | 
|Diluted  adjusted weighted average shares and assumed conversion of
43⁄4% convertible subordinated notes |  |                                 | 18,281 |      |  |   | 19,003 | 
|                                                                                                        |  |                                 |        |      |  |   |        | 

The impact of options and warrants outstanding for the purchases of 1.3 million
and 1.2 million shares of common stock at an average price of $30.65 and $30.34
were not included in the calculation of diluted EPS for the three months ended
December 31, 2003 and 2002, because to do so would be antidilutive. The
options and warrants had exercise prices greater than the average market price
of the common stock for the three months ended December 31, 2003 and 2002, but
could potentially dilute EPS in the future. The impacts of outstanding 43⁄4%
convertible subordinated notes were not included in the calculation of diluted
EPS for the three months ended December 31, 2003 because to do so would have
been antidilutive. The notes could potentially dilute EPS in the future.

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COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we are subject to certain lawsuits and
asserted and unasserted claims. We believe that the resolution of any such
matters will not have a material adverse effect on financial position, results
of operations, or cash flows.

In December 2003, we settled a lawsuit filed in October 2003 against us in the
U.S. District Court for the District of Delaware for $0.9 million.

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

Overview

We are the leading designer and marketer of licensed motorsports products
related to NASCAR, including die-cast scaled replicas of motorsports vehicles,
apparel, and memorabilia. We currently have exclusive license agreements with
many of the most recognized names in NASCAR. We also design and sell products
relating to other motorsports, including racing sanctioned by the NHRA, Formula
One, the IRL, IROC, and the World of Outlaws. In Germany, we merchandise
Formula One and high-end auto manufacturer die-cast replica vehicles. We work
closely with drivers, team owners, track operators, and sponsors to design and
merchandise our products. Third parties manufacture all of the replica
motorsports vehicles and most apparel and memorabilia, generally utilizing our
designs, tools, and dies. We retain ownership and control over designs and
tooling and have close working relationships with our third-party manufacturers
to help assure product quality.

We have structured our operations to enable us to service higher levels of
sales with limited increases in operating expenses and capital investments.
The principal elements of this operating structure include the following:



| |  |  | Our exclusive licenses allow us to exert a high degree of control over product pricing.                                      
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Manufacturing costs are largely fixed due to outsourcing under fixed-price contracts.                                        
|
| |  |  | Royalties are paid generally as a percentage of sales.                                                                       
|
| |  |  | Due to our agreements with distributors and QVC, incremental volume
does not proportionately increase our operating expenses.
|
| |  |  | Research and development is limited to basic design and engineering.                                                         
|
| |  |  | Capital expenditures are principally limited to tooling for die-cast.                                                        
|
| |  |  | Functions, such as manufacturing and others outside of our core skills, are generally outsourced.                            

Revenue

We derive revenue primarily from the sale of our licensed motorsports products.
The popularity and performance of drivers and teams under license, the
popularity of motorsports in general and NASCAR in particular, the general
demand for licensed sports merchandise, and our ability to design, produce, and
distribute our products in a timely manner influence the level of our net
sales.

We distribute our products through a broad range of channels, including a
network of wholesale distributors, leading mass-market retailers, mobile
trackside stores, QVC, and our collectors club catalog. We recognize revenue
when persuasive evidence of an arrangement exists, title passes to the
customer, the fee is fixed or determinable, and collection is probable. Most
distributor sales are recognized when product is shipped to a distributor
because title to the product passes to the distributor at shipment. Sales to
mass-market retailers are recognized when title to product passes to the
retailer, either at time of shipment to the retailer or receipt by the
retailer. Under terms of our

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consignment agreement with QVC, collectors club catalog sales are recognized
when QVC ships product to the consumer. We recognize trackside sales when the
consumer purchases product at the point of sale. A portion of the product sold
through television programming is consignment product, for which sales are
recognized when QVC ships the product to the consumer. Internet and other
sales are generally recognized when delivered to the consumer.

