UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended June 30, 2001

(BOX)      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ended _____________

Commission file number 0-21630

ACTION PERFORMANCE COMPANIES, INC.

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

4707 E. Baseline Road
Phoenix, AZ 85042
(602) 337-3700

(Address, including zip code, and telephone number, including area code, of principal executive offices)

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

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

|                                    |  |                                               
|----------------------------------- |  | ----------------------------------------------
|CLASS
Common Stock, $0.01 Par Value |  | OUTSTANDING AT JULY 31, 2001
16,968,030 shares





---



PART I- FINANCIAL INFORMATION

ITEM 1. Financial Statements

2



---



ACTION PERFORMANCE COMPANIES, INC.
Condensed Consolidated Balance Sheets
June 30, 2001 and September 30, 2000
(in thousands, except per share data)

|                                      |                                                                                         |                            |         |             |         |           |         |         |         | 
|------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------- | ------- | --------- | ------- | ------- | ------- | 
|                                      |                                                                                         |                            |         | June 30,    |         | Sept. 30,
|                                      |                                                                                         |                            |         | 2001        |         | 2000     
|                                      |                                                                                         |                            |         |             |         |          
|                                      |                                                                                         |                            |         | (Unaudited) |         |           |         |        
|ASSETS                                |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|Current Assets:                       |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents                                                               |                            | $       | 40,374      |         |           | $       | 22,758  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts receivable, net                                                                |                            |         | 44,305      |         |           |         | 22,901  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Inventories                                                                             |                            |         | 27,080      |         |           |         | 32,017  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Prepaid royalties                                                                       |                            |         | 12,419      |         |           |         | 7,262   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Estimated income tax receivable                                                         |                            |         |            |         |           |         | 14,000  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Deferred tax asset                                                                      |                            |         | 3,257       |         |           |         | 5,905   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Prepaid expenses and other assets                                                       |                            |         | 2,167       |         |           |         | 1,942   |        
|                                      |                                                                                         |                            |         |             |         |           |         |        
|                                      |                                                                                         | Total Current Assets       |         |             | 129,602 |           |         |         | 106,785 | 
|                                     
|                                     
|                                     
|                                     
|Property and Equipment, net           |                                                                                         |                            | 39,540  |             |         |           | 46,066  |        
|                                     
|                                     
|                                     
|                                     
|Goodwill and Other Intangibles, net   |                                                                                         |                            | 88,409  |             |         |           | 94,894  |        
|                                     
|                                     
|                                     
|                                     
|Long-Term Deferred Tax Asset          |                                                                                         |                            |        |             |         |           | 1,423   |        
|                                     
|                                     
|                                     
|                                     
|Other Assets                          |                                                                                         |                            | 4,457   |             |         |           | 6,749   |        
|                                      |                                                                                         |                            |         |             |         |           |         |        
|                                      |                                                                                         | $                          | 262,008 |             |         | $         | 255,917 |        
|                                      |                                                                                         |                            |         |             |         |           |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY  |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|Current Liabilities:                  |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts payable                                                                        |                            | $       | 16,714      |         |           | $       | 16,510  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued royalties                                                                       |                            |         | 16,586      |         |           |         | 9,998   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued expenses and other                                                              |                            |         | 15,500      |         |           |         | 14,250  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Current portion of long-term debt                                                       |                            |         | 1,278       |         |           |         | 1,503   |        
|                                      |                                                                                         |                            |         |             |         |           |         |        
|                                      |                                                                                         | Total Current Liabilities  |         |             | 50,078  |           |         |         | 42,261  | 
|                                      |                                                                                         |                            |         |             |         |           |         |        
|4 3/4% Convertible Subordinated Notes |                                                                                         |                            | 60,833  |             |         |           | 100,000 |        
|                                     
|                                     
|                                     
|                                     
|Other Long-Term Debt and Liabilities  |                                                                                         |                            | 8,938   |             |         |           | 8,340   |        
|                                     
|                                     
|                                     
|                                     
|Commitments and Contingencies         |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|Minority Interests                    |                                                                                         |                            | 3,877   |             |         |           | 2,598   |        
|                                     
|                                     
|                                     
|                                     
|Shareholders Equity:                 |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Common stock, $.01 par value, 25,000 shares
authorized, 17,204 and 16,964 shares issued |                            |         | 172         |         |           |         | 170     |        
|                                     
|                                     
|                                     
|                                     
|                                      | Additional paid-in capital                                                              |                            |         | 116,726     |         |           |         | 102,813 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Accumulated other comprehensive loss                                                    |                            |         | (8,157      | )       |           |         | (6,639  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Retained earnings                                                                       |                            |         | 31,713      |         |           |         | 12,894  |        
|                                     
|                                     
|                                     
|                                     
|                                      | Treasury stock, at cost, 263 and 592 shares                                             |                            |         | (2,172      | )       |           |         | (6,520  | )      
|                                      |                                                                                         |                            |         |             |         |           |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                         | Total Shareholders Equity |         |             | 138,282 |           |         |         | 102,718 | 
|                                      |                                                                                         |                            |         |             |         |           |         |        
|                                      |                                                                                         | $                          | 262,008 |             |         | $         | 255,917 |        
|                                      |                                                                                         |                            |         |             |         |           |         |        

