U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q


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

                  For the quarterly period ended June 30, 1997

                         Commission File Number 0-21630

                       Action Performance Companies, Inc.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)




             Arizona                                      86-0704792
             -------                                      ----------

  (State or other jurisdiction of              (IRS Employer Identification No.)
   incorporation or organization)



                        2401 W. 1st St., Tempe, AZ 85281
                        --------------------------------
                    (Address of Principal Executive Offices)

                                 (602) 894-0100
                                 --------------
              (Registrant's telephone number, including area code)





Indicate by check 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  xx     No
    ----       ----  


                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date:  15,888,335  shares of common
stock (as of August 13, 1997).
<PAGE>
PART I, ITEM 1     FINANCIAL STATEMENTS

                       ACTION PERFORMANCE COMPANIES, INC.
                          CONSOLIDATED BALANCE SHEETS
                   As of June 30, 1997 and September 30, 1996
<TABLE>
<CAPTION>
                                                                June 30,                September 30,
                                                                  1997                      1996
                                                              ------------              -------------
                                                               (Unaudited)
<S>                                                           <C>                        <C>        
                                     ASSETS
                                     ------
CURRENT ASSETS:
  Cash and cash equivalents.............................      $ 49,274,964               $ 4,983,382
  Accounts receivable, net of allowance for doubtful
    accounts of $936,133 and $256,324, respectively.....        15,694,808                 7,496,988
  Inventories, net......................................        15,449,651                 5,833,812
  Deferred income taxes.................................         1,031,619                 1,031,619
  Prepaid royalties.....................................         4,730,217                 2,295,505
  Prepaid expenses and other assets.....................         1,732,996                   739,723
                                                              ------------               -----------
    Total current assets................................        87,914,255                22,381,029

PROPERTY AND EQUIPMENT, net.............................        13,357,671                 8,188,441

GOODWILL, net of accumulated amortization of $833,206,
  and $9,519, respectively..............................        32,980,399                    56,370

NOTES RECEIVABLE AND OTHER ASSETS.......................         1,285,681                 1,022,794
                                                              ------------               -----------
                                                              $135,538,006               $31,648,634
                                                              ============               ===========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
                        ------------------------------------
CURRENT LIABILITIES:
  Accounts payable......................................      $  8,342,096               $ 2,188,343
  Accrued royalties.....................................         5,264,409                 1,180,038
  Line of credit........................................         5,000,000                      -
  Income taxes payable..................................              -                      521,547
  Accrued settlement costs..............................         5,400,000                      -
  Accrued expenses and other............................         1,832,583                   397,529
                                                              ------------               -----------
    Total current liabilities...........................        25,839,088                 4,287,457

LONG-TERM DEBT:
  Notes payable.........................................        21,194,342                      -
  Other long-term debt..................................           853,726                   364,725
                                                              ------------               -----------
    Total long-term debt................................        22,048,068                   364,725

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; 15,525,003 and 12,609,769 shares,
  issued and outstanding, respectively..................           155,250                   126,098
  Additional paid-in capital............................        74,513,351                18,991,296
  Retained earnings.....................................        12,982,249                 7,879,058
                                                              ------------               -----------
    Total shareholders' equity..........................        87,650,850                26,996,452
                                                              ------------               -----------
                                                              $135,538,006               $31,648,634
                                                              ============               ===========
</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 Nine and Three Month Periods Ended June 30, 1997 and 1996

                                  (Unaudited)
<TABLE>
<CAPTION>
                                           Nine Months Ended          Three Months Ended
                                               June  30,                  June  30,
                                      -------------------------  --------------------------
                                          1997          1996         1997         1996
                                      -----------   -----------  -----------   ------------
<S>                                   <C>            <C>          <C>            <C>       
Sales:
Collectibles........................  $40,198,346   $28,644,790  $16,676,773   $ 11,597,886
Apparel and souvenirs...............   40,296,200     1,410,069   21,962,680        684,741
Promotional.........................    2,196,892          -         842,066           -
Other...............................      417,741          -         149,982           -
                                      -----------   -----------  -----------   ------------

    Net sales.......................   83,109,179    30,054,859   39,631,501     12,282,627

Cost of sales.......................   51,249,289    17,442,007   24,947,635      6,858,245
                                      -----------   -----------  -----------   ------------

