##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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

For the quarterly period ended March 31, 2003

Commission file number 0-21630

ACTION PERFORMANCE COMPANIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                  |  |                                                 
|--------------------------------- |  | ------------------------------------------------
|ARIZONA

(State of Incorporation) |  | 86-0704792

(I.R.S. Employer Identification No.)

|                                       
|---------------------------------------
|4707 E. Baseline Road
Phoenix, AZ 85042

(Address, including zip code, of principal 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 APRIL 15, 2003
| |  |                               |  |                              
| |  | Common Stock, $0.01 Par Value |  | 17,853,460 Shares            





---

TABLE OF CONTENTS



|                               |                                                                                               |  |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART  I- FINANCIAL INFORMATION
|                               | ITEM 1. 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                                                     
|EX-99.1                       
|EX-99.2                       



---



##### Table of Contents






PART I- FINANCIAL INFORMATION




ITEM 1. Financial Statements

2



---



##### Table of Contents



ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
March 31, 2003 and September 30, 2002
(in thousands, except per share data)

|                                     |                                                                                         |                             |         |           |         |               |         |         |         | 
|------------------------------------ | --------------------------------------------------------------------------------------- | --------------------------- | ------- | --------- | ------- | ------------- | ------- | ------- | ------- | 
|                                     |                                                                                         |                             |         | March 31, |         | September 30,
|                                     |                                                                                         |                             |         | 2003      |         | 2002         
|                                     |                                                                                         |                             |         |           |         |              
|ASSETS                               |                                                                                         |                             |         |           |         |               |         |        
|Current Assets:                      |                                                                                         |                             |         |           |         |               |         |        
|                                     | Cash and cash equivalents                                                               |                             | $       | 64,797    |         |               | $       | 69,585  |        
|                                     | Accounts receivable, net                                                                |                             |         | 51,163    |         |               |         | 61,313  |        
|                                     | Inventories                                                                             |                             |         | 36,237    |         |               |         | 33,467  |        
|                                     | Prepaid royalties                                                                       |                             |         | 8,619     |         |               |         | 6,938   |        
|                                     | Deferred taxes                                                                          |                             |         | 3,230     |         |               |         | 3,155   |        
|                                     | Prepaid expenses and other                                                              |                             |         | 5,202     |         |               |         | 2,397   |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|                                     |                                                                                         | Total Current Assets        |         |           | 169,248 |               |         |         | 176,855 | 
|Property and Equipment, net          |                                                                                         |                             | 58,176  |           |         |               | 46,378  |        
|Goodwill                             |                                                                                         |                             | 86,251  |           |         |               | 84,514  |        
|Licenses and Other Intangibles, net  |                                                                                         |                             | 22,832  |           |         |               | 24,000  |        
|Other Assets                         |                                                                                         |                             | 4,980   |           |         |               | 6,169   |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|                                     |                                                                                         | $                           | 341,487 |           |         | $             | 337,916 |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                         |                             |         |           |         |               |         |        
|Current Liabilities:                 |                                                                                         |                             |         |           |         |               |         |        
|                                     | Accounts payable                                                                        |                             | $       | 23,072    |         |               | $       | 28,958  |        
|                                     | Accrued royalties                                                                       |                             |         | 10,431    |         |               |         | 15,146  |        
|                                     | Accrued expenses                                                                        |                             |         | 7,002     |         |               |         | 10,545  |        
|                                     | Income taxes payable                                                                    |                             |         | 5,242     |         |               |         | 4,265   |        
|                                     | Current portion of long-term debt                                                       |                             |         | 515       |         |               |         | 423     |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|                                     |                                                                                         | Total Current Liabilities   |         |           | 46,262  |               |         |         | 59,337  | 
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|Long-Term Liabilities:               |                                                                                         |                             |         |           |         |               |         |        
|                                     | Long-term debt                                                                          |                             |         | 43,308    |         |               |         | 40,360  |        
|                                     | Deferred taxes and other                                                                |                             |         | 5,655     |         |               |         | 5,696   |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|                                     |                                                                                         | Total Long-Term Liabilities |         |           | 48,963  |               |         |         | 46,056  | 
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|Commitments and Contingencies        |                                                                                         |                             |         |           |         |               |         |        
|Minority Interests                   |                                                                                         |                             | 2,934   |           |         |               | 3,135   |        
|Shareholders Equity:                |                                                                                         |                             |         |           |         |               |         |        
|                                     | Common stock, $.01 par value, 62,500 shares authorized,
18,043 and 17,948 shares issued |                             |         | 180       |         |               |         | 179     |        
|                                     | Additional paid-in capital                                                              |                             |         | 147,384   |         |               |         | 146,545 |        
|                                     | Treasury stock, at cost, 190 and 80 shares                                              |                             |         | (3,999    | )       |               |         | (1,975  | )      
|                                     | Accumulated other comprehensive loss                                                    |                             |         | (3,632    | )       |               |         | (4,606  | )      
|                                     | Retained earnings                                                                       |                             |         | 103,395   |         |               |         | 89,245  |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|                                     |                                                                                         | Total Shareholders Equity  |         |           | 243,328 |               |         |         | 229,388 | 
|                                     |                                                                                         |                             |         |           |         |               |         |         |        
|                                     |                                                                                         | $                           | 341,487 |           |         | $             | 337,916 |        
|                                     |                                                                                         |                             |         |           |         |               |         |         |        