Cost of Sales

Cost of sales consists primarily of the cost of products procured from
third-party manufacturers, royalty payments to licensors, depreciation of
tooling and dies, and freight charges. Substantial portions of our die-cast
products are manufactured under an exclusive agreement with Early Light, a
third-party manufacturer in China. We obtain substantially all of our apparel
and memorabilia products on a purchase order basis from several third-party
manufacturers and suppliers.

Most of the components of our cost of sales are variable in nature. However,
certain factors do affect our gross margin, including the following:



| |  |  | product mix,                                                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to price our product appropriately,                                                                                                   
|
| |  |  | the effect of amortizing the fixed cost components of cost of
sales, primarily depreciation of tooling and dies, over varying levels
of net sales,
|
| |  |  | the type of freight charges, and                                                                                                                  
|
| |  |  | additional charges related to lower than minimum order quantities
and cancellation of specific purchase orders.                                   

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses consist primarily of employee
compensation, advertising and promotion, rent and other facility costs, and
depreciation and amortization. The majority of these costs are fixed and, as a
result, incremental sales volume generally results in a decline in selling,
general, and administrative expenses as a percentage of net sales.

Seasonality

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

Application of Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States. During
preparation of these financial statements, we are required to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to bad
debts, inventories, fixed assets, goodwill and other intangible assets, income
taxes, royalties, contingencies, and litigation. We base our estimates on
historical experience and various other assumptions that we believe are
reasonable under the circumstances. The results form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

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The following critical accounting policies require us to make significant
judgments and estimates used in the preparation of our financial statements.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. We determine
the adequacy of this allowance by regularly evaluating individual customer
receivables and considering a customers financial condition, credit history,
and current economic conditions. If the financial condition of our customers
were to deteriorate, additional allowances may be required. Our accounts
receivable are written off against the allowance once the account is deemed to
be uncollectible. This typically occurs once we have exhausted all efforts to
collect the account, which includes collection attempts by company employees
and outside collection agencies.

Inventory

We write down our inventory for estimated obsolescence or unmarketable
inventory in an amount equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual market conditions are less favorable than those
projected, additional inventory write-downs may be required.

Royalties

Our license agreements generally require payments of royalties to drivers,
sponsors, teams, and other parties. Contracts generally provide for royalties
to be calculated as a specified percentage of sales. Some contracts, however,
provide for guaranteed minimum royalty payments. Royalties payable calculated
using the contract percentage rates are recognized as cost of sales when the
related sales are recognized. To the extent we project that royalties payable
under a contract, calculated using the contract percentage rate, will be lower
than guaranteed minimums during the guarantee period, we recognize additional
cost of sales over the guarantee period, generally a calendar year. Guarantees
advanced under the license agreements are carried as prepaid royalties until
earned by the third party, or considered to be unrecoverable. We evaluate
prepaid royalties regularly and expense prepaid royalties to cost of sales to
the extent projected to be unrecoverable through sales.

Goodwill and Other Intangibles

We evaluate goodwill and other intangibles for impairment annually, and when
impairment indicators arise, in accordance with SFAS 142, Goodwill and Other
Intangible Assets. For goodwill, we first compare the fair value of a
reporting unit with its carrying amount, including goodwill. If the carrying
amount of a reporting unit exceeds the fair value of a reporting unit,
additional tests would be used to measure the amount of impairment loss, if
any. We use a present value technique to measure reporting unit fair value.
If the carrying amount of any other intangible asset exceeds its fair value, we
would recognize an impairment loss for the difference between fair value and
the carrying amount. We have not recognized any impairment losses to date. If
events occur and circumstances change, causing the fair value of a reporting
unit to fall below its carrying amount, impairment losses may be recognized in
the future.

Deferred Tax Assets

We estimate our actual current tax exposure together with the temporary
differences that have resulted from the differing treatment of items dictated
by generally accepted accounting principles versus U.S. and German tax laws.
These temporary differences result in deferred tax assets and liabilities. On
an on-going basis, we assess the likelihood that our deferred tax assets will
be recovered from future taxable income. If we were to believe the recovery
was less than likely, we would establish a valuation allowance against the
deferred tax asset and charge the amount as an income tax expense in the period
in which such a determination was made.