Gross profit........................   31,859,890    12,612,852   14,683,866      5,424,382

Selling, general and
  administrative expenses...........   15,852,202     6,449,838    6,596,628      2,485,368
Settlement costs....................    5,400,000          -       5,400,000           -
Goodwill amortization...............      833,206         3,294      338,318          1,064
                                      -----------   -----------  -----------   ------------

Income from operations..............    9,774,482     6,159,720    2,348,920      2,937,950

Other income (expense):
  Interest income and other, net....      255,844       231,344       89,690         42,920
  Interest expense..................   (1,525,009)      (67,124)    (608,568)       (19,717)
                                      -----------   -----------  -----------   ------------
    Total other income (expense)....   (1,269,165)      164,220     (518,878)        23,203
                                      -----------   -----------  -----------   ------------

Income before provision for
  income taxes......................    8,505,317     6,323,940    1,830,042      2,961,153

Provision for income taxes..........    3,402,126     2,529,576      732,016      1,184,461
                                      -----------   -----------  -----------   ------------

NET INCOME..........................  $ 5,103,191   $ 3,794,364  $ 1,098,026   $  1,776,692
                                      ===========   ===========  ===========   ============

NET INCOME PER COMMON SHARE:
  Primary...........................  $      0.36   $      0.29  $      0.08   $       0.14
                                      ===========   ===========  ===========   ============
  Fully Diluted ....................  $      0.36   $      0.29  $      0.08   $       0.14
                                      ===========   ===========  ===========   ============

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Primary...........................  $13,997,184    12,980,905   14,429,995     13,147,254
                                      ===========    ==========   ==========     ==========
  Fully Diluted ....................  $14,033,328    13,053,925   14,430,317     13,150,125
                                      ===========    ==========   ==========     ==========
</TABLE>
                  The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       3
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                    For the Nine Months Ended June 30, 1997

                                  (Unaudited)
<TABLE>
<CAPTION>
                                 Common Stock
                             --------------------      Additional
                                Shares                  Paid-In        Retained
                                Issued     Amount       Capital        Earnings        Total
                             ----------  --------     -----------     -----------   -----------

<S>                          <C>         <C>          <C>             <C>           <C>        
BALANCE, September 30, 1996  12,609,769  $126,098     $18,991,296     $ 7,879,058   $26,996,452
                             ----------  --------     -----------     -----------   -----------

Common stock issued upon
 exercise of options.......     211,516     2,115       1,021,875            -        1,023,990

Common stock issued upon
 purchase of business......     746,218     7,462       9,604,636            -        9,612,098

Issuance of common stock....    187,500     1,875       2,583,632            -        2,585,507

Issuance of common stock
 in public offering........   1,770,000    17,700      42,311,912            -       42,329,612

Net Income.................        -            -               -       5,103,191     5,103,191
                             ----------  --------     -----------     -----------   -----------

BALANCE, June 30, 1997       15,525,003  $155,250     $74,513,351     $12,982,249   $87,650,850
                             ==========  ========     ===========     ===========   ===========
</TABLE>
                   The accompanying notes are an integral part
                  of these consolidated financial statements.
                                       4
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                For the Nine Months Ended June 30, 1997 and 1996

                                  (Unaudited)
<TABLE>
<CAPTION>
                                                         1997                        1996
                                                     -----------                  -----------
<S>                                                  <C>                          <C>        
Cash Flows from Operating Activities:
Net Income....................................       $ 5,103,191                  $ 3,794,364
  Adjustments to reconcile net income to
   net cash provided by (used in) operating
   activities:
   Depreciation and amortization..............         3,020,393                    1,169,579
   Change in assets and liabilities,
    net of businesses acquired:
     Accounts receivable......................        (2,576,033)                  (1,927,704)
     Inventories..............................        (4,433,692)                  (2,072,014)
     Prepaid royalties........................        (2,434,712)                    (962,152)
     Prepaid expenses and other assets........        (1,104,249)                    (158,359)
     Accounts payable.........................         1,116,339                      231,565
     Income taxes payable.....................          (521,547)                    (289,507)
     Accrued royalties and other..............         4,057,359                      267,742
     Accrued settlement costs.................         5,400,000                         -
                                                     -----------                  -----------
      Net cash provided by
       operating activities...................         7,627,049                       53,514