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

3



---



ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three and Nine Months Ended June 30, 2001 and 2000
(in thousands, except per share data)

|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |         |        |  
|-------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------------------ | ------ | ----------------- | ------- | ------- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------- | ------ | -
|                                                                           |                                     |                          |        | Three Months Ended |        | Nine Months Ended
|                                                                           |                                     |                          |        |                    |        |                  
|                                                                           |                                     |                          |        | 2001               |        | 2000              |         | 2001    |        | 2000
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |     
|Sales                                                                      |                                     | $                        | 92,102 |                    |        | $                 | 76,055  |         |        | $    | 213,067 |        |        | $ | 198,905 |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Cost of sales                                                              |                                     |                          | 58,456 |                    |        |                   | 61,064  |         |        |      | 137,352 |        |        |   | 145,854 |        
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Gross profit                                                               |                                     |                          | 33,646 |                    |        |                   | 14,991  |         |        |      | 75,715  |        |        |   | 53,051  |        
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Operating expenses:                                                        |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Selling, general and administrative |                          |        | 17,951             |        |                   |         | 33,446  |        |      |         | 49,450 |        |   |         | 76,144  |       
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Amortization of intangibles         |                          |        | 1,509              |        |                   |         | 9,216   |        |      |         | 4,747  |        |   |         | 13,443  |       
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                           |                                     | Total operating expenses |        |                    | 19,460 |                   |         |         | 42,662 |      |         |        | 54,197 |   |         |         | 89,587 |  
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Income (loss) from operations                                              |                                     |                          | 14,186 |                    |        |                   | (27,671 | )       |        |      | 21,518  |        |        |   | (36,536 | )      
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Other income (expense):                                                    |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Minority interests                  |                          |        | (444               | )      |                   |         | (9      | )      |      |         | (1,279 | )      |   |         | (283    | )     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Interest and other, net             |                          |        | (112               | )      |                   |         | (401    | )      |      |         | 584    |        |   |         | 682     |       
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Interest expense                    |                          |        | (1,169             | )      |                   |         | (2,299  | )      |      |         | (4,155 | )      |   |         | (5,465  | )     
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                           |                                     | Total other expense, net |        |                    | (1,725 | )                 |         |         | (2,709 | )    |         |        | (4,850 | ) |         |         | (5,066 | )
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Income (loss) before income tax provision (benefit)
and extraordinary gain |                                     |                          | 12,461 |                    |        |                   | (30,380 | )       |        |      | 16,668  |        |        |   | (41,602 | )      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Income tax provision (benefit)                                             |                                     |                          | 4,233  |                    |        |                   | (6,809  | )       |        |      | 5,917   |        |        |   | (11,765 | )      
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Income (loss) before extraordinary gain                                    |                                     |                          | 8,228  |                    |        |                   | (23,571 | )       |        |      | 10,751  |        |        |   | (29,837 | )      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Extraordinary gain, net of tax                                             |                                     |                          | 1,981  |                    |        |                   |        |         |        |      | 8,068   |        |        |   |        |        
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|Net income (loss)                                                          |                                     |                          | 10,209 |                    |        |                   | (23,571 | )       |        |      | 18,819  |        |        |   | (29,837 | )      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Other comprehensive loss            |                          |        | (703               | )      |                   |         | (349    | )      |      |         | (1,518 | )      |   |         | (2,283  | )     
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                           | Comprehensive income (loss)         |                          | $      | 9,506              |        |                   | $       | (23,920 | )      |      | $       | 17,301 |        |   | $       | (32,120 | )     
|                                                                           |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|EARNINGS PER COMMON SHARE:                                                 |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Income (Loss) Before Extraordinary Gain, net of tax-                       |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                               |                          | $      | 0.51               |        |                   | $       | (1.44   | )      |      | $       | 0.67   |        |   | $       | (1.80   | )     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                             |                          | $      | 0.48               |        |                   | $       | (1.44   | )      |      | $       | 0.66   |        |   | $       | (1.80   | )     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Extraordinary Gain, net of tax-                                            |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                               |                          | $      | 0.12               |        |                   | $       |        |        |      | $       | 0.50   |        |   | $       |        |       
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                             |                          | $      | 0.10               |        |                   | $       |        |        |      | $       | 0.49   |        |   | $       |        |       
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Net Income (Loss)-                                                         |                                     |                          |        |                    |        |                   |         |         |        |      |         |        |        |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                               |                          | $      | 0.63               |        |                   | $       | (1.44   | )      |      | $       | 1.17   |        |   | $       | (1.80   | )     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                             |                          | $      | 0.58               |        |                   | $       | (1.44   | )      |      | $       | 1.15   |        |   | $       | (1.80   | )     

