SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

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



                  For the quarterly period ended March 31, 1998


                         Commission file number 0-21630


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


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


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


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

As of May 7, 1998, there were outstanding  16,194,905 shares of the registrant's
Common Stock, par value $.01 per share.
<PAGE>
PART I, ITEM 1    FINANCIAL STATEMENTS

                       ACTION PERFORMANCE COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                   As of March 31, 1998 and September 30, 1997
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                             March 31,     September 30,
                                                                               1998            1997
                                                                             --------      ------------
                                                                            (Unaudited)
ASSETS                                                               
------                                                               
<S>                                                                          <C>             <C>     
CURRENT ASSETS:                                                      
  Cash and cash equivalents .......................................          $ 97,405        $ 29,318
  Accounts receivable, net of allowance for                          
   doubtful accounts of $1,348 and $837,                             
   respectively ...................................................            27,989          17,802
  Inventories, net ................................................            28,977          17,855
  Prepaid royalties ...............................................             5,848           4,967
  Prepaid expenses and other assets ...............................             4,113           2,603
                                                                             --------        --------
                                                                     
    Total current assets ..........................................           164,332          72,545
                                                                     
PROPERTY AND EQUIPMENT, net .......................................            29,953          20,017
                                                                     
GOODWILL AND OTHER INTANGIBLES, net ...............................            75,279          46,409
                                                                     
NOTES RECEIVABLE AND OTHER ASSETS .................................             6,909           2,354
                                                                             --------        --------
                                                                             $276,473        $141,325
                                                                             ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY                                 
------------------------------------                                 
                                                                     
CURRENT LIABILITIES:                                                 
  Accounts payable ................................................          $ 13,126        $  6,680
  Accrued royalties ...............................................             6,197           5,098
  Accrued expenses and other ......................................             3,250           2,442
  Current portion of long term debt ...............................            24,601           1,350
  Line of credit ..................................................             7,100             --
                                                                             --------        --------
                                                                     
    Total current liabilities .....................................            54,274          15,570
                                                                     
LONG-TERM DEBT:                                                      
  Convertible subordinated notes ..................................           100,000             --
  Other long-term debt ............................................             9,331          22,586
                                                                             --------        --------
    Total long-term debt ..........................................           109,331          22,586
                                                                     
COMMITMENTS AND CONTINGENCIES                                        
                                                                     
SHAREHOLDERS' EQUITY:                                                
  Preferred stock, no par value, 5,000,000 shares                    
   authorized, no shares issued and outstanding ...................              --               --
  Common stock, $.01 par value, 25,000,000 shares                    
   authorized; 16,183,239 and 15,952,083 shares                      
   issued and outstanding, respectively ...........................               162             160
  Additional paid-in capital ......................................            86,990          84,984
  Retained earnings ...............................................            25,716          18,025
                                                                             --------        --------
    Total shareholders' equity ....................................           112,868         103,169
                                                                             --------        --------
                                                                             $276,473        $141,325
                                                                             ========        ========
</TABLE>
                 The accompanying notes are an integral part of
                        these consolidated balance sheets
                                       2
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

     For The Three Month and Six Month Periods Ended March 31, 1998 and 1997
                                   (Unaudited)
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                    Three Months Ended           Six Months Ended
                                                          March 31                   March 31
                                                   ----------------------      ----------------------
                                                     1998          1997          1998          1997
                                                   --------      --------      --------      --------
<S>                                                <C>           <C>           <C>           <C>     
Sales:
  Collectibles ...........................         $ 26,291      $ 13,650      $ 46,217      $ 23,522
  Apparel and souvenirs ..................           24,235        13,121        45,625        18,334
  Promotional ............................            1,963         1,304         2,977         1,355
  Other ..................................              666           227         1,254           267
                                                   --------      --------      --------      --------
    Net sales ............................           53,155        28,302        96,073        43,478
                                              
Cost of sales ............................           32,994        17,521        60,855        26,302
                                                   --------      --------      --------      --------
                                              
Gross profit .............................           20,161        10,781        35,218        17,176
                                              
Operating expenses:                           
  Selling, general and                        
    administrative expenses ..............           10,535         5,857        18,735         9,256
  Non-recurring charge for                    
    litigation settlement ................              950          --             950          --
  Amortization of goodwill                    
    and other intangibles ................            1,209           341         1,690           495
                                                   --------      --------      --------      --------
                                              
     Total operating expenses ............           12,694         6,198        21,375         9,751
                                                   --------      --------      --------      --------
                                              
Income from operations ...................            7,467         4,583        13,843         7,425
                                              
Other income (expense):                       
  Interest income and other, net .........              172            94           464           166
  Interest expense .......................             (913)         (615)       (1,488)         (916)
                                                   --------      --------      --------      --------
    Total other income (expense) .........             (741)         (521)       (1,024)         (750)
                                                   --------      --------      --------      --------
                                              
Income before provision for                   
  income taxes ...........................            6,726         4,062        12,819         6,675
                                              
Provision for income taxes ...............            2,690         1,625         5,128         2,670
                                                   --------      --------      --------      --------
                                              
NET INCOME ...............................         $  4,036      $  2,437      $  7,691      $  4,005
                                                   ========      ========      ========      ========
                                              
NET INCOME PER COMMON SHARE:                  
  Basic ..................................         $   0.25      $   0.18      $   0.48      $   0.30
                                                   ========      ========      ========      ========
  Diluted ................................         $   0.24      $   0.17      $   0.46      $   0.29
                                                   ========      ========      ========      ========
                                              
WEIGHTED AVERAGE SHARES OUTSTANDING:        
  Basic ..................................           16,086        13,579        16,039        13,235
                                                   ========      ========      ========      ========
  Diluted ................................           16,666        14,129        16,591        13,786
                                                   ========      ========      ========      ========
</TABLE>
                 The accompanying notes are an integral part of
                    these consolidated financial statements
                                       3
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

          For The Six Months Ended March 31, 1998 and 1997 (Unaudited)