Cash Flows from Investing Activities:
  Acquisition of property and equipment.......        (5,316,772)                  (2,883,845)
  Proceeds from sale of equipment.............           110,781                         -
  Cash acquired in purchase of business ......         1,140,363                         -
                                                     -----------                  -----------
    Net cash used in investing activities.....        (4,065,628)                  (2,883,845)

Cash Flows from Financing Activities:
  Borrowings on line of credit................         4,878,583                    5,221,898
  Payments on line of credit..................        (5,278,583)                  (5,221,898)
  Proceeds from issuances of common stock.....        48,965,747                    1,287,228
  Payments for offering costs.................        (3,026,638)                     (17,466)
  Payments on notes payable...................        (4,623,825)                        -
  Principal payments on capital lease
   obligation and other.......................          (185,123)                     (51,141)
                                                     -----------                  -----------
    Net cash provided by financing activities.        40,730,161                    1,218,621
                                                     -----------                  -----------

Increase (Decrease) in Cash...................        44,291,582                   (1,611,710)
  Cash, Beginning of Period...................         4,983,382                    6,759,984
                                                     -----------                  -----------
  Cash, End of Period.........................       $49,274,964                  $ 5,148,274
                                                     ===========                  ===========
</TABLE>
                  The accompanying notes are an integral part
                   of these consolidated financial statements
                                       5
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997

(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 nine-month  period
ended June 30, 1997 are not necessarily indicative of the operating results that
may be expected for the entire year ending  September  30, 1997.  Certain  prior
period  amounts  have  been  reclassified  to  conform  to  the  June  30,  1997
presentation.  These financial statements should be read in conjunction with the
Company's Form 10-KSB for the fiscal year ended September 30, 1996.

(2) SHAREHOLDERS EQUITY

On June 24,  1997,  the Company  sold  1,770,000  shares of its common  stock in
connection with a public offering and an additional 315,000 shares of its common
stock  on  July  17,  1997   pursuant  to  the  exercise  of  the   underwriters
over-allotment  option  (collectively   referred  herein  as  the  "1997  Public
Offering").  The net  proceeds  to the  Company  from this  offering  were $49.9
million,  after deducting estimated offering expenses and underwriting discounts
and commissions.

(3) NET INCOME PER COMMON SHARE

Net income per common share is computed based on the weighted  average number of
common shares and common share equivalents  outstanding using the treasury stock
method,  except when common share equivalents have an antidilutive  effect.  All
share amounts and per share data have been  restated to reflect the  two-for-one
stock split effected as a stock dividend on May 28, 1996.

(4) SUPPLEMENTAL CASH FLOW INFORMATION

Cash  payments  during the nine  months  ended June 30,  1997 and 1996  included
interest of $671,698 and $67,124,  respectively,  and income taxes of $4,556,000
and $2,872,000, respectively.

In November  1996,  the Company  purchased  substantially  all of the assets and
assumed  certain   liabilities  of  Sports  Image,  Inc.  ("Sports  Image")  for
approximately  $30,000,000,  consisting  of a  $24,000,000  promissory  note due
January 2, 1997 and 403,361 shares of the Company's  common stock. On January 8,
1997, the Company acquired the business and  substantially all of the assets and
assumed  specified  liabilities  of Motorsport  Traditions  Limited  Partnership
("MTL")  and  acquired  all  of  the  capital  stock  of  Creative  Marketing  &
Promotions,  Inc. ("CMP" and,  together with MTL,  "Motorsport  Traditions") for
approximately  $13,000,000.  The  consideration  paid for Motorsport  Traditions
consisted of (i) cash in the amount of $5,400,000; (ii) a promissory note in the
principal  amount of  $1,600,000  issued  by a wholly  owned  subsidiary  of the
Company; and (iii) an aggregate of 342,857 shares of the Company's Common Stock.
Non-cash  financing,  investing,  and operating  activities  for the nine months
ended June 30, 1997 include (i) a $9,612,098 increase to common stock issued for
the acquisitions;  (ii) a $38,391,771  increase of debt and liabilities incurred
or assumed in the acquisitions;  and (iii) a $13,114,948 increase of assets, net
of cash acquired in the acquisitions.