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

4



---



ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2001 and 2000
(in thousands)

|                                      |                                                                 |                                                   |   |                            |         |      |   |         |         |  
|------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------- | - | -------------------------- | ------- | ---- | - | ------- | ------- | -
|                                      |                                                                 |                                                   |   | Nine
Months Ended June 30,
|                                      |                                                                 |                                                   |   |                           
|                                      |                                                                 |                                                   |   | 2001                       |         | 2000
|                                      |                                                                 |                                                   |   |                            |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                 |                                                   |   |                            |         |      |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss)                                               |                                                   | $ | 18,819                     |         |      | $ | (29,837 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income to cash used in operations- |                                                   |   |                            |         |      |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Deferred income taxes                             |   |                            | 5,907   |      |   |         | (10,110 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Depreciation and amortization                     |   |                            | 21,050  |      |   |         | 18,450  |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Gain on extinguishment of debt                    |   |                            | (12,807 | )    |   |         |        |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Undistributed earnings from minority shareholders |   |                            | 1,279   |      |   |         | (5      | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Loss (gain) on sale of property and equipment     |   |                            | 372     |      |   |         | (176    | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Tax benefit on stock option exercises             |   |                            | 809     |      |   |         |        |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Non cash special charges                          |   |                            |        |      |   |         | 30,220  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Changes in assets and liabilities, net-                         |                                                   |   |                            |         |      |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Increase in accounts receivable                   |   |                            | (21,688 | )    |   |         | (49     | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Decrease in income tax receivable                 |   |                            | 17,819  |      |   |         |        |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Decrease in inventories                           |   |                            | 4,742   |      |   |         | 1,779   |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                 | Other                                             |   |                            | (340    | )    |   |         | (18,899 | )
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|                                      |                                                                 | Net cash from (used in) operations                |   |                            | 35,962  |      |   |         | (8,627  | )
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                 |                                                   |   |                            |         |      |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures, net                                       |                                                   |   | (10,872                    | )       |      |   | (14,806 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | (Acquisition) disposition of Fantasy Sports, net of costs       |                                                   |   | 3,847                      |         |      |   | (3,063  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Acquisition of Winners Circle, net of costs                    |                                                   |   | (1,335                     | )       |      |   |        |        
|                                     
|                                     
|                                     
|                                     
|                                      | Notes receivable issuances                                      |                                                   |   |                           |         |      |   | (1,800  | )      
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|                                      |                                                                 | Net cash used in investing activities             |   |                            | (8,360  | )    |   |         | (19,669 | )
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                 |                                                   |   |                            |         |      |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Long-term debt repayments                                       |                                                   |   | (10,538                    | )       |      |   | (2,252  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Treasury stock repurchases                                      |                                                   |   | (1,385                     | )       |      |   | (6,514  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Stock option exercise proceeds                                  |                                                   |   | 2,051                      |         |      |   | 192     |        
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|                                      |                                                                 | Net cash used in financing activities             |   |                            | (9,872  | )    |   |         | (8,574  | )
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|                                      | Effect of exchange rates on cash and cash equivalents           |                                                   |   | (114                       | )       |      |   | 257     |        
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|                                      | Net change in cash and cash equivalents                         |                                                   |   | 17,616                     |         |      |   | (36,613 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents, beginning of period                  |                                                   |   | 22,758                     |         |      |   | 58,523  |        
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|                                      | Cash and cash equivalents, end of period                        |                                                   | $ | 40,374                     |         |      | $ | 21,910  |        
|                                      |                                                                 |                                                   |   |                            |         |      |   |        
|Supplemental Disclosures:             |                                                                 |                                                   |   |                            |         |      |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Interest paid                                                   |                                                   | $ | 4,981                      |         |      | $ | 5,899   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Income taxes paid (refunded), net                               |                                                   |   | (17,131                    | )       |      |   | 3,155   |        

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

5



---



ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001

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,
2000, as amended. The results of operations for the interim periods are not
necessarily indicative of the operating results that may be expected for the
fiscal year ending September 30, 2001.

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

GAIN ON EXTINGUISHMENT OF DEBT

We repurchased 4 3/4% convertible subordinated notes with a face value of
$21.1 and $39.2 million in the three and nine months ended June 30, 2001, at
gains of $2.0 million and $8.1 million, net of tax.

ACQUISITIONS

Effective May 2001, we acquired Hasbros Winners Circle brand name and
related die-cast inventory and tooling (Winners Circle). We allocated $0.5
million of the initial $1.3 million purchase price to tooling and inventory,
and the remainder to the trademark and a non-complete agreement. As additional
consideration, we agreed to pay 3% of related product sales to Hasbro,
quarterly, for the next five years. The additional consideration will be added
to the price of the trademark quarterly. We began designing, manufacturing and
marketing licensed die-cast racecar toy replicas for the mass retail market in
May 2001.