                                 (in thousands)
<TABLE>
<CAPTION>
                                                                              1998             1997
                                                                            ---------        -------
<S>                                                                         <C>             <C>      
Cash Flows from Operating Activities:
Net income ............................................................     $   7,691       $   4,005
  Adjustments to reconcile net income to
   net cash provided by operating activities
  Depreciation and amortization .......................................         4,364           1,916
  Change in assets and liabilities, net of
   businesses acquired:
    Accounts receivable ...............................................        (6,540)          1,154
    Inventories .......................................................       (10,058)         (2,794)
    Prepaid royalties .................................................          (510)         (1,591)
    Prepaid expenses and other assets .................................         1,289            (171)
    Accounts payable ..................................................         5,158            (736)
    Accrued royalties .................................................          (286)            300
    Accrued expenses and other ........................................           244             402
                                                                            ---------       ---------
     Net cash provided by
     operating activities .............................................         1,352           2,485

Cash Flows from Investing Activities:
  Purchase of property and equipment ..................................        (8,871)         (3,635)
  Deposits on property and equipment ..................................        (1,783)           --
  Proceeds from sale of equipment .....................................           287             111
  Acquisition of businesses and other
   intangibles, less cash acquired ....................................       (23,091)          1,140
                                                                            ---------       ---------
    Net cash used in investing activities .............................       (33,458)         (2,384)

Cash Flows from Financing Activities:
  Borrowings on line of credit ........................................         9,600           4,379
  Payments on line of credit ..........................................        (2,500)         (5,279)
  Proceeds from issuance of common stock ..............................          --             2,600
  Net proceeds from issuance of common stock
   upon exercise of stock options .....................................         1,008             747
  Payments on long-term debt ..........................................        (4,430)         (4,552)
  Issuance of convertible subordinated notes ..........................       100,000            --
  Payments for offering-related expenses ..............................        (3,500)           --
  Collections on notes receivable .....................................            15            --
                                                                            ---------       ---------
    Net cash provided by (used in)
     financing activities .............................................       100,193          (2,105)
                                                                            ---------       ---------

  Net change in cash and cash equivalents .............................        68,087          (2,004)
  Cash and cash equivalents,
   beginning of period ................................................        29,318           4,983
                                                                            ---------       ---------
  Cash and cash equivalents, end of period ............................     $  97,405       $   2,979
                                                                            =========       =========
</TABLE>
                 The accompanying notes are an integral part of
                    these consolidated financial statements.
                                       4
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 1998



(1)      INTERIM FINANCIAL REPORTING


The  accompanying   unaudited   consolidated  financial  statements  for  Action
Performance  Companies,  Inc. (the  "Company")  have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and the  instructions  to Form 10-Q.  Accordingly,  they do not  include all the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(which include only normal  recurring  adjustments)  necessary to present fairly
the financial  position,  results of  operations  and cash flows for the periods
presented  have been made.  The results of operations  for the six-month  period
ended March 31, 1998 are not  necessarily  indicative of the  operating  results
that may be expected  for the entire year ending  September  30,  1998.  Certain
prior  period  amounts have been  reclassified  to conform to the March 31, 1998
presentation.  These financial statements should be read in conjunction with the
Company's Form 10-K for the fiscal year ended September 30, 1997.


(2)      SUPPLEMENTAL CASH FLOW INFORMATION


The  supplemental  cash  flow  disclosures  and  non-cash  transactions  for the
six-month periods ended March 31, 1998 and 1997 are as follows (in thousands):

                                                             1998          1997
                                                           -------       -------


Supplemental disclosures:

  Interest paid ....................................       $ 1,122       $   428
  Income taxes paid ................................         5,110         2,981


Non-cash transactions:

  Common stock issued in acquisitions ..............       $  --         $ 9,612

  Common stock issued in license agreement .........         1,000          --
  Debt and liabilities incurred or
    assumed in acquisitions ........................        16,014        38,392

  Sale of equipment for notes receivable ...........            35           445
  Assets acquired under capital lease ..............           183          --
  Assets acquired under note .......................         1,562          --

(3)      RECENT ACQUISITIONS AND LICENSE AGREEMENTS

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

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

On December  19,  1997,  the  Company  acquired  the assets and assumed  certain
liabilities  related to the motorsports  die-cast  collectible  product lines of
Revell-Monogram,  Inc. ("Revell"). The preliminary price of $24.8 million, which
is subject to certain adjustments,  consists of an initial cash payment of $14.8
million  and $1.0  million  per year for 10 years,  which is  treated  as a note
payable in the accompanying  financial  statements with an imputed interest rate
of 8%. Revell distributed  die-cast  collectibles through a network of wholesale
distributors  and  a  collectible  club,  which  together   generated   die-cast
collectible  sales of  approximately  $20.0 million during 1997. The Company and
Revell also entered into a 10-year license agreement under which the Company has
the right to utilize certain "Revell" trademarks in connection with sales of its
die-cast products.

On January 8, 1998,  the Company  acquired  certain  assets and assumed  certain
liabilities of Brookfield  Collectors Guild, Inc.  ("Brookfield").  The purchase
price  consisted  of (i)  approximately  $800,000  in cash and (ii) up to 27,397
shares of Common  Stock,  subject  to  certain  adjustments,  to be issued on or
before  December 31, 1998. In addition,  the Company repaid  approximately  $1.8
million  of  the  assumed  liabilities  at  the  time  of  closing.   Brookfield
distributed  various motorsport  die-cast  collectibles and ensembles as well as
various other die-cast replicas.

(4)      UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS

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

                                          Six Months Ended     Six Months Ended
                                           March 31, 1998       March 31, 1997
                                          ----------------     ----------------
         
         Revenues.........................   $103,312               $75,947
         Net income.......................      8,944(1)              3,806
         Net income per common share......   $   0.54(1)            $  0.27

         (1)   Excludes a non-recurring  legal settlement charge  of $950,000 or
               $0.03 per share

(5)      SALE OF CONVERTIBLE SUBORDINATED NOTES

On March 24,  1998,  the  Company  sold  $100.0  million  of 4 3/4%  Convertible
Subordinated  Notes due 2005 (the "Notes").  The Notes are  convertible,  at the
option of the  holders,  into shares of Common  Stock at the initial  conversion
price of $48.20 per share,  subject to adjustments in certain events.  The Notes
are general  unsecured  obligations  of the  Company,  subordinated  in right of
payment to all  existing  and future  senior  indebtedness  of the  Company,  as
defined  in the  Notes.  The  Indenture  governing  the Notes  does not limit or
prohibit the incurrence of additional indebtedness, including senior
                                       6
<PAGE>
indebtedness,  by the Company or its subsidiaries.  The Company,  at its option,
may redeem the Notes in whole or in part at any time on or after  April 1, 2001,
at redemption  prices set forth in the Indenture  governing the Notes.  Upon the
occurrence of a "change in control" or a "termination of trading," as defined in
the  Indenture,  the  holders of the Notes  will have the right to  require  the
Company to repurchase  all or any part of such  holders'  Notes at 100% of their
principal  amount,  plus  accrued and unpaid  interest.  The net proceeds to the
Company from this offering were  approximately  $96.5 million,  after  deducting
estimated offering expenses and the Initial Purchasers' discount of 3.0%.