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

3



---



##### Table of Contents



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

|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |        |   |        | 
|--------------------------- | ---------------------------------------------- | - | ------------------------ | ------ | ------------------ | ------ | ---------------- | ------ | ---- | ------ | ------- | ------ |  | ------ | ------- | ------ | - | ------ | 
|                            |                                                |   |                          |        | Three Months Ended |        | Six Months Ended
|                            |                                                |   |                          |        |                    |        |                 
|                            |                                                |   |                          |        | 2003               |        | 2002             |        | 2003 |        | 2002   
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |        
|Net sales                   |                                                | $ | 91,056                   |        |                    | $      | 100,185          |        |      | $      | 176,855 |        |  | $      | 184,321 |       
|Cost of sales               |                                                |   | 59,005                   |        |                    |        | 61,328           |        |      |        | 114,282 |        |  |        | 113,613 |       
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|Gross profit                |                                                |   | 32,051                   |        |                    |        | 38,857           |        |      |        | 62,573  |        |  |        | 70,708  |       
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|Operating expenses:         |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|                            | Selling, general and administrative            |   |                          | 19,799 |                    |        |                  | 18,929 |      |        |         | 37,161 |  |        |         | 36,101 |  
|                            | Amortization of licenses and other intangibles |   |                          | 835    |                    |        |                  | 581    |      |        |         | 1,735  |  |        |         | 1,087  |  
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|                            |                                                |   | Total operating expenses |        |                    | 20,634 |                  |        |      | 19,510 |         |        |  | 38,896 |         |        |   | 37,188 | 
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|Income from operations      |                                                |   | 11,417                   |        |                    |        | 19,347           |        |      |        | 23,677  |        |  |        | 33,520  |       
|Interest expense            |                                                |   | (610                     | )      |                    |        | (861             | )      |      |        | (1,189  | )      |  |        | (1,706  | )     
|Other income (expense), net |                                                |   | 699                      |        |                    |        | (249             | )      |      |        | 1,825   |        |  |        | (136    | )     
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|Income before income taxes  |                                                |   | 11,506                   |        |                    |        | 18,237           |        |      |        | 24,313  |        |  |        | 31,678  |       
|Income taxes                |                                                |   | 4,252                    |        |                    |        | 7,076            |        |      |        | 9,093   |        |  |        | 12,287  |       
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|Net income                  |                                                |   | 7,254                    |        |                    |        | 11,161           |        |      |        | 15,220  |        |  |        | 19,391  |       
|                            | Other comprehensive income (loss)              |   |                          | 191    |                    |        |                  | (1,229 | )    |        |         | 974    |  |        |         | (873   | )
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|                            | Comprehensive income                           |   | $                        | 7,445  |                    |        | $                | 9,932  |      |        | $       | 16,194 |  |        | $       | 18,518 |  
|                            |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|Earnings Per Common Share:  |                                                |   |                          |        |                    |        |                  |        |      |        |         |        |  |        |         |       
|                            | Basic                                          |   | $                        | 0.41   |                    |        | $                | 0.64   |      |        | $       | 0.85   |  |        | $       | 1.12   |  
|                            | Diluted                                        |   | $                        | 0.40   |                    |        | $                | 0.60   |      |        | $       | 0.83   |  |        | $       | 1.06   |  

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

4



---



##### Table of Contents



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

|                                                      |                                                                     |                                           |        |                            |         |      |        |         |         |  
|----------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | ------ | -------------------------- | ------- | ---- | ------ | ------- | ------- | -
|                                                      |                                                                     |                                           |        | Six Months Ended March 31,
|                                                      |                                                                     |                                           |        |                           
|                                                      |                                                                     |                                           |        | 2003                       |         | 2002
|                                                      |                                                                     |                                           |        |                            |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                                                                     |                                           |        |                            |         |      |        |        
|                                                      | Net income                                                          |                                           | $      | 15,220                     |         |      | $      | 19,391  |        
|                                                      | Adjustments to reconcile net income to cash provided by operations- |                                           |        |                            |         |      |        |         |        
|                                                      |                                                                     | Depreciation and amortization             |        |                            | 12,942  |      |        |         | 11,589  |  
|                                                      |                                                                     | Stock option tax benefits                 |        |                            | 446     |      |        |         | 3,180   |  
|                                                      |                                                                     | Gain on extinguishment of debt            |        |                            |        |      |        |         | (235    | )
|                                                      |                                                                     | Other                                     |        |                            | 248     |      |        |         | 565     |  
|                                                      | Changes in assets and liabilities, net-                             |                                           |        |                            |         |      |        |         |        
|                                                      |                                                                     | Accounts receivable, net                  |        |                            | 10,561  |      |        |         | (1,638  | )
|                                                      |                                                                     | Accounts payable and accrued expenses     |        |                            | (9,932  | )    |        |         | (8,121  | )
|                                                      |                                                                     | Income taxes payable                      |        |                            | 949     |      |        |         | (5,078  | )
|                                                      |                                                                     | Inventories                               |        |                            | (2,496  | )    |        |         | (394    | )
|                                                      |                                                                     | Prepaid royalties and accrued royalties   |        |                            | (6,396  | )    |        |         | (1,507  | )
|                                                      |                                                                     | Other                                     |        |                            | (5,046  | )    |        |         | (771    | )
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|                                                      |                                                                     | Net cash provided by operating activities |        |                            | 16,496  |      |        |         | 16,981  |  
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                                                     |                                           |        |                            |         |      |        |        
|                                                      | Capital expenditures, net                                           |                                           |        | (20,307                    | )       |      |        | (12,009 | )      
|                                                      | Other                                                               |                                           |        | (603                       | )       |      |        | (237    | )      
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|                                                      |                                                                     | Net cash used in investing activities     |        |                            | (20,910 | )    |        |         | (12,246 | )
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                                                     |                                           |        |                            |         |      |        |        
|                                                      | Long-term debt borrowings  German mortgage                         |                                           |        | 3,001                      |         |      |        |        |        
|                                                      | Long-term debt repayments, net                                      |                                           |        | (422                       | )       |      |        | (6,227  | )      
|                                                      | Common stock purchases for treasury                                 |                                           |        | (2,024                     | )       |      |        |        |        
|                                                      | Dividends paid to common shareholders                               |                                           |        | (1,070                     | )       |      |        |        |        
|                                                      | Dividends paid to minority interest shareholders                    |                                           |        | (730                       | )       |      |        | (912    | )      
|                                                      | Stock option exercise proceeds                                      |                                           |        | 394                        |         |      |        | 5,154   |        
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|                                                      |                                                                     | Net cash used in financing activities     |        |                            | (851    | )    |        |         | (1,985  | )
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|Effect of exchange rates on cash and cash equivalents |                                                                     |                                           | 477    |                            |         |      | (180   | )      
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|Net change in cash and cash equivalents               |                                                                     |                                           | (4,788 | )                          |         |      | 2,570  |        
|Cash and cash equivalents, beginning of period        |                                                                     |                                           | 69,585 |                            |         |      | 64,514 |        
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|Cash and cash equivalents, end of period              |                                                                     | $                                         | 64,797 |                            |         | $    | 67,084 |        
|                                                      |                                                                     |                                           |        |                            |         |      |        |         |        
|Supplemental Disclosures:                             |                                                                     |                                           |        |                            |         |      |        |        
|                                                      | Interest paid                                                       |                                           | $      | 1,078                      |         |      | $      | 1,433   |        
|                                                      | Income taxes paid, net                                              |                                           |        | 8,260                      |         |      |        | 14,035  |        