ISSUANCE OF WARRANTS

In March 2001, we issued warrants to purchase 75 thousand shares of common
stock at an exercise price of $6.875 per share, the fair market value on the
grant date, in connection with a license agreement. The warrants had a fair
value of $473 thousand as determined by the Black-Scholes option pricing
method. Issuance resulted in increases in additional paid-in-capital and
intangible assets. The intangible asset is being amortized through 2007.

SALE OF FANTASY SPORTS ENTERPRISES, INC.

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

SPECIAL CHARGES

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

6



---



COMMITMENTS AND CONTINGENCIES

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

EARNINGS PER COMMON SHARE (EPS)

Reconciliations of the numerators and denominators in the EPS computations for
income (loss) before extraordinary gain for the periods ended June 30 follow:

|                                                                                   |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------- | ---- |  | - | ------ |  |  | - | ------- | -
|                                                                                   |  | Three Months Ended |        | Nine Months Ended
|                                                                                   |  |                    |        |                  
|                                                                                   |  | 2001               |        | 2000              |  | 2001 |         | 2000
|                                                                                   |  |                    |        |                   |  |      |         |     
|NUMERATOR:                                                                         |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Basic  income (loss) before extraordinary gain                                    |  | $                  | 8,228  |                   |  | $    | (23,571 | )    |  | $ | 10,751 |  |  | $ | (29,837 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Effect of dilutive convertible subordinated notes                                  |  |                    | 593    |                   |  |      |        |      |  |   |       |  |  |   |        |  
|                                                                                   |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  
|Diluted  adjusted income (loss) before
extraordinary gain and assumed conversions |  | $                  | 8,821  |                   |  | $    | (23,571 | )    |  | $ | 10,751 |  |  | $ | (29,837 | )
|                                                                                   |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  
|DENOMINATOR:                                                                       |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Basic  weighted average shares                                                    |  |                    | 16,138 |                   |  |      | 16,358  |      |  |   | 16,142 |  |  |   | 16,563  |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Effect of dilutive stock options                                                   |  |                    | 729    |                   |  |      |        |      |  |   | 283    |  |  |   |        |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Effect of dilutive convertible subordinated notes                                  |  |                    | 1,649  |                   |  |      |        |      |  |   |       |  |  |   |        |  
|                                                                                   |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  
|Diluted  adjusted weighted average shares and
assumed conversions                 |  |                    | 18,516 |                   |  |      | 16,358  |      |  |   | 16,425 |  |  |   | 16,563  |  
|                                                                                   |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         |  

The impacts of outstanding 4 3/4% convertible subordinated notes were not
included in the calculation of diluted EPS for the nine months ended June 30,
2001, because to do so would be antidilutive. At June 30, 2001, options were
outstanding for the purchase of 738 thousand shares of common stock at an
average price of $19.62. The options could potentially dilute EPS in the
future, but were not included in the calculation of diluted EPS for the nine
months ended June 30, 2001, because to do so would be antidilutive. In July
2001, we issued options on 328 thousand shares at a price of $20.80 per share.
These options also could potentially dilute EPS in the future.

SEGMENT REPORTING

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

|                                                         |  |                             |        |         |  |       |        |          |  |         |        |       |  |   |         |   |  |   |       |  |  |   |         |  
|-------------------------------------------------------- |  | --------------------------- | ------ | ------- |  | ----- | ------ | -------- |  | ------- | ------ | ----- |  | - | ------- | - |  | - | ----- |  |  | - | ------- | -
|                                                         |  | Three Months Ended June 30,
|                                                         |  |                            
|                                                         |  | 2001                        |        | 2000   
|                                                         |  |                             |        |        
|                                                         |  | Domestic                    |        | Foreign |  | Total |        | Domestic |  | Foreign |        | Total
|                                                         |  |                             |        |         |  |       |        |          |  |         |        |      
|Total segment revenue                                    |  | $                           | 81,929 |         |  | $     | 10,173 |          |  | $       | 92,102 |       |  | $ | 67,079  |   |  | $ | 8,976 |  |  | $ | 76,055  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and
amortization
included in segment
profit |  |                             | 6,441  |         |  |       | 950    |          |  |         | 7,391  |       |  |   | 10,384  |   |  |   | 1,475 |  |  |   | 11,859  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Segment profit (loss)                                    |  |                             | 12,583 |         |  |       | 1,603  |          |  |         | 14,186 |       |  |   | (28,424 | ) |  |   | 753   |  |  |   | (27,671 | )