(6)      CREDIT FACILITY

On January 2, 1997 the  Company  entered  into a credit  facility  (the  "Credit
Facility") with First Union National Bank of North Carolina ("First Union"). The
Credit Facility, as subsequently amended, consists of a revolving line of credit
for  up to  $10.0  million  (the  "Line  of  Credit")  and  a  $15.0  letter  of
credit/bankers'  acceptances facility (the "Letter of Credit/BA Facility").  The
Line of Credit  bears  interest,  at the  Company's  option,  at a rate equal to
either (i) the greater of (a) the bank's publicly  announced prime rate or (b) a
weighted average Federal Funds rate plus 0.5%, or (ii) LIBOR plus 1.9%. The Line
of  Credit  is  guaranteed  by  the  Company's  subsidiaries.  The  Company  had
outstanding  borrowings of $7.1 million under the Line of Credit as of March 31,
1998, which represents  amounts borrowed prior to the sale of the Notes in March
1998. The Company repaid the amounts  borrowed under the Line of Credit in April
1998. The Letter of Credit/BA  Facility is available for issuances of letters of
credit and eligible  bankers'  acceptances  in an  aggregate  amount up to $15.0
million to enable the Company to finance purchases of products from its overseas
vendors.  The Company had outstanding purchase commitments of approximately $9.7
million under the Letter of Credit/BA  Facility as of March 31, 1998. The Credit
Facility  contains  certain  provisions  that,  among other things,  require the
Company to comply with certain  financial ratios and net worth  requirements and
limit the  ability  of the  Company  and its  subsidiaries  to incur  additional
indebtedness, to sell assets, or to engage in certain mergers or consolidations.
The Credit  Facility  matured on March 31, 1998 and has been extended  until May
31, 1998. The Company and First Union  currently are negotiating the terms of an
extension of the Credit  Facility and an increase in the amounts  available  for
borrowings under the Credit Facility.

(7)      COMMITMENTS AND CONTINGENCIES

The Company is subject to certain asserted and unasserted claims  encountered in
the normal course of business. The Company believes that the resolution of these
matters  will not have a  material  adverse  effect on the  Company's  financial
position or results of operations.

(8)       LEGAL SETTLEMENTS

In March 1998,  the Company  agreed to settle a lawsuit with Petty  Enterprises,
Inc. and an affiliate of Petty  Enterprises,  Inc. Under the financial  terms of
the settlement,  the Company will pay a total of approximately $700,000 to Petty
Enterprises,  Inc. as payment in full for royalties and other fees in connection
with licenses for future sales of licensed  products.  The settlement is subject
to the execution of definitive settlement agreements. The accompanying financial
statements  include a charge of $950,000 incurred as a result of this settlement
and related charges. See Part II, Item 1 "Legal Proceedings."

In March  1998,  the  Company  and  other  defendants  also  agreed to settle an
environmental lawsuit with the State of Arizona. Under the agreement, the former
shareholders  of F.W. &  Associates,  Inc.,  including  Fred W.  Wagenhals,  the
Company's Chairman of the Board, President, and Chief Executive Officer, paid an
aggregate of $800,000 to the state and certain  parties  seeking  
                                       7
<PAGE>
indemnity  from the Company.  The Company will not incur any costs in connection
with this settlement.

(9)      SUBSEQUENT EVENTS

On April 20,  1998,  the  Company  announced  that it would make a $1.0  million
equity  investment  in LBE  Technologies,  Inc.  ("LBET")  under  the terms of a
five-year strategic alliance.  The agreement provides the Company with exclusive
merchandising rights at each of LBET's "NASCAR Silicon Motor Speedway" centers.
                                       8
<PAGE>
ITEM 2.           MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

Overview

         The  Company  designs  and  markets  licensed   motorsports   products,
including  die-cast  scaled  replicas  of  motorsports  vehicles,  apparel,  and
souvenirs.  The Company  also  develops  promotional  programs  for  sponsors of
motorsports that feature the Company's  die-cast  replicas or other products and
are  intended to increase  brand  awareness  of the  products or services of the
corporate sponsors. In addition, the Company represents popular race car drivers
in a  broad  range  of  licensing  and  other  revenue-producing  opportunities,
including product licenses,  corporate sponsorships,  endorsement contracts, and
speaking  engagements.  The Company's  motorsports  collectibles and most of the
Company's  apparel and souvenirs are  manufactured  by third parties,  generally
utilizing the Company's designs,  tools, and dies. The Company screen prints and
embroiders a portion of the licensed motorsports apparel that it sells.

         The Company was incorporated in Arizona in May 1992 and began marketing
die-cast collectibles in July 1992. In August 1994, the Company acquired certain
assets  and  liabilities  of Fan  Fueler,  Inc.  and  began  marketing  licensed
motorsports consumer products.

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

         In December  1997,  the  Company  acquired  assets  related to sales of
motorsports  merchandise  licensed by NASCAR  driver  Rusty  Wallace (the "Rusty
Wallace  Acquisition").  The  Company and an  affiliate  of Rusty  Wallace  also
entered into a seven-year license agreement.  In December 1997, the Company also
acquired the assets related to certain "Revell"  trademarked  die-cast  products
(the "Revell  Acquisition").  The Company and Revell also entered into a 10-year
license  agreement  and  a  long-term  strategic  alliance  involving  extensive
marketing and distribution  arrangements.  In January 1998, the Company acquired
the assets and assumed  certain  liabilities  of Brookfield,  which  distributes
various motorsports collectibles and other die-cast replicas.
                                       9
<PAGE>
Results of Operations