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Stock-Based Compensation

We account for employee stock-based compensation in accordance with Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees and
related interpretations (APB No. 25). Common stock options issued under our
plans generally do not result in compensation expense because the exercise
price of the stock options equals the market price of the underlying stock on
the date of grant. Were we required to record compensation expense for these
options, the charge to earnings might be significant.

Results of Operations

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

|                                               |  |                    |       |      |  |  |       |  
|---------------------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | -
|                                               |  | Three Months Ended
|                                               |  |                   
|                                               |  | 2003               |       | 2002
|                                               |  |                    |       |     
|Net sales                                      |  |                    | 100.0 | %    |  |  | 100.0 | %
|Cost of sales                                  |  |                    | 75.9  |      |  |  | 64.4  |  
|                                               |  |                    |       |      |  |  |       |  
|Gross profit                                   |  |                    | 24.1  |      |  |  | 35.6  |  
|                                               |  |                    |       |      |  |  |       |  
|Selling, general, and administrative           |  |                    | 28.2  |      |  |  | 20.2  |  
|Amortization of licenses and other intangibles |  |                    | 1.3   |      |  |  | 1.1   |  
|                                               |  |                    |       |      |  |  |       |  
|Income (loss) from operations                  |  |                    | (5.4  | )    |  |  | 14.3  |  
|Interest expense                               |  |                    | (0.6  | )    |  |  | (0.7  | )
|Foreign currency gains and losses              |  |                    | 1.2   |      |  |  | 1.6   |  
|Earnings from joint venture                    |  |                    | 0.8   |      |  |  |      |  
|Other income and expenses                      |  |                    | 0.2   |      |  |  | (0.3  | )
|                                               |  |                    |       |      |  |  |       |  
|Income (loss) before income taxes              |  |                    | (3.8  | )    |  |  | 14.9  |  
|Income taxes                                   |  |                    | 1.4   |      |  |  | (5.6  | )
|                                               |  |                    |       |      |  |  |       |  
|Net income (loss)                              |  |                    | (2.4  | )%   |  |  | 9.3   | %
|                                               |  |                    |       |      |  |  |       |  

The following table sets forth net sales by channel of distribution and net
sales from the operations of acquired businesses for the periods ended December
31 (in thousands):

|                                                        |                                         |                                |        |                    |        |      |        |        |        | 
|------------------------------------------------------- | --------------------------------------- | ------------------------------ | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | 
|                                                        |                                         |                                |        | Three Months Ended
|                                                        |                                         |                                |        |                   
|                                                        |                                         |                                |        | 2003               |        | 2002
|                                                        |                                         |                                |        |                    |        |     
|Domestic Die-cast:                                      |                                         |                                |        |                    |        |      |        |       
|                                                        | Wholesale distribution and promotion    |                                | $      | 11,885             |        |      | $      | 20,980 |       
|                                                        | Wholesale to mass-merchant retailers    |                                |        | 17,836             |        |      |        | 13,205 |       
|                                                        | Retail through collectors catalog club |                                |        | 3,904              |        |      |        | 6,223  |       
|Foreign Die-cast - wholesale distribution and promotion |                                         |                                | 9,437  |                    |        |      | 9,152  |       
|                                                        |                                         |                                |        |                    |        |      |        |       
|                                                        |                                         | Total die-cast                 |        |                    | 43,062 |      |        |        | 49,560 | 
|                                                        |                                         |                                |        |                    |        |      |        |       
|Domestic Apparel and Memorabilia:                       |                                         |                                |        |                    |        |      |        |       
|                                                        | Wholesale distribution and promotion    |                                |        | 13,253             |        |      |        | 16,619 |       
|                                                        | Wholesale to mass-merchant retailers    |                                |        | 8,468              |        |      |        | 12,585 |       
|                                                        |                                         |                                |        |                    |        |      |        |       
|                                                        |                                         | Total apparel and memorabilia: |        |                    | 21,721 |      |        |        | 29,204 | 
|Retail at Trackside                                     |                                         |                                | 6,096  |                    |        |      | 6,436  |       
|Royalties and Other                                     |                                         |                                | 560    |                    |        |      | 599    |       
|                                                        |                                         |                                |        |                    |        |      |        |       
|Net Sales                                               |                                         | $                              | 71,439 |                    |        | $    | 85,799 |       
|                                                        |                                         |                                |        |                    |        |      |        |       
|Net Sales from Businesses Acquired in fiscal 2003       |                                         | $                              | 13,190 |                    |        | $    |       |       
|                                                        |                                         |                                |        |                    |        |      |        |       