7



---



|                                                         |  |                            |         |         |  |       |        |          |  |         |         |       |  |   |         |   |  |   |        |  |  |   |         |  
|-------------------------------------------------------- |  | -------------------------- | ------- | ------- |  | ----- | ------ | -------- |  | ------- | ------- | ----- |  | - | ------- | - |  | - | ------ |  |  | - | ------- | -
|                                                         |  | Nine Months Ended June 30,
|                                                         |  |                           
|                                                         |  | 2001                       |         | 2000   
|                                                         |  |                            |         |        
|                                                         |  | Domestic                   |         | Foreign |  | Total |        | Domestic |  | Foreign |         | Total
|                                                         |  |                            |         |         |  |       |        |          |  |         |         |      
|Total segment revenue                                    |  | $                          | 182,917 |         |  | $     | 30,150 |          |  | $       | 213,067 |       |  | $ | 175,650 |   |  | $ | 23,255 |  |  | $ | 198,905 |  
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and
amortization
included in segment
profit |  |                            | 18,157  |         |  |       | 2,893  |          |  |         | 21,050  |       |  |   | 24,049  |   |  |   | 1,964  |  |  |   | 26,013  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Segment profit (loss)                                    |  |                            | 17,359  |         |  |       | 4,159  |          |  |         | 21,518  |       |  |   | (37,466 | ) |  |   | 930    |  |  |   | (36,536 | )

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2000, the Emerging Issues Task Force reached a consensus on Issue
00-10, Accounting for Shipping and Handling Fees and Costs (Issue 00-10).
Issue 00-10, requires that all amounts billed to customers related to shipping
and handling should be classified as sales. In addition, Issue 00-10,
specifies that the classification of shipping and handling cost is an
accounting policy decision that should be disclosed pursuant to APB 22,
Disclosure of Accounting Policies. A company may adopt a policy of including
shipping and handling costs in cost of sales. If shipping and handling costs
are not included in cost of sales, a company should disclose both the amount of
such costs and the line item in the statement of operations that includes those
costs. We will need to reclassify fees and costs to comply with these
classification guidelines in the September 30, 2001 financial statements and in
all comparative financial statements presented. We have not quantified the
impact of adopting Issue 00-10 on sales and cost of sales, and currently
classify amounts billed for freight as a reduction of cost of sales.

In June 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangible
Assets. With the adoption of Statement No. 142, goodwill is no longer subject
to amortization over its useful life; rather goodwill will be subject to an
impairment test, based on fair value, at least annually. Under Statement 142,
an acquired intangible asset should be separately recognized if the benefit of
the intangible asset is obtained through a contractual or other legal right, or
if it can be sold, transferred, licensed, rented, or exchanged, regardless of
the acquirer's intent to do so. We must adopt the statement and discontinue
amortizing goodwill effective October 1, 2002, but may early adopt effective
October 1, 2001. We have not quantified the impact of adoption on our
financial position or results of operations.

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

Overview

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

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

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



| |  | product mix and age of product,
|- |  | -------------------------------

8



---





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

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

Results of Operations

The following table sets forth the percentage of total revenue represented by
certain expense and revenue items for the periods ended June 30:

|                                                         |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|-------------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                         |  | Three Months Ended |       | Nine Months Ended
|                                                         |  |                    |       |                  
|                                                         |  | 2001               |       | 2000              |  | 2001 |       | 2000
|                                                         |  |                    |       |                   |  |      |       |     
|Sales                                                    |  |                    | 100.0 | %                 |  |      | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                                                        
|                                                        
|                                                        
|                                                        
|Cost of sales                                            |  |                    | 63.5  |                   |  |      | 80.3  |      |  |  | 64.5  |   |  |  | 73.3  |  
|                                                         |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Gross profit                                             |  |                    | 36.5  |                   |  |      | 19.7  |      |  |  | 35.5  |   |  |  | 26.7  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Selling, general and administrative expenses             |  |                    | 19.5  |                   |  |      | 44.0  |      |  |  | 23.2  |   |  |  | 38.3  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Amortization of intangibles                              |  |                    | 1.6   |                   |  |      | 12.1  |      |  |  | 2.2   |   |  |  | 6.8   |  
|                                                         |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Income (loss) from operations                            |  |                    | 15.4  |                   |  |      | (36.4 | )    |  |  | 10.1  |   |  |  | (18.4 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Minority interests                                       |  |                    | (0.5  | )                 |  |      | (0.0  | )    |  |  | (0.6  | ) |  |  | (0.1  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Interest income (expense) and other, net                 |  |                    | (1.4  | )                 |  |      | (3.5  | )    |  |  | (1.7  | ) |  |  | (2.4  | )
|                                                         |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Income (loss) before income taxes and
extraordinary gain |  |                    | 13.5  |                   |  |      | (39.9 | )    |  |  | 7.8   |   |  |  | (20.9 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Income taxes                                             |  |                    | 4.6   |                   |  |      | (8.9  | )    |  |  | 2.8   |   |  |  | (5.9  | )
|                                                         |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  
|Income (loss) before extraordinary gain                  |  |                    | 8.9   |                   |  |      | (31.0 | )    |  |  | 5.0   |   |  |  | (15.0 | )
|                                                         |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  |       |  