         The  following  table  sets  forth,  for  the  periods  indicated,  the
percentage of total revenue represented by certain expense and revenue items.
<TABLE>
<CAPTION>
                                                              Three Months Ended        Six Months Ended
                                                                   March 31,                March 31,
                                                            -----------------------  ----------------------
                                                               1998        1997       1998         1997
                                                               ----        ----       ----         ----
                                                            (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S>                                                           <C>         <C>         <C>         <C>  
Sales:
  Collectibles ........................................        49.5%       48.2%       48.1%       54.1%
  Apparel and souvenir ................................        45.6        46.4        47.5        42.2
  Promotional .........................................         3.7         4.6         3.1         3.1
  Other ...............................................         1.2          .8         1.3          .6
                                                              -----       -----       -----       -----
    Net sales .........................................       100.0       100.0       100.0       100.0
  Cost of sales .......................................        62.1        61.9        63.3        60.5
                                                              -----       -----       -----       -----
  Gross Profit ........................................        37.9        38.1        36.7        39.5
  Selling, general and administrative expenses ........        19.8        20.7        19.5        21.3
  Settlement costs ....................................         1.8         0.0         1.0         0.0
  Amortization of goodwill and other intangibles ......         2.3         1.2         1.8         1.1
                                                              -----       -----       -----       -----
  Income from operations ..............................        14.0        16.2        14.4        17.1
  Interest income (expense) and other, net ............        (1.4)       (1.8)       (1.1)       (1.7)
                                                              -----       -----       -----       -----
  Income before provision for income taxes ............        12.6        14.4        13.3        15.4
  Provision for income taxes ..........................        (5.0)       (5.8)       (5.3)       (6.2)
                                                              -----       -----       -----       -----
  Net income ..........................................         7.6%        8.6%        8.0%        9.2%
                                                              =====       =====       =====       =====
</TABLE>

Three  Months  Ended March 31, 1998  Compared  with Three Months Ended March 31,
1997

         Net sales  increased  87.8% to $53.2 million for the three months ended
March 31, 1998 from $28.3 million for the three months ended March 31, 1997. The
Company  attributes the improvement in sales during the second quarter of fiscal
1998 primarily to (i) revenue from the Company's  acquisitions during the fourth
quarter of fiscal 1997 and the first quarter of fiscal 1998;  (ii) the Company's
ability to capitalize on the continued  strong growth in the base of motorsports
enthusiasts and to produce and sell increased quantities of souvenirs,  apparel,
and die-cast  collectible  goods;  (iii) increased sales of products licensed by
race car drivers with  significant  accomplishments  during the period;  (iv) an
increase in membership in the Company's Racing  Collectables  Club of America to
approximately  123,000  members  at March  31,  1998 from  approximately  86,000
members at March 31, 1997; and (v) increased  sales in conjunction  with the new
NASCAR race event in Las Vegas, Nevada in March 1998.

         Gross profit increased to $20.2 million in the second quarter of fiscal
1998 from $10.8 million in the second quarter of fiscal 1997, representing 37.9%
and 38.1% of net sales,  respectively.  The sales mix between die-cast  products
and apparel and souvenir products was virtually unchanged during the period.

         Selling, general and administrative expenses increased to $10.5 million
in the  three-month  period  ended  March  31,  1998 from  $5.9  million  in the
three-month  period  ended March 31, 1997,  representing  19.8% and 20.7% of net
sales,  respectively.  The decrease in such  expenses as a  percentage  of sales
resulted  primarily  from cost  savings  achieved  with the  integration  of the
businesses acquired in fiscal 1997 and the first quarter of fiscal 1998.

         During  the  three-month  period  ended  March 31,  1998,  the  Company
recorded  a  non-recurring  charge  of  $950,000,  or $0.03 per  share,  for the
settlement of a pending lawsuit and related charges.  This settlement represents
1.8% of net sales for the three months ended March 31, 1998.
See Part II, Item 1 "Legal Proceedings."

         Amortization  of  goodwill  and  other  intangibles  increased  to $1.2
million for the  three-month  period ended March 31, 1998 from  $341,000 for the
three-month  period  ended  March 31,  1997.  The  increase in  amortization  of
goodwill and other  intangibles is related to the  acquisitions  made during the
fourth  quarter of fiscal 1997 and first two  quarters of fiscal 1998 as well as
various long term license  agreements.  The Company recorded  goodwill and other
intangibles  of $14.1 million in connection  with the fourth quarter fiscal 1997
acquisitions,  and recorded an  additional
                                       10
<PAGE>
$30.1 million of goodwill and other intangibles from the acquisitions  completed
in the  six-month  period ended March 31, 1998.  The Company is  amortizing  the
goodwill and other intangibles over a period of 3 to 25 years.

         The change in interest income  (expense) and other,  net, was primarily
attributable  to an  increase  in  interest  expense of  approximately  $150,000
related to debt incurred in connection with the  acquisitions of Image Works and
Revell.  Interest  expense  associated  with the Notes  issued in March 1998 was
offset by interest income on the related proceeds.

Six Months Ended March 31, 1998 Compared with Six Months Ended March 31, 1997

         Net sales  increased  121% to $96.1  million  for the six months  ended
March 31, 1998 from $43.5  million for the six months ended March 31, 1997.  The
Company  attributes the  improvements  in sales during the first two quarters of
fiscal 1998  primarily to (i) revenue  from the  acquisitions  completed  during
fiscal 1997 and the first quarter of fiscal 1998; (ii) the Company's  ability to
capitalize on the continued strong growth in the base of motorsports enthusiasts
and to produce and sell increased quantities of souvenirs, apparel, and die-cast
collectible  goods;  (iii)  increased  sales of  products  licensed  by race car
drivers with significant  accomplishments during the period; (iv) an increase in
membership in the Company's Racing Collectables Club of America to approximately
123,000 members at March 31, 1998 from approximately 86,000 members at March 31,
1997; and (v) increased  sales in conjunction  with the new NASCAR race event in
Las Vegas, Nevada in March 1998.

         Gross profit  increased to $35.2  million in the six months ended March
31, 1998 from $17.2 million in the six months ended March 31, 1997, representing
36.7% and 39.5% of net sales,  respectively.  The  decrease in gross profit as a
percentage of net sales resulted from increased  sales of apparel and souvenirs,
which  typically  provide  lower  margins than sales of the  Company's  die-cast
collectible products.  Sales of apparel and souvenirs grew to 47.5% of net sales
in the six months ended March 31, 1998 from 42.2% for the six-month period ended
March 31, 1997,  primarily as a result of the  acquisitions  completed in fiscal
1997.

         Selling, general and administrative expenses increased to $18.7 million
in the six-month  period ended March 31, 1998 from $9.3 million in the six-month
period  ended  March  31,  1997,  representing  19.5%  and  21.3% of net  sales,
respectively.  The decrease in such expenses as a percentage  of sales  resulted
primarily  from cost savings  achieved with the  integration  of the  businesses
acquired in fiscal 1997 and the first quarter of fiscal 1998.