Investing  activities for the nine-month period ended June 30, 1997 included the
sale of $556,457 in equipment for cash proceeds of $110,781 and notes receivable
of $445,676.
                                       6
<PAGE>
(5) BUSINESS COMBINATIONS

In November  1996,  the Company  purchased  substantially  all of the assets and
assumed   certain   liabilities   of  Sports  Image.   The  purchase  price  was
approximately  $30,000,000,  consisting  of a  $24,000,000  promissory  note due
January 2, 1997 and 403,361 shares of the Company's  Common Stock. On January 2,
1997, the Company repaid the $24,000,000  promissory note with the proceeds from
the issuance of senior notes and a portion of the borrowings under the Company's
new credit facility. See Note 6. Sports Image sells and distributes a variety of
licensed motorsports products through wholesale distributor networks,  corporate
sponsors, and mobile trackside stores. Terms of this acquisition were determined
by  arms-length   negotiations  between  representatives  of  Sports  Image  and
representatives  of the Company.  In fiscal 1996, the Company derived 16% of its
net sales from Sports Image, a distributor of the Company's die-cast collectible
products.  Sports  Image  had sales of  approximately  $41,800,000  of  apparel,
die-cast replicas, souvenirs, and other motorsports consumer products during the
period  from  January  1, 1996 to  November  7, 1996  (which  includes  sales of
die-cast  collectibles  purchased  from  the  Company  at an  aggregate  cost of
approximately $5,800,000). This transaction was accounted for as a purchase.

On January 8, 1997, the Company acquired the business and  substantially  all of
the assets and assumed  certain  liabilities of Motorsport  Traditions from 1995
Nascar  Winston Cup  Champion  driver Jeff Gordon,  Kenneth R.  Barbee,  certain
entities controlled by Mr. Barbee, and certain other persons. The effective date
of the  acquisition  of Motorsport  Traditions is January 1, 1997.  The purchase
price paid by the Company for Motorsport Traditions consisted of (i) cash in the
amount  of  $5,400,000;  (ii) a  promissory  note  in the  principal  amount  of
$1,600,000  issued by a wholly owned  subsidiary  of the  Company;  and (iii) an
aggregate of 342,857 shares of the Company's  common stock.  The promissory note
bears  interest at 4% per annum,  matures on  December  31,  1998,  and has been
guaranteed by the Company. The terms of the acquisition, including the valuation
of the assets,  liabilities,  and capital  stock  acquired by the Company,  were
determined by arms-length  negotiations  between  representatives of the sellers
and representatives of the Company.  Motorsport Traditions sells and distributes
licensed  motorsports  products through a network of wholesale  distributors and
mobile  trackside  stores.  Prior  to the  acquisitions,  MTL and  CMP  together
generated  approximately  $33,000,000  in annual  revenues  from  their  design,
manufacturing,  and sales and  distribution  activities.  This  transaction  was
accounted for as a purchase.

Unaudited Pro Forma Income Statement Data

The  following  unaudited pro forma  combined  financial  information  of Action
Performance  Companies,  Inc. for the nine-month  period ended June 30, 1997 and
1996,   gives  effect  to  the  acquisitions  of  Sports  Image  and  Motorsport
Traditions, as if they had occurred on October 1, 1995 using the purchase method
of  accounting  for business  combinations.  The  unaudited  pro forma  combined
financial  information  presented  herein does not purport to represent what the
Company's  actual results of operations  would have been had the acquisitions of
Sports Image and Motorsport  Traditions  occurred on that date or to project the
Company's results of operations for any future period.

                                        Nine Months Ended     Nine Months Ended
                                          June 30, 1997          June 30, 1996
                                        -----------------     -----------------
                                           (Unaudited)           (Unaudited)

Net Sales........................         $94,579,000           $83,720,000

Settlement Costs................            5,400,000                  -

Operating Income................            9,819,000            11,653,000

Net Income.......................           4,751,000             5,573,000

Net Income Per Common Share....                 $0.34                 $0.40
                                       7
<PAGE>
(6) FINANCING ACTIVITIES