Special Charge in Fiscal 2000

In the prior year quarter ended June 30, we recorded charges totaling $15.2
million arising from our decision to abandon the goracing.com Internet
strategy, including withdrawal of its initial public offering. The charges
included provisions for the write-off of goodwill, endorsements and sponsorship
commitments, and employee severance and termination costs. These restructuring
special charges are summarized below, in millions:

|                                         |                                          |                                     |      |     |     | 
|---------------------------------------- | ---------------------------------------- | ----------------------------------- | ---- | --- | --- | 
|Selling, general and administrative-     |                                          |                                     |      |    
|                                        
|                                        
|                                        
|                                        
|                                         | Professional fees                        |                                     | $    | 0.8 |    
|                                        
|                                        
|                                        
|                                        
|                                         | Employee severance and termination costs |                                     |      | 0.7 |    
|                                        
|                                        
|                                        
|                                        
|                                         | Endorsements and sponsorships            |                                     |      | 4.3 |    
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts receivable and prepaids         |                                     |      | 1.5 |    
|                                        
|                                        
|                                        
|                                        
|                                         | Other assets                             |                                     |      | 0.3 |    
|                                         |                                          |                                     |      |    
|                                         |                                          | Selling, general and administrative |      |     | 7.6 | 
|                                        
|                                        
|                                        
|                                        
|Amortization of goodwill and intangibles |                                          |                                     | 7.6  |    
|                                         |                                          |                                     |      |    
|                                         |                                          | $                                   | 15.2 |    
|                                         |                                          |                                     |      |    

We also recorded other charges totaling $15.0 million in the three months ended
June 30, 2000. These charges were comprised of a $5.1 million write-down
related to excess inventories based in part on anticipated sponsorships, and
driver and marketing programs which did not materialize; a $3.0 million
provision for vendor discounts which were anticipated but not received due to
lower than anticipated volumes; a 1.0 million write-off of an equity
investment; and approximately $5.9 million in other asset impairments,
primarily additional receivable reserves based on current information regarding
the collectibility of certain customer account balances. These other special
charges are summarized below, in millions:

| |  |  |  |  |  | 
| |  |  |  |  |  | 

9



---



|                                          |                                  |                                     |      |     |     | 
|----------------------------------------- | -------------------------------- | ----------------------------------- | ---- | --- | --- | 
|Cost of sales-                            |                                  |                                     |      |    
|                                         
|                                         
|                                         
|                                         
|                                          | Inventory write-downs            |                                     | $    | 5.1 |    
|                                         
|                                         
|                                         
|                                         
|                                          | Vendor discounts                 |                                     |      | 3.0 |    
|                                          |                                  |                                     |      |    
|                                          |                                  | Cost of sales                       |      |     | 8.1 | 
|                                          |                                  |                                     |      |    
|Selling, general and administrative-      |                                  |                                     |      |    
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts receivable and prepaids |                                     |      | 4.2 |    
|                                         
|                                         
|                                         
|                                         
|                                          | Other assets                     |                                     |      | 1.7 |    
|                                          |                                  |                                     |      |    
|                                          |                                  | Selling, general and administrative |      |     | 5.9 | 
|                                          |                                  |                                     |      |    
|Other income/expense  Equity investments |                                  |                                     | 1.0  |    
|                                          |                                  |                                     |      |    
|                                          |                                  | $                                   | 15.0 |    
|                                          |                                  |                                     |      |    

The nine-month period ended June 30, 2000, reflects the impact of the $15.2
million goracing.com related charge, the $15.0 million of other charges and a
$2.3 million charge to selling, general and administrative recorded in the
second fiscal 2000 quarter related to the withdrawal of the goracing.com
initial public offering.

Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000

Sales increased 21.1% to $92.1 million for the three months ended June 30,
2001, from $76.1 million in the prior year period. Increased consumer
awareness of NASCAR racing resulted in strong demand for NASCAR related
products. Network media coverage of NASCAR and new tracks opening in Chicago
and Kansas City this fiscal year have contributed to this increased consumer
awareness. As a result of increased demand and product availability, sales
increased in trackside and apparel operations this quarter. Same race sales
at trackside increased 43% from the prior year. Product to meet increased
die-cast demand was not available for shipment to customers until late in the
third quarter because of the 90-120 day lead-time required to produce and ship
die-cast replicas. In June, we had product available to ship to customers to
meet this increased die-cast demand. We anticipate that revenues from
die-cast products in the fourth fiscal quarter will continue to reflect
increased scheduled production.