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

5



---



##### Table of Contents



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

INTERIM FINANCIAL REPORTING

The accompanying condensed consolidated financial statements for Action
Performance Companies, Inc. and subsidiaries have been prepared without audit
by independent public accountants pursuant to the rules and regulations of the
Securities and Exchange Commission. In our opinion, all normal 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,
2002. 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, 2003.

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

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and
Technical Corrections as of April 2002 changes the classification of all gains
and losses from extinguishment of debt, which under FASB Statement No. 4 were
required to be classified as an extraordinary item, net of related income tax
effect. Under SFAS No. 145, gains and losses from extinguishment of debt are
now classified as a component of operations. We adopted SFAS No. 145 effective
October 1, 2002. We have classified gains and losses from extinguishment of
debt in all periods presented as a component of other income and adjusted
income taxes accordingly. There was no net impact on net income previously
reported.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation requires a guarantor
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee and expands the
disclosures required. Initial recognition and measurement provisions of FIN
No. 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002, consequently, the adoption of FIN No. 45 had no effect
on our financial position, results of operations or cash flows. We believe our
current accounting policies are consistent with the interpretation.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51. FIN No. 46
clarifies the consolidation requirements of variable interest entities. We
have adopted the interpretation. We have no interests in unconsolidated
variable interest entities and, consequently, adoption of FIN No. 46 had no
effect on our financial position, results of operations or cash flows.

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 operation is based in Phoenix, Arizona. 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 other management and shared 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

6



---



##### Table of Contents



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 March 31, |   |              |   |          
|          |                                  |                                             |   |         
|          |                                  |                                             |   |          |         |          |   | Inter-                       |   | Depreciation |   | Operating
|          |                                  |                                             |   | External |         | segment  |   | and                          |   | Income      
|          |                                  |                                             |   | Revenues |         | Revenues |   | Amortization                 |   | (Loss)      
|          |                                  |                                             |   |          |         |          |   |                              |   |             
|2003:     |                                  |                                             |   |          |         |          |   |                              |   |              |   |           |       |  |   |       
|          | Domestic die-cast                |                                             | $ | 34,656   |         |          | $ | 2,639                        |   |              | $ | 2,834     |       |  | $ | 9,590  |       
|          | Domestic apparel and memorabilia |                                             |   | 47,279   |         |          |   | 182                          |   |              |   | 820       |       |  |   | 7,391  |       
|          | Foreign die-cast                 |                                             |   | 8,149    |         |          |   |                             |   |              |   | 1,655     |       |  |   | 1,532  |       
|          | Corporate and other              |                                             |   | 972      |         |          |   | 533                          |   |              |   | 1,384     |       |  |   | (6,406 | )     
|          | Eliminations                     |                                             |   |         |         |          |   | (3,354                       | ) |              |   |          |       |  |   | (690   | )     
|          |                                  |                                             |   |          |         |          |   |                              |   |              |   |           |       |  |   |        |       
|          |                                  | Total per consolidated
financial statements |   | $        | 91,056  |          |   | $                            |  |              |   | $         | 6,693 |  |   | $      | 11,417 | 
|          |                                  |                                             |   |          |         |          |   |                              |   |              |   |           |       |  |   |        |       
|2002 (c): |                                  |                                             |   |          |         |          |   |                              |   |              |   |           |       |  |   |       
|          | Domestic die-cast                |                                             | $ | 53,428   |         |          | $ | 3,621                        |   |              | $ | 2,658     |       |  | $ | 17,423 |       
|          | Domestic apparel and memorabilia |                                             |   | 38,741   |         |          |   |                             |   |              |   | 513       |       |  |   | 8,006  |       
|          | Foreign die-cast                 |                                             |   | 7,351    |         |          |   |                             |   |              |   | 1,118     |       |  |   | 1,561  |       
|          | Corporate and other              |                                             |   | 665      |         |          |   | 457                          |   |              |   | 1,438     |       |  |   | (6,998 | )     
|          | Eliminations                     |                                             |   |         |         |          |   | (4,078                       | ) |              |   |          |       |  |   | (645   | )     
|          |                                  |                                             |   |          |         |          |   |                              |   |              |   |           |       |  |   |        |       
|          |                                  | Total per consolidated
financial statements |   | $        | 100,185 |          |   | $                            |  |              |   | $         | 5,727 |  |   | $      | 19,347 | 
|          |                                  |                                             |   |          |         |          |   |                              |   |              |   |           |       |  |   |        |       