         During the six-month  period ended March 31, 1998, the Company recorded
a non-recurring charge of $950,000,  or $0.03 per share, for the settlement of a
pending  lawsuit and related  charges.  This  settlement  represents 1.0% of net
sales for the six  months  ended  March  31,  1998.  See Part II,  Item 1 "Legal
Proceedings."

         Amortization  of  goodwill  and  other  intangibles  increased  to $1.7
million for the  six-month  period  ended March 31, 1998 from  $495,000  for the
six-month  period ended March 31, 1997. The increase in amortization of goodwill
and other  intangibles  is related to the  acquisitions  made  during the fourth
quarter of fiscal 1997 and first two  quarters of fiscal 1998 as well as various
long-term   license   agreements.   The  Company  recorded  goodwill  and  other
intangibles  of $14.1 million in connection  with the fiscal 1997  acquisitions,
and recorded an additional $30.1 million of goodwill and other  intangibles from
the  acquisitions  completed in the six-month  period ended March 31, 1998.  The
Company is amortizing the goodwill and other  intangibles  over a period of 3 to
25 years.

         The change in interest income  (expense) and other,  net, was primarily
attributable  to an  increase  in  interest  expense of  approximately  $272,000
related to debt incurred in connection with the acquisitions of Sports Image and
Motorsport Traditions, offset by an increase in interest income of approximately
$220,000  related to proceeds from the Company's  Common Stock  offering in June
1997, and an additional  $150,000 of interest expense associated with the Revell
and Image Works acquisitions.  Interest expense associated with the Notes issued
in March 1998 was offset by interest income on the related proceeds.
                                       11
<PAGE>
Pro Forma Results of Operations

         The following table sets forth the unaudited pro forma income statement
data of the  Company  for the  six-month  period  ended March 31, 1998 and 1997,
giving effect to the acquisitions of Sports Image,  Motorsport Traditions,  RYP,
Image Works, Simpson,  Brookfield,  and the Rusty Wallace Acquisition and Revell
Acquisition,  as if they had  occurred  on October 1, 1996,  using the  purchase
method of accounting for business  combinations.  The unaudited pro forma income
statement data presented herein does not purport to represent what the Company's
actual results of operations would have been had those acquisitions  occurred on
that date or to  project  the  Company's  results of  operations  for any future
period.

                                           (in thousands, except per share data)
                                                  For the Six-Months Ended
                                           -------------------------------------
                                           March 31, 1998         March 31, 1997
                                           --------------         --------------
                                             (Unaudited)            (Unaudited)
                                         
Net sales                                    $103,312                $ 75,947
Net income                                      8,944(1)                3,806
Net income per common share                  $   0.54(1)             $   0.27
                                     
(1) Excludes a one-time legal settlement charge of $950,000, or $0.03 per share.

         The pro forma  results  shown  above do not  account  for  efficiencies
gained upon the  consolidation  of  operations,  including  the  elimination  of
duplicative functions and reduction of salaries expense and other related costs.
The pro forma  results of operations  for the  six-month  period ended March 31,
1998 and 1997 reflect the amortization of goodwill and other intangibles arising
from the acquisitions  described above and include  additional  interest expense
associated with the financing of the  acquisitions  of Sports Image,  Motorsport
Traditions, Image Works, Rusty Wallace, and the Revell Acquisition.

Seasonality

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

Year 2000 Compliance

         Many currently  installed  computer  systems and software  products are
coded to accept  only  two-digit  entries  to  represent  years in the date code
field.  Computer systems and products that do not accept four-digit year entries
will need to be upgraded or replaced to accept four-digit entries to distinguish
years  beginning with 2000 from prior years.  The Company  recently  commenced a
program to install new computer software programs that are intended to integrate
the Company's  management  information  systems  throughout  its  organizational
structure,  as well as to comply  with "Year  2000"  requirements.  The  Company
anticipates  that these  software  systems,  which are  designed  to improve the
content,   quality,  and  flow  of  information  within  the  Company,  will  be
operational in the last quarter of the calendar 1998. The Company  believes that
its new software  systems will comply with the Year 2000  requirements,  and the
Company  currently  does not  anticipate  that it will  experience  any material
disruption to its operations as a result of the failure of any of its systems to
be Year  2000  compliant.  There can be no  assurance,  however,  that  computer
systems operated by third parties,  including  customers,  vendors,  credit card
transaction  processors,  and financial  institutions,  with which the Company's
systems interface will continue to properly interface with the Company's systems
and will  otherwise be compliant on a timely basis with Year 2000  requirements.
The Company  currently is developing a plan to evaluate the Year 2000 compliance
status of third parties with which its computer systems  interface.  Any failure
of the  Company's  computer  system or the  systems  of third  parties to timely
achieve  Year  2000  compliance  could  have a  material  adverse  effect on the
Company's business, financial condition, and operating results.
                                       12
<PAGE>
Liquidity and Capital Resources

         The Company's  working capital position  increased to $110.1 million at
March 31, 1998 from $57.0 million at September  30, 1997.  The increase of $53.1
million is primarily  attributable  to the net proceeds of  approximately  $96.5
million  from the  private  placement  of the  Notes in March  1998,  which  was
partially  offset  by the  classification  of the  Company's  Senior  Notes  (as
described below) becoming  classified as current  obligations during the quarter
ended March 31, 1998.

         Capital  expenditures  for the  six-month  period  ended March 31, 1998
totaled  approximately  $10.7 million,  of which  approximately $5.9 million was
utilized for the Company's continued investment in tooling.

         During the six-month  period ended March 31, 1998,  the Company  issued
160,793 shares of Common Stock upon the exercise of stock options,  resulting in
total proceeds to the Company of approximately $1.0 million.