Gross profit improved to $33.6 million in the third quarter of fiscal 2001 from
$15.0 million in the fiscal 2000 period. The prior year gross profit included
$8.1 million of special charges. The gross profit percentage improved to 36.5%
of sales from 30.4% of sales, after effecting for the special charges. The
increase in gross profit as a percentage of sales resulted from reduced
freight, product and production costs, and the leverage attained from higher
production quantities with relatively fixed tooling and die depreciation costs.

Selling, general and administrative expense decreased to $18.0 million in the
three months ended June 30, 2001, from $33.4 million in the prior year period.
The prior year period included $13.5 million of special charges. Selling,
general and administrative, excluding the special charges, represent 19.5% and
26.1% of sales, respectively. The decrease as a percentage of sales resulted
primarily from cost reductions realized from management and restructuring
changes made in the third and fourth quarter of fiscal 2000.

Amortization of goodwill and other intangibles decreased to $1.5 million for
the three months ended June 30, 2001, from $9.2 million for the three months
ended June 30, 2000. The $7.7 million decrease between years is primarily the
result of the $7.6 million special charge included in the prior year period.

Interest expense of $1.2 million for the three months ended June 30, 2001, was
$1.1 million lower than interest expense for the comparable period in the prior
year. The reduction in interest expense is primarily the result of the
convertible subordinated note repurchases discussed further in Liquidity and
Capital Resources, and other long-term debt and liabilities reductions since
last third quarter.

The effective tax rate of 34.0% in the 2001 third fiscal quarter reflects
current expectations that the effective tax rate for fiscal 2001 will be
approximately 35%. The 35% projected effective rate reflects the ability to
utilize certain net timing differences that had not previously been recognized
for accounting purposes because of prior operating losses.

10



---



Nine Months Ended June 30, 2001 Compared with Nine Months Ended June 30, 2000

Sales increased 7.1% to $213.1 million for the nine months ended June 30, 2001
from $198.9 million in the prior year period. After a weak first quarter,
strong demand in second quarter and third quarter of 2001 resulted in sales
increases of approximately 21% in each quarter, yielding a net increase
year-to-date. Increased consumer awareness of NASCAR racing resulted in strong
demand in the second and third quarter for NASCAR related products. As a
result of increased demand and product availability, sales in trackside and
apparel operations increased in the second and third quarters. Product to meet
increased die-cast demand was not available for shipment to customers until
late in the third quarter because of the 90-120 day lead-time required to
produce and ship die-cast replicas. In June, we had product available to ship
to customers to meet this increased die-cast demand. We anticipate that
revenues from die-cast products in the fourth fiscal quarter will continue to
reflect increased scheduled production.

Gross profit improved to $75.7 million in the first nine months of fiscal 2001
from $53.1 million in the fiscal 2000 period. The prior year period included
$8.1 million of special charges. The gross profit percentage improved to 35.5%
of sales from 30.8% of sales, after effecting for the special charges. The
increase in gross profit as a percentage of sales resulted from reduced
freight, product and production costs and the leverage attained from higher
production quantities with relatively fixed tooling and die depreciation costs.

Selling, general and administrative expense decreased to $49.5 million in the
nine months ended June 30, 2001 from $76.1 million in the prior year period.
The prior year period included $13.5 million of special charges recorded in the
third quarter of 2000 and $2.3 million of special charges recorded in the
second quarter of 2000. Selling, general and administrative, excluding the
special charges, represented 23.2% of sales in 2001 and 30.3% of sales in 2000.
The decrease as a percentage of sales resulted primarily from cost reductions
realized from management and restructuring changes made in the third and fourth
quarter of fiscal 2000.

Amortization of goodwill and other intangibles decreased to $4.7 million for
the nine months ended June 30, 2001 from $13.4 million in the prior year
period. The prior year period included $7.6 million of special charges. The
$1.1 million decrease, net of the special charge, is related to the elimination
of goodwill and related amortization from the sale of Fantasy Sports and the
reductions in amortization expense as a result of the impairment write-offs of
goodwill and other intangibles recorded in the third and fourth quarter of
fiscal 2000.

Interest expense for the nine months of $4.2 million was $1.3 million lower
than interest expense for the comparable period in the prior year. The
reduction in interest expense is primarily the result of the convertible
subordinated note repurchases discussed further in Liquidity and Capital
Resources and other long-term debt and liabilities reductions since last year.

The effective tax rate of 35.5% in the 2001 period reflects current
expectations that the effective tax rate for fiscal 2001 will be approximately
35%. The 35% projected effective rate reflects the ability to utilize certain
net timing differences that had not previously been recognized for accounting
purposes because of prior operating losses.