Credit Facility

On January 2, 1997,  the Company  entered into a $16.0 million  credit  facility
(the "Credit  Facility") with First Union National Bank of North  Carolina.  The
Credit  Facility  consists of a revolving line of credit for up to $10.0 million
through  September 30, 1997,  and up to $6.0 million from  September 30, 1997 to
March  31,  1998  (the  "Line  of  Credit")  and  a  $6.0   million   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 Sports Image and Motorsport  Traditions.  The Company
utilized  $4.0 million of the Line of Credit to provide part of the cash portion
of the purchase price for Motorsport  Traditions and an additional  $4.0 million
of the Line of Credit to repay a portion of the $24.0  million  promissory  note
issued in  connection  with the  acquisition  of  Sports  Image.  The  Letter of
Credit/BA  facility is available for issuances of letters of credit and eligible
bankers'  acceptances in an aggregate amount up to $10.0 million,  as amended in
April 1997,  to enable the  Company to finance  purchases  of products  from its
overseas vendors.  The Credit Facility will mature on March 31, 1998. The Credit
Facility contains certain provisions that, among other things,  will require the
Company to comply with certain  financial ratios and net worth  requirements and
will limit the ability of the Company and its  subsidiaries to incur  additional
indebtedness or to sell assets or engage in certain mergers or consolidations.

Sale of Senior Notes

On January 2, 1997, the Company  issued an aggregate of $20.0 million  principal
amount of senior notes (the "Senior  Notes") to three insurance  companies.  The
Senior  Notes  bear  interest  at the  rate of  8.05%  per  annum,  provide  for
semi-annual  payments of accrued  interest,  and will mature on January 2, 1999.
The  Company  may not prepay the Senior  Notes  prior to  maturity,  but will be
required  to 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, will require the Company to
comply with certain  financial ratios and net worth  requirements and will limit
the ability of the Company and its subsidiaries to incur additional indebtedness
or to sell  assets or engage in certain  mergers or  consolidations.  The Senior
Notes are  guaranteed  by Sports Image and  Motorsport  Traditions.  The Company
utilized  the  proceeds  from the  Senior  Notes to repay the  remainder  of the
promissory note issued in connection with the acquisition of Sports Image.

(7) COMMITMENTS AND CONTINGENCIES

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

(8) LEGAL SETTLEMENT

In June 1997, the Company agreed to settle a breach of contract suit with Action
Products,  Inc.  for $4.9 million  (the "API  Settlement").  Pursuant to the API
Settlement,  in July 1997,  the  Company  made a payment of $4.9  million to the
plaintiff,  and all parties executed mutual releases. The accompanying financial
statements  include a charge of $5.4 million for the API  Settlement and related
legal fees. See Part II, Item 1 "Legal Proceedings".
                                       8
<PAGE>
(9) SUBSEQUENT EVENTS

In July 1997,  the  Company  agreed in  principal  to acquire all of the capital
stock of Robert Yates  Promotions,  Inc. ("RYP") for $5.7 million.  Negotiations
are continuing related to certain contingent liabilities which may be assumed by
the Company. RYP sells licensed motorsports products through trackside trailers,
and generated  approximately $3.0 million in revenues during calendar year 1996.
This transaction will be accounted for as a purchase.

In July 1997, the Company acquired  substantially  all of the assets and assumed
certain liabilities of Image Works, Inc. ("Image Works"). The Company paid $4.25
million in cash and assumed a three-year note payable of $750,000 as part of the
purchase  price.  In addition,  the Company  agreed to an additional  contingent
payment of up to $1.4  million  based  upon the  attainment  of certain  revenue
objectives  through  September 30, 2000.  Image Works  designs and  manufactures
screen  printed  and  embroidered  motorsports  apparel  items for  distribution
through  mass   retailers  and  corporate   accounts.   Image  Works   generated
approximately $22 million in revenues during 1996. Terms of the acquisition were
determined by arms length negotiations between Image Works and the Company. This
transaction will be accounted for as a purchase. 
                                       9
<PAGE>
ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 consumer  products are manufactured by
third parties, generally utilizing the Company's designs, tools, and dies.