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

         The Company has a credit  facility (the "Credit  Facility")  with First
Union National Bank of North Carolina ("First Union").  The Credit Facility,  as
amended,  currently  consists  of a  revolving  line of  credit  for up to $10.0
million (the "Line of Credit") and a $15.0 letter of credit/bankers' acceptances
facility  (the  "Letter  of  Credit/BA  Facility").  The  Line of  Credit  bears
interest,  at the Company's option, at a rate equal to either (i) the greater of
(a) the bank's publicly  announced prime rate or (b) a weighted  average Federal
Funds rate plus 0.5%, or (ii) LIBOR plus 1.9%.  The Line of Credit is guaranteed
by the  Company's  subsidiaries.  The  Company  had  outstanding  borrowings  of
approximately  $7.1 million under the Line of Credit as of March 31, 1998, which
represents  amounts  borrowed  prior to the sale of the Notes in March 1998. The
Company repaid the amounts  borrowed under the Line of Credit in April 1998. The
Letter of Credit/BA Facility is available for issuances of letters of credit and
eligible  bankers'  acceptances  in an aggregate  amount up to $15.0  million to
enable the Company to finance  purchases of products from its overseas  vendors.
The Company had outstanding  purchase  commitments of approximately $9.7 million
under the Letter of Credit/BA Facility as of March 31, 1998. The Credit Facility
contains certain  provisions  that,  among other things,  require the Company to
comply with certain  financial  ratios and net worth  requirements and limit the
ability of the Company and its subsidiaries to incur additional indebtedness, to
sell  assets,  or to engage in  certain  mergers or  consolidations.  The Credit
Facility matured on March 31, 1998 and has been extended until May 31, 1998. The
Company and First Union  currently are  negotiating the terms of an extension of
the Credit  Facility  and an increase in the amounts  available  for  borrowings
under the Credit Facility.

         On January 2, 1997,  the Company  issued an aggregate of $20.0  million
principal  amount of senior  notes to three  insurance  companies  (the  "Senior
Notes").  The Senior Notes bear interest at the rate of 8.05% per annum, provide
for semi-annual payments of accrued interest, and mature on January 2, 1999. The
Company  may not prepay the Senior  Notes prior to  maturity,  but must offer to
redeem the Senior Notes in the event of a "Change of Control" of the Company, as
defined in the Senior Notes.  The Senior Notes contain certain  provisions that,
among other things,  require the Company to comply with certain financial ratios
and net  worth  requirements  and  limit  the  ability  of the  Company  and its
subsidiaries  to incur  additional  indebtedness,  to sell  assets  or engage in
certain mergers or  consolidations  and to pay dividends  without the consent of
the lenders. The Senior Notes are guaranteed by the Company's subsidiaries.

         On December 9, 1997,  the Company  acquired  certain assets and assumed
certain  liabilities  related to sales of  motorsports  merchandise  licensed by
NASCAR Winston Cup driver Rusty Wallace for approximately  $6.0 million in cash.
The  Company  paid $2.5  million  at  closing,  with the  remainder  due in four
installments ending September 30, 1998. In connection with the acquisition,  the
Company entered into a seven-year license agreement for the name and likeness of
Mr.  Wallace.  The terms of this  acquisition  were  determined  by  arms-length
negotiations  between  representatives of Mr. Wallace and representatives of the
Company.

         On December 19, 1997,  the Company  completed  the Revell  Acquisition,
pursuant  to  which  the  Company   acquired  the  assets  and  assumed  certain
liabilities  related  to  Revell's  die-cast   collectible  product  lines.  The
preliminary  price of $24.8  million,  which is subject to certain  adjustments,
consists of an initial cash  payment of $14.8  million and $1.0 million per year
for 10 years,  which is treated as a note payable in the accompanying  financial
statements  with an 
                                       13
<PAGE>
imputed  interest  rate of 8%.  Revell  had sales of  die-cast  collectibles  of
approximately $20.0 million during 1997. The Company currently intends to market
the Revell-trademarked  products through its existing distribution channels, but
with different  features and at different price points from its current lines of
die-cast  collectibles.  The  Company  and Revell  also  entered  into a 10-year
license  agreement  under  which the  Company  has the right to utilize  certain
Revell  trademarks  in  connection  with  sales  of its  die-cast  products.  In
addition,  the Company and Revell  have  formed a long-term  strategic  alliance
under which (i) the Company will assist Revell to obtain  licenses with top race
car drivers for Revell's line of plastic  model kits;  (ii) Revell has appointed
the Company as the exclusive  distributor  for trackside sales of Revell plastic
model kits and as a non-exclusive distributor for retail sales of Revell plastic
model kits through the Company's wholesale  distribution  network; and (iii) the
Company will have certain Revell-trademarked  die-cast collectibles manufactured
to enable  Revell to fulfill  commitments  for 1998 mass market  sales,  and the
Company will have other licensed motorsports die-cast products  manufactured for
Revell's  sales  as  promotional  and  premium  products.   The  terms  of  this
acquisition were determined by arms-length  negotiations between representatives
of Revell and representatives of the Company.

         On January 8, 1998, the Company acquired the assets and assumed certain
liabilities of Brookfield.  The purchased price  consisted of (i)  approximately
$800,000  in cash and (ii) up to  27,397  shares  of Common  Stock,  subject  to
certain  adjustments,  to be issued on or before December 31, 1998. In addition,
the Company repaid  approximately $1.8 million of the assumed liabilities at the
time of closing. Brookfield distributes various motorsport die-cast collectibles
and ensembles as well as various other die-cast replicas.

         On  March  24,  1998,  the  Company  sold  $100.0  million  of  4  3/4%
Convertible  Subordinated  Notes due 2005.  The  Notes are  convertible,  at the
option of the  holders,  into shares of Common  Stock at the initial  conversion
price of $48.20 per share, subject to adjustments in certain events. Interest on
the  Notes is  payable  semi-annually  on April 1 and  October  1 of each  year,
beginning  October 1,  1998.  The Notes  mature on April 1, 2005.  The Notes are
general unsecured  obligations of the Company,  subordinated in right of payment
to all existing and future senior indebtedness of the Company, as defined in the
Notes.  The  Indenture  governing  the  Notes  does not  limit or  prohibit  the
incurrence of additional  indebtedness,  including senior  indebtedness,  by the
Company or its subsidiaries. The Company, at its option, may redeem the Notes in
whole or in part at any time on or after April 1, 2001, at redemption prices set
forth in the Indenture  governing the Notes. Upon the occurrence of a "change in
control" or a "termination of trading," as defined in the Indenture, the holders
of the Notes will have the right to require the Company to repurchase all or any
part of such holders' Notes at 100% of their principal amount,  plus accrued and
unpaid  interest.  The net  proceeds  to the  Company  from  the  offering  were
approximately $96.5 million, after deducting estimated offering expenses and the
Initial Purchasers' discount of 3.0%.