|          |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |         |        | 
|--------- | -------------------------------- | ------------------------------------------- | - | -------- | ------- | -------- | - | -------------------------- | - | ------------ | - | --------- | ------ |  | - | ------- | ------ | 
|          |                                  |                                             |   |          |         |          |   | Six Months Ended March 31, |   |              |   |          
|          |                                  |                                             |   |         
|          |                                  |                                             |   |          |         |          |   | Inter-                     |   | Depreciation |   | Operating
|          |                                  |                                             |   | External |         | segment  |   | and                        |   | Income      
|          |                                  |                                             |   | Revenues |         | Revenues |   | Amortization               |   | (Loss)      
|          |                                  |                                             |   |          |         |          |   |                            |   |             
|2003:     |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |        
|          | Domestic die-cast                |                                             | $ | 75,064   |         |          | $ | 4,709                      |   |              | $ | 5,288     |        |  | $ | 22,002  |       
|          | Domestic apparel and
memorabilia |                                             |   | 82,919   |         |          |   | 182                        |   |              |   | 1,690     |        |  |   | 11,793  |       
|          | Foreign die-cast                 |                                             |   | 17,301   |         |          |   |                           |   |              |   | 3,122     |        |  |   | 3,170   |       
|          | Corporate and other              |                                             |   | 1,571    |         |          |   | 1,052                      |   |              |   | 2,842     |        |  |   | (12,569 | )     
|          | Eliminations                     |                                             |   |         |         |          |   | (5,943                     | ) |              |   |          |        |  |   | (719    | )     
|          |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |         |       
|          |                                  | Total per consolidated
financial statements |   | $        | 176,855 |          |   | $                          |  |              |   | $         | 12,942 |  |   | $       | 23,677 | 
|          |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |         |       
|2002 (c): |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |        
|          | Domestic die-cast                |                                             | $ | 101,087  |         |          | $ | 6,192                      |   |              | $ | 5,578     |        |  | $ | 33,595  |       
|          | Domestic apparel and
memorabilia |                                             |   | 66,767   |         |          |   |                           |   |              |   | 1,006     |        |  |   | 9,728   |       
|          | Foreign die-cast                 |                                             |   | 14,813   |         |          |   |                           |   |              |   | 2,130     |        |  |   | 3,118   |       
|          | Corporate and other              |                                             |   | 1,654    |         |          |   | 695                        |   |              |   | 2,875     |        |  |   | (12,581 | )     
|          | Eliminations                     |                                             |   |         |         |          |   | (6,887                     | ) |              |   |          |        |  |   | (340    | )     
|          |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |         |       
|          |                                  | Total per consolidated
financial statements |   | $        | 184,321 |          |   | $                          |  |              |   | $         | 11,589 |  |   | $       | 33,520 | 
|          |                                  |                                             |   |          |         |          |   |                            |   |              |   |           |        |  |   |         |       

7



---



##### Table of Contents



|                                 |                                             |   |                     |         |                         |   |           |         |           |   |        |        |  |   |        |        | 
|-------------------------------- | ------------------------------------------- | - | ------------------- | ------- | ----------------------- | - | --------- | ------- | --------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                 |                                             |   | Identifiable Assets |         | Goodwill and Trademarks
|                                 |                                             |   |                     |         |                        
|                                 |                                             |   | March 31,           |         | Sept. 30,               |   | March 31, |         | Sept. 30,
|                                 |                                             |   | 2003                |         | 2002                    |   | 2003      |         | 2002     
|                                 |                                             |   |                     |         |                         |   |           |         |          
|Domestic die-cast (a)            |                                             | $ | 58,462              |         |                         | $ | 60,744    |         |           | $ | 14,362 |        |  | $ | 13,769 |       
|Domestic apparel and memorabilia |                                             |   | 128,848             |         |                         |   | 122,775   |         |           |   | 61,852 |        |  |   | 61,841 |       
|Foreign die-cast                 |                                             |   | 54,994              |         |                         |   | 47,660    |         |           |   | 17,035 |        |  |   | 15,334 |       
|Corporate and other (b)          |                                             |   | 109,011             |         |                         |   | 114,369   |         |           |   |       |        |  |   |       |       
|Eliminations                     |                                             |   | (9,828              | )       |                         |   | (7,632    | )       |           |   |       |        |  |   |       |       
|                                 |                                             |   |                     |         |                         |   |           |         |           |   |        |        |  |   |        |       
|                                 | Total per consolidated
financial statements |   | $                   | 341,487 |                         |   | $         | 337,916 |           |   | $      | 93,249 |  |   | $      | 90,944 | 
|                                 |                                             |   |                     |         |                         |   |           |         |           |   |        |        |  |   |        |       

|(a) |  | Domestic die-cast identifiable assets include the Winners Circle
trademark, purchased from Hasbro in May 2001. As additional
consideration, we pay 3% of the related product sales to Hasbro,
quarterly, through May 2006. The additional consideration is added to
the cost of the trademark quarterly.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Corporate and other identifiable assets includes $60.0 million in
cash at March 31, 2003, and $66.3 million in cash at September 30,
2002.                                                                                                                                                               
|   
|(c) |  | Certain prior period amounts have been reclassified to conform to
the current year presentation.                                                                                                                                                                                                         