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.  During fiscal 1994, the Company also conducted the business
of staging M-Car(TM) Grand Prix Races for charitable and other organizations, in
which participating sponsors purchased specialized gas-powered,  one-third scale
racing vehicles from the Company. In September 1994, the Company sold the assets
and  liabilities  related  to its  M-Car(TM)  operations  and  discontinued  its
M-Car(TM)  Grand  Prix Race  operations.  During  fiscal  1994 and the first two
quarters of fiscal 1995, the Company designed and marketed pedal,  electric, and
gas-powered mini vehicles, primarily as specialty promotional items. The Company
sold the assets related to its mini vehicle operations in March 1995.

In November  1996,  the Company  acquired  Sports  Image and in January 1997 the
Company  acquired  Motorsport  Traditions,  both of which market and  distribute
licensed   motorsports  apparel  and  other  souvenir  items.   Following  these
acquisitions,  the Company took a number of actions  intended to  integrate  the
operations of the acquired companies with the Company's existing  operations and
to reduce overall selling,  general, and administrative expenses associated with
the acquired  entities.  These actions included  consolidating the operations of
Motorsport  Traditions with Sports Image's  existing  operations and facility in
Charlotte, North Carolina;  reducing the total number of employees in Charlotte;
and integrating the management information systems of the acquired companies.

In addition to the anticipated  cost savings  described  above, the Company also
believes that the acquisitions of Sports Image and Motorsport Traditions provide
the potential for enhanced  revenue  opportunities  as a result of the synergies
created by expanded product offerings and additional  distribution channels. For
example,  the  Company  intends to  develop  new lines of  licensed  motorsports
apparel and souvenirs for exclusive  sales  through its  collectors'  club.  The
Company also believes that Sports Image and Motorsport  Traditions  will provide
opportunities  for additional  sales growth of the Company's  die-cast  products
through trackside sales, promotional programs, and fan clubs.

Prior to the  acquisitions  of  Sports  Image  and  Motorsport  Traditions,  the
Company's revenue consisted primarily of sales of die-cast  collectibles,  while
the revenue of Sports Image and  Motorsport  Traditions  consisted  primarily of
sales of licensed  motorsports apparel and souvenirs.  The Company believes that
the increased sales of licensed apparel and souvenirs following the acquisitions
of Sports Image and  Motorsport  Traditions  will result in lower  overall gross
margins  as a result of lower  gross  margins  generally  associated  with these
acquired product lines. The Company believes,  however, that the effect of these
lower gross margins will be mitigated at least to some extent by cost reductions
and  other  operational  efficiencies  associated  with the  combination  of the
acquired  entities.  The Company also  believes  that gross and net margins will
increase in the future as a result of the license  agreement  with Hasbro  Inc.,
which provides the Company with the opportunity to recognize significant license
royalties without any significant  related cost of sales and without  committing
substantial capital for manufacturing and marketing activities. In addition, the
Company believes that its new license arrangement with NASCAR will enhance sales
of its  existing  products  as well as  provide  a number of  opportunities  for
developing new corporate promotional programs and one or more new fan clubs.
                                       10
<PAGE>
The Company's cost of sales consists  primarily of the cost of products procured
from third-party manufacturers,  royalty payments to licensors, and depreciation
of tooling and dies.  Significant  factors affecting the Company's cost of sales
as a percentage  of net sales  include (i) the overall  percentage  of net sales
represented by sales of die-cast  collectible  products,  which  typically carry
higher gross margins than the Company's other  products,  (ii) the percentage of
sales  of  die-cast  collectible  products  represented  by  sales  through  the
collectors'  club, which typically carry higher gross margins than sales of such
products through wholesale distributors,  and (iii) the effect of amortizing the
fixed cost  components of cost of sales,  primarily  depreciation of tooling and
dies, over varying levels of net sales.  Selling,  general,  and  administrative
expenses include general  corporate  expenses as well as goodwill  amortization.
The Company recorded goodwill of approximately  $33.7 million in connection with
the acquisition of Sports Image and Motorsport Traditions. The goodwill is being
amortized  at the rate of $1.4  million  per year  over 25 years.  As  described
above, the Company  anticipates that it will achieve a significant  reduction in
selling,  general,  and  administrative  expenses as a percentage  of sales as a
result of the cost-reduction  efforts taken following the acquisitions of Sports
Image and Motorsport Traditions.

Results of Operations

The following  table sets forth,  for the periods  indicated,  the percentage of
total revenue represented by certain expense and revenue items.