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

         The  Company  believes  that its  current  cash  resources,  the Credit
Facility,  and expected cash flow from operations will be sufficient to fund the
Company's  capital  needs  during  the next 12  months at its  current  level of
operations, apart from capital needs resulting from additional acquisitions. The
Company may be required to obtain additional  capital to fund its planned growth
during the next 12 months and beyond.  Potential sources of any such capital may
include the proceeds from the exercise of outstanding  options,  bank financing,
strategic  alliances,  and additional  offerings of the Company's equity or debt
securities.  There can be no assurance  that such capital will be available from
these or other  potential  sources,  and the lack of such  capital  could have a
material adverse effect on the Company's business.

         This Report contains forward-looking  statements,  including statements
regarding the Company's business  strategies,  the Company's  business,  and the
industry in which the Company  operates.  These  forward-looking  statements are
based  primarily on the  Company's  expectations  and are subject to a number of
risks and uncertainties,  some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking  statements as a result
of numerous  factors,  including  those set forth in the Company's Form 10-K for
the year ended  September  30, 1997, as filed with the  Securities  and Exchange
Commission.
                                       14
<PAGE>
        PART II - OTHER INFORMATION

        ITEM 1.  Legal Proceedings


             On May 17, 1993,  the state of Arizona (the  "State")  instituted a
             lawsuit  against the Company and 29 other  defendants in the United
             States District Court for the District of Arizona. The State sought
             recovery  of  certain   clean-up  costs  under  federal  and  state
             environmental laws. The State alleged that F.W. Leisure Industries,
             Inc.  and/or  F.W. &  Associates,  Inc.  were  predecessors  of the
             Company  that  produced  and  arranged  for the  transportation  of
             hazardous  substances to the property  involved in the lawsuit.  In
             March 1998, the parties settled the lawsuit. Under the terms of the
             settlement,  the former  shareholders  of F.W. & Associates,  Inc.,
             including Fred W. Wagenhals,  the Company's  Chairman of the Board,
             President,  and  Chief  Executive  Officer,  paid an  aggregate  of
             $800,000 to the State and certain  parties  seeking  indemnity from
             the  Company.  The Company  will not incur any costs in  connection
             with this settlement.

             On March 4, 1997, two class action  lawsuits were filed against the
             Company and  approximately 28 other defendants in the United States
             District Court for the Northern  District of Georgia.  The lawsuits
             allege  that the  defendants  engaged  in price  fixing  and  other
             anti-competitive  activities  in  violation  of federal  anti-trust
             laws. The alleged class of plaintiffs consists of all purchasers of
             souvenirs  or  merchandise  from  licensed  vendors  at any  NASCAR
             Winston Cup race or supporting  event during the period  commencing
             January 1, 1991.  The Company  was named as a defendant  based upon
             actions  alleged to have been taken by Sports Image,  Inc., a North
             Carolina corporation ("Sports Image N.C.") and Creative Marketing &
             Promotions, Inc. ("CMP") prior to the Company's acquisitions of the
             assets and capital  stock,  respectively,  of those  entities.  The
             actions were  subsequently  consolidated by order of the court. The
             caption  of  the   consolidated   action  is  "In  re   Motorsports
             Merchandise  Antitrust  Litigation"  and the files  are  maintained
             under  Master  File  No.  1-97-CV-0569-CC.   On  May  30,  1997,  a
             consolidated amended complaint was filed, which deleted the Company
             as a defendant with respect to claims based upon actions alleged to
             have been taken by Sports Image N.C. and which named the  Company's
             wholly owned subsidiary, Sports Image, Inc., an Arizona corporation
             ("Sports  Image AZ"), as a defendant  with respect to those claims.
             The Company  remains a defendant  with respect to claims based upon
             actions  alleged to have been taken by CMP. On July 31,  1997,  the
             Company acquired all of the outstanding capital stock of RYP, which
             is another defendant in this matter.  Accordingly,  the Company has
             assumed the defense of this  matter  with  respect to claims  based
             upon  actions  alleged  to  have  been  taken  by RYP  and  will be
             responsible for costs, fees, expenses,  damages, payments, credits,
             rebates,  and  penalties,  if any,  arising out of this matter with
             respect to RYP. The seller of RYP has agreed to be responsible  for
             amounts,  if any, in excess of $400,000 (the "$400,000  Cap").  The
             $400,000 Cap excludes  attorneys  fees and certain  other costs and
             expenses  that the Company may incur in defending or settling  this
             matter.  The  plaintiffs  have  requested   injunctive  relief  and
             monetary  damages of three times an  unspecified  amount of damages
             that the plaintiffs claim to have actually  suffered.  On August 1,
             1997,  answers were filed on behalf of the Company and Sports Image
             AZ  denying  the  allegations  of  the  complaint.  Pursuant  to an
             agreement  between the  plaintiffs  and Sports Image AZ to toll the
             running of the statute of  limitations  with  respect to any claims
             against Sports Image AZ, on November 17, 1997 the plaintiffs  filed
             a  motion  to  dismiss  Sports  Image  AZ  from  the  case  without
             prejudice.  On March 20,  1998,  the court  granted that motion and
             Sports Image, AZ was dismissed from the case without prejudice.  On
             March 2, 1998,  the plaintiffs  filed,  pursuant to an order of the
             court,  a second  consolidated  amended  complaint  intended to set
             forth  certain of the  allegations  with greater  specificity.  The
             parties  currently  are  conducting  class  discovery.  The Company
             intends to vigorously defend the claims asserted in this lawsuit.
                                       15
<PAGE>
             On  June 4,  1997,  Kellogg  Company  ("Kellogg")  filed a  lawsuit
             against  Fred W.  Wagenhals  and the  Company in the United  States
             District Court for the Western District of Michigan.  The complaint
             alleged that after the  expiration  of its 1996  license  agreement
             with  Kellogg,  the Company  produced  1997 model year products for
             which  it did not  have a  valid  license.  In  October  1997,  the
             Company, Mr. Wagenhals, and Kellogg settled this lawsuit. Under the
             terms of the settlement,  (a) the Company paid Kellogg $70,000, (b)
             the Company  and  Kellogg  entered  into a license  agreement  with
             respect to certain products, and (c) the respective parties entered
             into mutual releases.