EARNINGS PER COMMON SHARE (EPS)

Reconciliations of the numerators and denominators in the EPS computations for
net income for the periods ended March 31 follows (in thousands):

|                                                                                                          |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|--------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                                                                          |  | Three Months Ended |        | Six Months Ended
|                                                                                                          |  |                    |        |                 
|                                                                                                          |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                                                                                          |  |                    |        |                  |  |      |        |     
|NUMERATOR:                                                                                                |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Basic  net income                                                                                        |  | $                  | 7,254  |                  |  | $    | 11,161 |      |  | $ | 15,220 |  |  | $ | 19,391 | 
|Effect of dilutive 43/4% convertible
subordinated notes, tax effected interest                            |  |                    | 324    |                  |  |      | 405    |      |  |   | 643    |  |  |   | 852    | 
|                                                                                                          |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted  adjusted net income before assumed
conversions                                                  |  | $                  | 7,578  |                  |  | $    | 11,566 |      |  | $ | 15,863 |  |  | $ | 20,243 | 
|                                                                                                          |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|DENOMINATOR:                                                                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Basic  weighted average shares                                                                           |  |                    | 17,847 |                  |  |      | 17,434 |      |  |   | 17,819 |  |  |   | 17,338 | 
|Effect of dilutive stock options and warrants                                                             |  |                    | 343    |                  |  |      | 799    |      |  |   | 382    |  |  |   | 771    | 
|Effect of dilutive 43/4% convertible
subordinated notes                                                   |  |                    | 808    |                  |  |      | 1,028  |      |  |   | 808    |  |  |   | 1,082  | 
|                                                                                                          |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted
 adjusted weighted average shares
and assumed conversion of 43/4% convertible
subordinated notes |  |                    | 18,998 |                  |  |      | 19,261 |      |  |   | 19,009 |  |  |   | 19,191 | 
|                                                                                                          |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 

The impact of options and warrants outstanding at March 31, 2003, for the
purchase of 1.3 million shares of common stock, at an average price of $30.09
were not included in the calculation of diluted EPS for the six months ended
March 31, 2003, 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 six months ended March 31, 2003, but could potentially
dilute EPS in the future.

8



---



##### Table of Contents



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 for the periods ended March 31:

|                         |  |                    |      |                  |  |         |      |         |  |  |      |   |  |  |      |  
|------------------------ |  | ------------------ | ---- | ---------------- |  | ------- | ---- | ------- |  |  | ---- | - |  |  | ---- | -
|                         |  | Three Months Ended |      | Six Months Ended
|                         |  |                    |      |                 
|                         |  | 2003               |      | 2002             |  | 2003    |      | 2002   
|                         |  |                    |      |                  |  |         |      |        
|Volatility               |  |                    | 56.1 | %                |  |         | 57.7 | %       |  |  | 56.3 | % |  |  | 57.7 | %
|Risk-free interest rate  |  |                    | 2.1  | %                |  |         | 2.6  | %       |  |  | 2.1  | % |  |  | 2.6  | %
|Dividend rate            |  |                    | 0.7  | %                |  |         | 0.7  | %       |  |  | 0.7  | % |  |  | 0.7  | %
|Expected life of options |  | 3 years            |      | 3 years          |  | 3 years |      | 3 years

Options granted to employees 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
for the periods ended March 31 (in thousands, except per share data):

|             |             |  |                    |       |                  |  |      |        |      |  |   |        |  |  |   |        | 
|------------ | ----------- |  | ------------------ | ----- | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|             |             |  | Three Months Ended |       | Six Months Ended
|             |             |  |                    |       |                 
|             |             |  | 2003               |       | 2002             |  | 2003 |        | 2002
|             |             |  |                    |       |                  |  |      |        |     
|Net Income:  |             |  |                    |       |                  |  |      |        |      |  |   |        |  |  |   |       
|             | As Reported |  | $                  | 7,254 |                  |  | $    | 11,161 |      |  | $ | 15,220 |  |  | $ | 19,391 | 
|             | Pro Forma   |  | $                  | 6,351 |                  |  | $    | 10,150 |      |  | $ | 13,391 |  |  | $ | 17,920 | 
|Basic EPS:   |             |  |                    |       |                  |  |      |        |      |  |   |        |  |  |   |       
|             | As Reported |  | $                  | 0.41  |                  |  | $    | 0.64   |      |  | $ | 0.85   |  |  | $ | 1.12   | 
|             | Pro Forma   |  | $                  | 0.36  |                  |  | $    | 0.58   |      |  | $ | 0.75   |  |  | $ | 1.04   | 
|Diluted EPS: |             |  |                    |       |                  |  |      |        |      |  |   |        |  |  |   |       
|             | As Reported |  | $                  | 0.40  |                  |  | $    | 0.60   |      |  | $ | 0.83   |  |  | $ | 1.06   | 
|             | Pro Forma   |  | $                  | 0.35  |                  |  | $    | 0.55   |      |  | $ | 0.73   |  |  | $ | 0.98   | 

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, we
purchased 110 thousand shares at a price of $18.39 per share.

GAIN ON EXTINGUISHMENT OF DEBT

During the three and six months ended March 31, 2002, we repurchased 43/4%
convertible subordinated notes with a face value of $1.0 million and $6.0
million, for cash of $1.0 million and 4.7 million, respectively. We did not
repurchase 43/4% convertible subordinated notes during the three and six
months ended March 31, 2003. On May 1, 2003, we repurchased
43/4% convertible
subordinated notes with a face value of $5.0 million with $4.9 million cash.