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Three Months Ended December 31, 2003, Compared with Three Months Ended December
31, 2002

Net sales decreased 16.7% to $71.4 million for the three months ended December
31, 2003, from $85.8 million in the prior year quarter. Domestic die-cast
sales decreased $6.8 million, or 16.8%, from the prior year quarter while
foreign die-cast sales increased $0.3 million or 3.1%. The decrease in
domestic die-cast sales resulted, in part, from timing issues surrounding the
finalization of sponsor relationships and promotional strategies, compounded by
cautious orders by both wholesale distributors and mass retailers. These
factors led to reduced die-cast order quantities for individual programs and
delayed our ability to produce and ship product. Domestic apparel and
memorabilia segment sales, exclusive of trackside, decreased $7.5 million, or
25.6%, from the prior year quarter. Apparel and memorabilia revenues were down
due to the deferral of certain mass retail apparel orders, which we expect to
realize in our second and third quarters and an unanticipated decline in
December in wholesale apparel and leather jacket demand. Trackside sales
decreased 5.3% to $6.1 million from revenues of $6.4 million in the prior year
quarter.

Gross profit declined to 24.1% of sales in the first quarter of 2004 from 35.6%
in the comparable fiscal 2003 period, reflecting the effects of product mix in
which our lower margin products represented a higher than normal percentage of
total revenues, the ratable amortization of annual tooling depreciation, which
will reduce the margins in quarters of lower revenues, the write-off of Pontiac
NASCAR tooling due to the withdrawal of Pontiac from NASCAR, and lower than
expected margins from our NASCAR die-cast and stylized die-cast businesses.

Selling, general, and administrative expenses were $20.1 million, or 28.2% of
sales, in the quarter ended December 31, 2003, compared to $17.4 million, or
20.2% of sales in the prior year quarter. Selling, general, and administrative
expenses included the $0.9 million settlement of litigation with Dover
International Speedway in the first quarter of 2004. Excluding this settlement
charge and the operating expenses of Funline, acquired in September 2003,
expenses in the 2004 first quarter increased $0.5 million, or 3% over the prior
year first quarter.

Interest expense of $0.4 million for the three months ended December 31, 2003,
was $0.1 million lower than the prior year period, primarily as a result of the
convertible subordinated note repurchases after December 31, 2002.

Foreign currency gains were $0.8 million for the three months ended December
31, 2003, versus $1.4 million in the prior year quarter. The gains resulting
from the impact the 20.0% improvement in the euro-to-U.S. dollar exchange rate
had on German advances payable, which are denominated in U.S. dollars, were
$1.3 million in the 2004 first quarter and $1.4 million in the comparable prior
year quarter. In the 2004 first quarter the translation gains were offset by a
loss of $0.5 million on a forward exchange contract.

The effective tax rate of 37.8% in the first fiscal quarter reflects current
expectations for the effective tax rate for fiscal 2004 and is approximately
the same effective tax rate for the prior year quarter.

Liquidity and Capital Resources

Working capital declined $2.3 million to $111.3 million at December 31, 2003,
from $113.6 million at September 30, 2003. Cash decreased $13.7 million to
$35.8 million at December 31, 2003, from $49.5 million at September 30, 2003.
Cash increased as a result of collection of receivables ($16.2 million). The
increases in cash were offset by reductions in cash for net property and
equipment expenditures ($7.7 million), increases in current
assets,
dividends to common shareholders ($0.9 million), and payment of current
liabilities.

Days sales outstanding, calculated on quarterly sales, were 69.6 days as of
December 31, 2003, compared to 60.6 days as of September 30, 2003, and 47.2
days at December 31, 2002. The increase in DSOs from December 31, 2002,
reflects the larger portion of revenues coming from retail channels that have
longer dating terms and the timing of die-cast shipments.