             On June 4, 1997, Petty Enterprises, Inc. Licensing Division filed a
             lawsuit  against the Company and Fred W.  Wagenhals.  The plaintiff
             alleged  that the Company  engaged in  trademark  infringement  and
             other  improper  activities  with  respect  to  sales  of  products
             licensed by Petty  Enterprises,  Inc. The Company and Mr. Wagenhals
             filed an answer denying the  plaintiff's  allegations;  the Company
             filed  counterclaims  against the  plaintiff  for  various  claims,
             including breach of contract,  defamation and damage to reputation,
             and tortious interference with prospective business  relationships;
             and Mr.  Wagenhals  filed  counterclaims  against the plaintiff for
             defamation and damage to reputation.  In addition,  the Company and
             Mr. Wagenhals  collectively  filed a third-party  complaint against
             Brett Nelson,  an affiliate of the plaintiff,  for various  claims,
             including  defamation and damage to reputation.  Petty Enterprises,
             Inc. filed an answer denying the  allegations in the  counterclaims
             and Mr. Nelson filed an answer denying the allegations against him.
             The court denied motions to dismiss by all parties, and on March 6,
             1998,   the  parties   reached  an  agreement   to  resolve   their
             differences.  Under  the  financial  terms  of the  agreement,  the
             Company  will  pay a  total  of  approximately  $700,000  to  Petty
             Enterprises,  Inc. as payment in full for  royalties and other fees
             in connection  with licenses for future sales of certain  products.
             The settlement,  however, is subject to the execution of definitive
             settlement agreements.

        ITEM 2.  Changes in Securities

             On March 18,  1998,  the Company  completed a private  placement of
             $100 million  principal amount of 4 3/4 % Convertible  Subordinated
             Notes  due  2005.   The  initial   purchasers  of  the  Notes  were
             NationsBanc  Montgomery  Securities  LLC, CIBC  Oppenheimer  Corp.,
             EVEREN  Securities,  Inc.,  and Piper  Jaffray Inc.  (the  "Initial
             Purchasers").  The Initial Purchasers' discount was 3.0% of the par
             value of the Notes.  The Company  issued the Notes  pursuant to the
             exemption provided by Rule 506 of Regulation D under the Securities
             Act of 1933, as amended.  The Notes are convertible  into shares of
             the  Company's  Common  Stock at any time  prior to  maturity  at a
             conversion  price of $48.20 per share,  subject to  adjustments  in
             certain events.

        ITEM 3.  Defaults Upon Securities

             Not applicable
                                       16
<PAGE>
        ITEM 4.  Submissions of Matters to a Vote of Security Holders


             The Company's 1998 Annual Meeting of Shareholders was held on March
             2, 1998. The following nominees were elected to the Company's Board
             of  Directors to serve until their  successors  are elected or have
             been qualified, or until their earlier resignation or removal:

                  Nominee                    Votes in Favor          Withheld
                  -------                    --------------          --------
                  Fred W. Wagenhals            14,563,579             81,453
                  Tod J. Wagenhals             14,573,989             71,043
                  Christopher S. Besing        14,573,989             71,043
                  Charles C. Blossom, Jr.      14,573,989             71,043
                  Melodee L. Volosin           14,573,989             71,043
                  John S. Bickford, Sr.        14,573,989             71,043
                  John M. Lloyd                14,573,989             71,043
                  Robert H. Manschot           14,573,989             71,043

             The following items were voted upon by the Company's shareholders:

             (a)    Proposal to ratify the appointment of Arthur Andersen LLP as
                    the independent auditors of the Company for  the fiscal year
                    ending September 30, 1998.

                    Votes in Favor     Opposed    Abstained    Broker Non-Vote
                    --------------     -------    ---------    ---------------
                      14,631,033        6,951       7,048           -0-


        ITEM 5.  Other Information

                 Not applicable

        ITEM 6.  Exhibits and Reports on Form 8-K

                 (a)   Exhibits

                       4.2      Indenture  dated as of March 24,  1998,  between
                                Action  Performance  Companies,  Inc., and First
                                Union National Bank, as Trustee, including forms
                                of Notes
                       10.42A   First  Amendment  dated as of March 18,  1998 to
                                Note Purchase  Agreement  dated as of January 2,
                                1997, among Action Performance Companies,  Inc.,
                                Jefferson-Pilot    Life    Insurance    Company,
                                Alexander  Hamilton  Life  Insurance  Company of
                                America,   and  First  Alexander  Hamilton  Life
                                Insurance Company
                       10.43A   Amendment and Consent to Credit  Agreement dated
                                March 18, 1998, by and among Action  Performance
                                Companies,  Inc., various subsidiary guarantors,
                                and First Union National Bank of North Carolina
                       10.52    1998 Non-Qualified Stock Option Plan
                       10.53    Purchase  Agreement  dated  March 18, 1998 among
                                Action Performance Companies,  Inc., NationsBanc
                                Montgomery   Securities  LLC,  CIBC  Oppenheimer
                                Corp.,   EVEREN  Securities,   Inc.,  and  Piper
                                Jaffray Inc.
                       10.54    Registration  Rights  Agreement  dated March 24,
                                1998, by and among Action Performance Companies,
                                Inc.,  NationsBanc  Montgomery  Securities  LLC,
                                CIBC Oppenheimer Corp., EVEREN Securities, Inc.,
                                and  Piper  Jaffray  Inc.  
                       11.1     Computation of Basic Earnings Per Share
                       11.2     Computation of Diluted Earnings Per Share
                       27       Financial Data Schedule
                                       17
<PAGE>
                      (b)       Reports on Form 8-K

                                On March 10, 1998,  the Company  filed a Current
                                Report on Form 8-K dated March 5, 1998, in which
                                it  filed  the  press   release   regarding  the
                                proposed   private   placement  of   convertible
                                subordinated  notes. The press release was filed
                                pursuant to Rule 135(c) under the Securities Act
                                of 1933, as amended.
                                       18
<PAGE>
                                   SIGNATURES

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

                    ACTION PERFORMANCE COMPANIES, INC.

<TABLE>
<CAPTION>
Signature                                        Capacity                                       Date
---------                                        --------                                       ----
<S>                                  <C>                                                    <C>
/s/ Fred W. Wagenhals                Chairman of the Board, President, and                  May 14, 1998
______________________               Chief Executive Officer
Fred W. Wagenhals                    (Principal Executive Officer)


/s/ Christopher S. Besing            Vice President, Chief Financial Officer,               May 14, 1998
______________________               Treasurer, and Director
Christopher S. Besing                (Principal Financial and Accounting Officer)
</TABLE>
                                       19