9



---



##### Table of Contents



ALLIANCES

In November 2002, we entered into a 50/50 joint venture with TMP International,
Inc, the producer of McFarlane Toys, to produce and market a new series of
action figures based on NASCAR drivers. The joint venture, called
Action-McFarlane LLC, is currently expected to begin production in late 2003.

COMMITMENTS AND CONTINGENCIES

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

One of our sublessees fell in arrears on lease payments during 2002. The
subleases with this party include a building lease, which expires October 2009,
and equipment and furniture leases, which expired October 2002. The building
lease has annual lease payments of $1.0 million. We acquired the equipment and
furniture under the subleases in October 2002. In fiscal 2002, we reserved
$3.0 million, representing our then current estimate of the total potential
loss under the building sublease agreements. In March 2003, we decided to move
our corporate headquarters to this building from our current corporate
headquarters, which is also a leased building. We currently estimate that the
$0.9 million reserve remaining at March 31, 2003, will be adequate to cover
lease payments on the current corporate headquarters building after we move,
until sublet. We plan to move in late summer.




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, 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 respond to challenging
business conditions and 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:



| |  |  | We have the ability to exert a high degree of control over product
pricing.                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Manufacturing costs are largely fixed as a percentage of sales 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.                            

10



---



##### Table of Contents



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 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 from several third-party manufacturers and suppliers.

Due to the variable nature of most of the components of our cost of sales, our
gross margin generally does not fluctuate significantly. However, certain
factors do affect our gross margin, including the following:



| |  |  | product mix,                                                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to control product pricing without discounting,                                                                                       
|
| |  |  | 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.

11



---



##### Table of Contents



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.

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 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 Reserves

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 prove to be less favorable than
those projected by management, additional inventory write-downs may be
required.

Royalties

Our license agreements generally require payments of royalties to drivers,
sponsors, teams, and other parties on a calendar year basis. Royalties payable
are recognized as cost of sales when the related sale is recognized.
Guarantees advanced under 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 prepaids 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 at least annually, in
accordance with SFAS No. 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.

12



---



##### Table of Contents



Deferred Tax Assets

We estimate our actual current tax obligations 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.

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.

Results of Operations

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

|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|---------------------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                               |  | Three Months Ended |       | Six Months Ended
|                                               |  |                    |       |                 
|                                               |  | 2003               |       | 2002             |  | 2003 |       | 2002
|                                               |  |                    |       |                  |  |      |       |     
|Net sales                                      |  |                    | 100.0 | %                |  |      | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|Cost of sales                                  |  |                    | 64.8  |                  |  |      | 61.2  |      |  |  | 64.6  |   |  |  | 61.6  |  
|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Gross profit                                   |  |                    | 35.2  |                  |  |      | 38.8  |      |  |  | 35.4  |   |  |  | 38.4  |  
|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Selling, general and administrative            |  |                    | 21.7  |                  |  |      | 18.9  |      |  |  | 21.0  |   |  |  | 19.6  |  
|Amortization of licenses and other
intangibles |  |                    | 0.9   |                  |  |      | 0.6   |      |  |  | 1.0   |   |  |  | 0.6   |  
|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Income from operations                         |  |                    | 12.6  |                  |  |      | 19.3  |      |  |  | 13.4  |   |  |  | 18.2  |  
|Interest expense                               |  |                    | (0.7  | )                |  |      | (0.9  | )    |  |  | (0.7  | ) |  |  | (0.9  | )
|Other income (expense)                         |  |                    | 0.8   |                  |  |      | (0.2  | )    |  |  | 1.0   |   |  |  | (0.1  | )
|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Income before income taxes                     |  |                    | 12.7  |                  |  |      | 18.2  |      |  |  | 13.7  |   |  |  | 17.2  |  
|Income taxes                                   |  |                    | 4.7   |                  |  |      | 7.1   |      |  |  | 5.1   |   |  |  | 6.7   |  
|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Net income                                     |  |                    | 8.0   |                  |  |      | 11.1  |      |  |  | 8.6   |   |  |  | 10.5  |  
|                                               |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  

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

Net sales decreased 9.1% to $91.1 million for the three months ended March 31,
2003, from $100.2 million in the prior year quarter. Domestic die-cast sales
decreased $18.8 million, or 35.1%, from the prior year quarter while foreign
die-cast sales increased $0.8 million or 10.9%. The decline in wholesale and
collectors club die-cast revenue was due to the previously reported Monte Carlo
and Pontiac re-tooling issue. The re-tooling is now complete. Other products
and distribution channels showed strength and partially offset the decline in
die-cast revenues. Domestic apparel and memorabilia segment sales, exclusive
of trackside, increased $6.5 million, or 24.1%, from the prior year quarter.
This increase includes $1.7 million from mass retail, $4.1 million from 2002
acquisitions, and an increase of $0.7 million in wholesale apparel sales.
Trackside sales increased 17.4% to $14.0 million from $11.9 million in the
prior year quarter due to the timing of the Texas race.

Gross profit declined to 35.2% of sales in the three months ended March 31,
2003, from 38.8% in the comparable fiscal 2002 quarter. Gross margins were
impacted by lower domestic die-cast margins and lower margins from our German
subsidiary. Domestic die-cast margins suffered as a result of die-cast product
cost increases and the lack of premium selling prices due to fewer special
programs. German die-cast margins were lower as a result of higher tooling
costs. These declines in gross margin were partially offset by the impact of
higher margin apparel sales being a larger component of total sales this year
than last year.