Inventories at December 31, 2003, increased $9.2 million over amounts at
September 30, 2003. Of this increase, $3.8 million was attributable to
Funline, which must build inventories each December in anticipation of annual
January production shut downs for Chinese New Year. The remaining increase was
primarily due to in-transit inventories, inventory for mass retail shipments
delayed until 2004, and an increase in Jeff Hamilton Collection inventories.

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Except for Funline and collectors catalog club die-cast, we generally produce
domestic and foreign die-cast based upon orders received from customers. The
timing of receiving orders is directly related to the timing of the completion
of product program approvals and is not necessarily indicative of product
demand or future sales. We produce Funline die-cast for inventory based on
customer-projected orders. We receive Funline customer orders weekly, which
are fulfilled in the following week. We record as backlog, orders received
from customers, which for Funline, is limited to the weekly orders.

Apparel and memorabilia product, except Trevco product, is generally ordered
from inventory. Trevco is a seasonal business in which orders are received in
our second and third fiscal quarters and shipped in our third and fourth fiscal
quarters.

Domestic and foreign die-cast, including Funline product, backlog was $42
million and $63 million at December 31, 2003 and 2002. Apparel and memorabilia
backlog was $12 million and $14 million at December 31, 2003 and 2002. Backlog
on any date in a given year is not necessarily indicative of future sales.

As of December 31, 2003, 43⁄4% convertible subordinated notes with a face
value of $29.9 million remained outstanding. The subordinated notes are
convertible, at the option of the holders, into shares of common stock at the
initial conversion price of $48.20 per share, subject to adjustments in certain
events. Interest on notes is payable semi-annually on April 1 and October 1 of
each year. The notes mature on April 1, 2005. The notes are general unsecured
obligations of our company, subordinated in right of payment to all existing
and future senior indebtedness, as defined in the notes. The indenture
governing the notes does not limit or prohibit our company or our subsidiaries
from incurring additional debt, including senior indebtedness. We have the
option to redeem the notes in whole or in part at any time, at redemption
prices set forth in the indenture governing the notes. Upon the occurrence of
a change in control or a termination of trading, as defined in the
indenture, the holders of the subordinated notes will have the right to require
us to repurchase all or any part of such holders notes at 100% of their
principal amount, plus accrued and unpaid interest.

Capital expenditures related principally to ongoing investments in tooling and
building additions in Aachen, Germany, net $7.7 million for the three months
ended December 31, 2003, and included $2.1 million applicable to foreign
operations. Capital expenditures for 2004 are expected to net $24 million.

Under our loan and security agreement with Bank One, we are required to meet
certain financial tests, principally related to debt coverage, tangible net
worth, and funded indebtedness to EBIDA (earnings before interest,
depreciation, and amortization). We were in compliance with those covenants at
December 31, 2003. Outstanding letters of credit totaled $2.4 million at
December 31, 2003.

During the first quarter of 2004, the results of Funlines operations were
sufficient to meet earn-out targets established in the Funline acquisition
agreement. As a result, we issued 28 thousand shares of our common stock with
a value of $0.5 million at December 31, 2003, and accrued $1.0 million as
additional consideration payable in cash. We expect to distribute the cash in
February 2004. The additional consideration for the earnout increased the
amount recorded for the Funline trademarks at December 31, 2003.

In July 2003, the Board of Directors approved a one-year program under which we
may purchase up to 1.0 million shares of our common stock in the open market or
in privately negotiated transactions.

A summary of dividends paid on common stock since September 30, 2003, follows
(in thousands, except per share data):

|       |  |                |      |                  |  |                    |  |                    |  |                  |  |  |  |  |  | 
|------ |  | -------------- | ---- | ---------------- |  | ------------------ |  | ------------------ |  | ---------------- |  |  |  |  |  | 
|Amount |  | Rate Per Share |      | Declaration Date |  | Record Date        |  | Paid              
|       |  |                |      |                  |  |                    |  |                   
|$914   |  | $              | 0.05 |                  |  | September 22, 2003 |  | September 26, 2003 |  | October 13, 2003
|$915   |  | $              | 0.05 |                  |  | December 10, 2003  |  | December 19, 2003  |  | January 12, 2004

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Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements, including statements regarding
business strategies, business, and the industry in which we operate. These
forward-looking statements are based primarily on our expectations and are
subject to a number of risks and uncertainties, some of which are beyond our
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 for the year ended September 30, 2003, as filed with the Securities
and Exchange Commission.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in our exposure to market risk since
year-end. The risk is limited to interest rate risk associated with our credit
instruments and foreign currency exchange rate risk associated with operations
in Germany.