Liquidity and Capital Resources

Working capital improved $15.0 million to $79.5 million at June 30, 2001, from
$64.5 million at September 30, 2000. Cash increased $17.6 million to $40.4
million at June 30, 2001, from $22.8 million at September 30, 2000. Cash
increased as a result of the Fantasy Sports sales proceeds ($3.8 million),
receipt of an income tax refund ($17.8 million), proceeds upon exercise of
stock options ($2.1 million) and other operating activities, including net
inventory reductions since September 30, 2000. The increases in cash were
offset by reductions in cash for repurchases of convertible subordinated notes
($9.1 million), treasury stock ($1.4 million), Winners Circle acquisition
($1.3 million), expenditures for equipment ($11.3 million) and seasonal
increases in accounts receivable ($21.4 million).

In March 2001, we issued warrants to purchase 75 thousand shares of common
stock at an exercise price of $6.875 per share, the fair market value on the
grant date, in connection with a license agreement. The warrants had a fair
value of $473 thousand, as determined by the Black-Scholes option pricing
method. Issuance resulted in increases in additional paid-in-capital and
intangible assets. The intangible asset is being amortized through 2007.

11



---



We repurchased 4 3/4% convertible subordinated notes with a face value of
$21.1 and $39.2 million in the three and nine months ended June 30, 2001, at
gains of $2.0 million and $8.1 million, net of tax. The notes were
repurchased using $9.1 million in cash and 704 thousand shares of common stock
with a market value of $16.2 million. The stock was reissued from treasury.
The difference between the $5.8 million cost and the $16.2 million market value
of the shares increased additional paid-in capital.

In July 2000 we paid $4.0 million in cash to settle a long-term obligation,
extending through 2007, and valued at $4.8 million, which remained from the
1997 acquisition of Revells die-cast business. The settlement also
eliminated future contingent royalty payments by Action, for trademark usage,
through 2007. The $0.8 million benefit from the settlement will be recorded as
an extraordinary gain in the fourth quarter.

Capital expenditures for the nine months ended June 30, 2001, totaled $10.9
million, of which $4.1 million was applicable to foreign operations, and
related principally to ongoing investments in tooling. Capital expenditures
for fiscal year 2001 are not expected to exceed $17 million.

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

Under the Credit Facility we are required to meet certain financial tests
principally related to tangible net worth and fixed charge coverage. We were
compliance with the covenants at June 30, 2001. We have never borrowed under
the Credit Facility and do not anticipate the need to borrow under this
facility for operating liquidity. We believe that the Credit Facility will be
adequate to cover letter of credit and other liquidity needs for the next 12
months after considering anticipated cash flows from operations.

Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements, including statements regarding
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, as amended for the year ended September 30, 2000, as filed with the
Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in 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 foreign
operations. We have never used derivative financial instruments to manage or
reduce market risk.

12



---



PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

On November 30, 1999, a class action lawsuit was filed against the company in
the United States District Court for the District of Arizona, case No. CIV99
2106 PHXROS. Fred W. Wagenhals, director and officer of The Company, and Tod
J. Wagenhals and Christopher S. Besing, former directors and officers of the
company, were also named as defendants. The lawsuit alleges that the company
and the other defendants violated the Securities Exchange Act of 1934 by (a)
making allegedly false statements about the state of our business and shipment
of certain products to a customer, or (b) participating in a fraudulent scheme
that was intended to inflate the price of our common stock. The alleged class
of plaintiffs consists of all persons who purchased our publicly traded
securities between July 27, 1999 and December 16, 1999. The plaintiffs
requested an unspecified amount of monetary damages. On July 10, 2001 the
court granted our motion to dismiss this lawsuit, without prejudice. If
plaintiffs do not file an amended complaint, the court will dismiss the case.
We intend to continue to vigorously defend this lawsuit, should plaintiffs
pursue further action.

ITEM 2. Changes in Securities and Use if Proceeds

Not applicable

ITEM 3. Defaults Upon Senior Securities

Not applicable

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

The 2001 Annual Meeting of Shareholders was held on May 7, 2001. As disclosed
in the March 31, 2001 Form 10-Q, the shareholders elected and qualified the
Board of Directors and ratified the appointment of Arthur Andersen LLP as our
independent public accountants for 2001.

ITEM 5. Other Information

Not applicable

ITEM 6. Exhibits and Reports on Form 8-K

(a)  Exhibits Not applicable

(b)  Reports on Form 8-K None

13



---



SIGNATURES

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

ACTION PERFORMANCE COMPANIES, INC.

|                                       |  |                                                                                             |  |                
|-------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ---------------
|Signature                              |  | Capacity                                                                                    |  | Date           
|                                       |  |                                                                                             |  |                
|/s/ Fred W. WagenhalsFred W. Wagenhals |  | Chairman of the Board, President, and
Chief Executive Officer
(Principal Executive Officer) |  | August 10, 2001
|                                      
|                                       |  |                                                                                             |  |                
|                                      
|/s/ R. David MartinR. David Martin     |  | Chief Financial Officer, Director
(Principal Financial and Accounting Officer)              |  | August 10, 2001

14