13



---



##### Table of Contents



Selling, general, and administrative expenses were $19.8 million, or 21.7% of
sales, in the three months ended March 31, 2003, compared to the $18.9 million,
or 18.9% of sales in the prior year quarter. Selling, general, and
administrative expenses increased only $0.9 million, despite incremental
selling, general, and administrative expenses arising from companies acquired
in fiscal 2002 totaling $1.7 million. We obtained selling, general, and
administrative expense reductions by continued strong cost controls.

Amortization of licenses and intangibles for the three months ended March 31,
2003, includes $0.3 million in incremental expenses arising from companies
acquired in fiscal 2002.

Interest expense of $0.6 million for the three months ended March 31, 2003, was
$0.3 million lower than interest expense for the prior year quarter as a result
of convertible subordinated note repurchases.

Other income included $0.9 million of foreign currency translation gains in the
three months ended March 31, 2003. The gains resulted from the impact the 4.0%
improvement in the euro-to-U.S. dollar exchange rate had on German advances
payable, which are denominated in U.S. dollars.

The effective tax rate of 37.0% in the three months ended March 31, 2003,
reflected current expectations for the effective tax rate for fiscal 2003 and
was slightly lower than the 38.8% effective tax rate in the prior year quarter.

Six Months Ended March 31, 2003 Compared with Six Months Ended March 31, 2002

Net sales decreased 4.1% to $176.9 million for the six months ended March 31,
2003, from $184.3 million in the prior year period. Domestic die-cast sales
decreased $26.0 million, or 25.7%, from the prior year period while foreign
die-cast sales increased $2.5 million, or 16.8%. The decline in wholesale and
collectors club die-cast revenue was due to the previously reported Monte Carlo
and Pontiac re-tooling issue. The re-tooling is now complete. The decrease in
wholesale and collectors club die-cast sales was offset by a $5.9 million
increase in mass retail die-cast sales. Other products and distribution
channels showed strength and partially offset the decline in die-cast revenues.
Domestic apparel and memorabilia segment sales, exclusive of trackside,
increased $15.6 million, or 33.4%, from the prior year period. This increase
included $6.8 million from mass retail, $11.0 million from 2002 acquisitions,
and a decrease of $2.2 million in wholesale apparel sales. Trackside sales
increased 2.5% to $20.4 million from revenues of $19.9 million in the prior
year. The increase in trackside revenues due to the timing of the Texas race
was offset by lower year-over-year trackside sales in the six-month period.

Gross profit declined to 35.4% of sales in the six months ended March 31, 2003
from 38.4% in the comparable fiscal 2002 period. Gross margins were impacted
by lower domestic die-cast margins and lower margins from our German
subsidiary. Domestic die-cast margins suffered as a result of die-cast product
cost increases and the lack of premium selling prices due to fewer special
programs. German die-cast margins were lower as a result of higher tooling
costs. These declines in gross margin were partially offset by the impact of
higher margin apparel sales being a larger component of total sales this year
than last year.

Selling, general, and administrative expenses were $37.2 million, or 21.0% of
sales, in the six months ended March 31, 2003, compared to the $36.1 million,
or 19.6% of sales in the prior year period. Selling, general, and
administrative expenses increased only $1.1 million, despite incremental
selling, general, and administrative expenses arising from companies acquired
in fiscal 2002 totaling $3.5 million. We obtained selling, general, and
administrative expense reductions by continued strong cost controls.

Amortization of licenses and intangibles for the six months ended March 31,
2003, includes $0.6 million in incremental expenses arising from companies
acquired in fiscal 2002.

Interest expense of $1.2 million for the six months ended March 31, 2003, was
$0.5 million lower than interest expense for the prior year period as a result
of convertible subordinated note repurchases.

14



---



##### Table of Contents



Other income included $2.3 million of foreign currency translation gains in the
six months ended March 31, 2003. The gains resulted from the impact the 11.1%
improvement in the euro-to-U.S. dollar exchange rate had on German advances
payable, which are denominated in U.S. dollars.

The effective tax rate of 37.4% in the six months ended March 31, 2003,
reflected current expectations for the effective tax rate for fiscal 2003 and
was slightly lower than the 38.8% effective tax rate in the prior year period.

Liquidity and Capital Resources

Working capital improved $5.5 million to $123.0 million at March 31, 2003, from
$117.5 million at September 30, 2002. Cash decreased $4.8 million to $64.8
million at March 31, 2003, from $69.6 million at September 30, 2002. Cash
decreased due to net property and equipment expenditures ($20.3 million),
common stock purchases for treasury ($2.0 million), dividends to common
shareholders ($1.1 million), and other activities. The decreases in cash were
offset by increases in cash for collection of receivables ($10.6 million), a
3-year, 5.2% mortgage on the building expansion in Germany ($3.0 million), and
other activities.

Days sales outstanding, calculated on quarterly sales, decreased to 50.6 days
as of March 31, 2003, compared to 51.0 days as of September 30, 2002, and 37.9
days as of March 31, 2002. The increase in days sales outstanding from March
31, 2002, reflected increased mass-retail revenues, which have a longer days
sales outstanding.

Days in inventory, calculated on quarterly cost of sales, increased to 55.3
days as of March 31, 2003, compared to 44.7 days as of September 30, 2002, and
37.3 days as of March 31, 2002, due to inventory requirements of subsidiaries
acquired since December 31, 2001, and growing mass-retail apparel sales.
Backlog was approximately $86 million at March 31, 2003, and $90 million at
September 30, 2002.

As of March 31, 2003, 4 3/4% convertible subordinated notes with a face value
of $38.9 million were outstanding. On May 1, 2003, $5.0 million of these notes
were repurchased with $4.9 million cash. 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, 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.