The functional currency for our foreign operation is the euro. As such,
changes in exchange rates between the euro and the U.S. dollar could adversely
affect our future earnings. Given the level of income we currently derive from
our foreign operations, we consider this exposure to be minimal.

We currently use a derivative as part of our risk management strategy related
to a portion of our exposure to currency fluctuations on intercompany advances
to our German subsidiary, denominated in dollars, for which the euro exchange
rate gain or loss is included in operations. These advances totaled $18.2
million at December 31, 2003. We have entered into foreign currency forward
contracts designed to partially offset the effect changes in the euro exchange
rate have on earnings related to these advances. These forward contracts do
not qualify for hedge accounting and is recorded on the balance sheet at fair
value. Changes in fair value are recorded each period in foreign currency
gains and losses.

At December 31, 2003, we were party to a forward with a notional value of 5.0
million euros ($6.3 million as of December 31, 2003), maturing in May 2004,
which remained unsettled. The notional amount does not quantify risk or
represent our liability, but is used in calculation of cash settlements under
the contract. As of December 31, 2003, $0.6 million of net unrealized losses
on the contract were accrued on this forward. During the quarter ended
December 31, 2003, we recorded in foreign currency gains and losses $0.5
million of net realized and unrealized currency losses on forwards. We
realized a $47 thousand loss during the first quarter of 2004 on a contract,
which settled at maturity.

We are exposed to credit risk on this contract in the event of non-performance
by the counterparty. However, the counterparty to this transaction is a major
financial institution we deem credit worthy. We do not anticipate
non-performance.




ITEM 4. CONTROLS AND PROCEDURES

We have evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of December 31, 2003. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have each concluded that our
disclosure controls and procedures are effective to ensure that we record,
process, summarize, and report information required to be disclosed by us in
our quarterly reports filed under the Securities Exchange Act within the time
periods specified by the Securities and Exchange Commissions rules and forms.
During the quarterly period covered by this report, there have not been any
changes in our internal controls over financial reporting that have materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

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PART II - OTHER INFORMATION




ITEM 1. Legal Proceedings

Not applicable




ITEM 2. Changes in Securities and Use of Proceeds

Not applicable




ITEM 3. Defaults Upon Senior 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 
|--- |  | ----------

| |  |  |      |  |  |                                                                                                                                                          
| |  |  | ---- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 31.1 |  |  | Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities
Exchange Act of 1934, as amended
| |  |  |      |  |  |                                                                                                                                                          
| |  |  | 31.2 |  |  | Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities
Exchange Act of 1934, as amended
| |  |  |      |  |  |                                                                                                                                                          
| |  |  | 32.1 |  |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002        
| |  |  |      |  |  |                                                                                                                                                          
| |  |  | 32.2 |  |  | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002        



|(b) |  | Reports on Form 8-K                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | We filed a current report on Form 8-K, dated October 22, 2003, reporting
that we issued a press release announcing earnings will not meet
managements announced expectations.          
|   
|    |  | We filed a current report on Form 8-K, dated November 5, 2003, reporting
that we issued a press release announcing our fourth quarter and fiscal
year ended September 30, 2003, results.

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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. WagenhalsFred W. Wagenhals |  | Chairman of the Board, President, and
Chief Executive Officer
(Principal Executive Officer)    |  | February 12, 2004
|                                      
|                                       |  |                                                                                                |  |                  
|                                      
|/s/ R. David MartinR. David Martin     |  | Chief Financial Officer, Secretary, and Treasurer
(Principal Financial and Accounting Officer) |  | February 12, 2004

17