Net capital expenditures related principally to ongoing investments in tooling,
investments made to upgrade our IT systems in Charlotte, North Carolina, the
installation of a point-of-sales system in trackside trailers and building
additions in Charlotte, North Carolina and Aachen, Germany. Capital
expenditures totaled $20.3 million for the six months ended March 31, 2003, and
included $3.7 million applicable to foreign operations. Net capital
expenditures for 2003 are expected to approximate $30 million.

On March 12, 2003, we entered into an amendment to the loan and security
agreement with Bank One that increased the revolving credit facility, modified
certain covenants, and extended the term of the agreement through March 31,
2005. The amended agreement provides for a revolving credit facility of $35
million. The agreement provides for borrowings of up to $20 million and is
available to support letters of credit, to the extent not utilized for
borrowings. Prior to the amendment, the revolving credit facility was $20
million. Outstanding letters of credit totaled $11.1 million at March 31,
2003.

The line of credit bears interest at Bank Ones base rate or LIBOR plus 2.5%.
We pay a commitment fee of 0.5% of the average unused credit facility and a fee
of 1.0% of the average undrawn letters of credit.

Under the agreement, as amended, we are required to meet certain financial
tests principally related to ratios of debt coverage, total liabilities to
tangible net worth, and funded indebtedness to EBIDA (earnings before interest,

15



---



##### Table of Contents



depreciation, and amortization). We were in compliance with those covenants at
March 31, 2003. We have never borrowed under the agreement, originally dated
September 2000.

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, we
purchased 110,000 shares at a price of $18.39 per share.

In September 2002, we initiated an ongoing quarterly dividend policy with an
initial dividend of $.03 per share. On December 2, 2002, we declared a cash
dividend payable on our common stock of $0.03 per share, which was accrued at
December 31, 2002, and paid on January 13, 2003, to shareholders of record as
of December 23, 2002. On March 5, 2003, we declared a cash dividend payable on
our common stock of $0.03 per share, which was accrued at March 31, 2003, and
paid on April 14, 2003, to shareholders of record as of March 21, 2003.

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, 2002, 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 credit
instruments and foreign currency exchange rate risk associated with operations
in Germany. We have never used derivative financial instruments to manage or
reduce market risk.

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 exposure to be minimal. However, at March
31, 2003, we had $20.8 million in intercompany advances to our German
subsidiary denominated in dollars for which the euro exchange rate gain or loss
is charged to results of operations. We are considering using
derivative financial instruments to manage or reduce foreign currency
risk.




ITEM 4.  CONTROLS AND PROCEDURES

Based on their evaluation, as of a date within 90 days prior to the date of the
filing of this report, of the effectiveness of our disclosure controls and
procedures, our Chief Executive Officer and Chief Financial Officer have each
concluded that our disclosure controls and procedures are effective and
sufficient 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.

Subsequent to the date of their evaluation, there have not been any significant
changes in our internal controls or in other factors that could significantly
affect these controls, including any corrective action with regard to
significant deficiencies and material weaknesses.

16



---



##### Table of Contents






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

The annual meeting of shareholders was held on March 5, 2003. The following
nominees were elected to the board of directors to serve as directors until
their successors are elected and qualified: Fred W. Wagenhals, R. David Martin,
Melodee L. Volosin, John S. Bickford, Sr., Edward J. Bauman, Herbert M. Baum,
Lowell L. Robertson, Robert L. Matthews, Roy A. Herberger, Jr. The
shareholders also ratified the appointment of PricewaterhouseCoopers LLP as
independent public accountants of our company for fiscal 2003, by the following
vote: 16,307,416 for, 65,194 against, and 3,200 abstaining.




ITEM 5.  Other Information

Not applicable




ITEM 6.  Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------



| | (1) |  | Exhibit 99.1   Certification of the Chief Executive
Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Exhibit 99.2   Certification of the Chief Financial
Officer of the Registrant, 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 March 12, 2003,
reporting that we amended our loan and security agreement with Bank
One.                        
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We filed a current report on Form 8-K, dated April 28, 2003,
reporting that we issued a press release announcing our second
quarter fiscal year 2003 results.

17



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ACTION PERFORMANCE COMPANIES, INC.

|                                        |  |                                                                                               |  |            
|--------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | -----------
|Signature                               |  | Capacity                                                                                      |  | Date       
|                                        |  |                                                                                               |  |            
|/s/ Fred W. Wagenhals
Fred W. Wagenhals |  | Chairman of the Board, President, and
Chief Executive Officer
(Principal Executive Officer)   |  | May 8, 2003
|                                       
|/s/ R. David Martin
R. David Martin     |  | Chief Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer) |  | May 8, 2003

18



---



##### Table of Contents



CERTIFICATION

I, Fred W. Wagenhals, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Action Performance
Companies, Inc.;                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                  
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                    
|
| | c) |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize, and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                         



|6. |  | The registrants other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                  
|------------------------------------------------------------------------------------------------------------------
|/s/ Fred W. Wagenhals

Fred W. Wagenhals
Chairman of the Board, President, and Chief Executive Officer
May 8, 2003

19



---



##### Table of Contents



CERTIFICATION

I, R. David Martin, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Action Performance
Companies, Inc.;                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                  
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                    
|
| | c) |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize, and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                         



|6. |  | The registrants other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                  
|--------------------------------------------------------------------------------------------------
|/s/ R. David Martin

R. David Martin
Chief Financial Officer, Secretary, and Treasurer
May 8, 2003

20



---



##### Table of Contents



Exhibit Index



|(1) |  | Exhibit 99.1   Certification of the Chief Executive
Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Exhibit 99.2   Certification of the Chief Financial
Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002