                                           Nine Months Ended  Three Months Ended
                                                 June 30,           June 30,
                                           -----------------  ------------------
                                             1997     1996     1997     1996
                                             ----     ----     ----     ---- 

Sales:
         Collectibles sales, net..........   48.4%    95.3%    42.1%     94.4%
         Apparel and souvenir sales, net..   48.5%     4.7%    55.4%      5.6%
         Promotional sales, net...........    2.6%     0.0%     2.1%      0.0%
         Other sales, net.................     .5%     0.0%      .4%      0.0%
                                            -----    -----    -----     ----- 
           Net sales......................  100.0%   100.0%   100.0%    100.0%
Cost of sales.............................   61.7%    58.0%    62.9%     55.9%
                                            -----    -----    -----     ----- 
Gross Profit..............................   38.3%    42.0%    37.1%     44.1%
Selling, general and administrative
 expenses.................................   19.1%    21.5%    16.7%     20.2%
Settlement costs..........................    6.5%     0.0%    13.6%      0.0%
Goodwill amortization.....................    1.0%     0.0%     0.9%      0.0%
                                            -----    -----    -----     ----- 
Income from operations....................   11.7%    20.5%     5.9%     23.9%
Interest income (expense) and other,net      (1.5%)    0.5%    (1.3%)      .2%
                                            -----    -----    -----     ----- 
Income before provision for
 income taxes.............................   10.2%    21.0%     4.6%     24.1%
Provision for income taxes................   (4.1%)   (8.4%)   (1.8%)    (9.6%)
                                            -----    -----    -----     ----- 
Net income................................    6.1%    12.6%     2.8%     14.5%
                                            =====    =====    =====     ===== 

Three Months Ended June 30, 1997 Compared with Three Months Ended June 30, 1996

Net sales increased  222.7% to $39.6 million for the three months ended June 30,
1997 from $12.3  million for the three months ended June 30 , 1996.  The Company
attributes  the  improvement  in sales  during the third  quarter of fiscal 1997
primarily to (i)  additional  revenue  streams from Sports Image and  Motorsport
Traditions,  which  were  acquired  by the  Company  during the first and second
quarters of fiscal  1997,  respectively;  (ii) the  continued  expansion  of the
die-cast  collectible  market and the  Company's  ability  to  produce  and sell
increased quantities of collectibles;  and (iii) an increase in collectors' club
membership.  The  number of  members  in the  collectors'  club  increased  from
approximately  65,000 members to  approximately  90,000 members at June 30, 1996
and June 30, 1997, respectively.

Gross  profit  increased  to $14.7  million for the three  months ended June 30,
1997,  from $5.4 million for the three months ended June 30, 1996,  representing
37.1%  and  44.1% of net  sales,  respectively.  The  decrease  in gross  profit
percentage for the  three-month  period ended June 30, 1997  primarily  resulted
from the increased sales of apparel and souvenirs, which typically provide lower
margins than sales of the Company's collectible products.
                                       11
<PAGE>
Selling,  general and administrative  expenses increased to $6.6 million for the
three-month  period  ended June 30, 1997 from $2.5  million for the three months
ended June 30, 1996,  representing  16.7% and 20.2% of net sales,  respectively.
The decrease in such expenses as a percentage of sales  resulted  primarily from
cost savings  achieved with the integration and  consolidation of operations for
the acquired entities of Sports Image and Motorsport Traditions. The integration
and consolidation  included the relocation of Motorsport  Traditions  operations
into Sport Image's facility,  the integration of management information systems,
and a reduction in excess labor.

Settlement costs of $5.4 million for the three-month  period ended June 30, 1997
resulted  from the one time  charge for the API  Settlement  and  related  legal
charges.  This  settlement  represents  13.6% of net sales.  See Part II, Item 1
"Legal Proceedings".

Goodwill  amortization  increased to $338,000 for the  three-month  period ended
June 30, 1997 from $1,000 for the three months ended June 30, 1996. The increase
in goodwill  amortization  is related to the  acquisitions  of Sports  Image and
Motorsport  Traditions.  The  Company  recorded  goodwill  of $33.7  million  in
connection with the acquisitions that is amortized over a 25 year period.

The  change  in  interest  income  (expense)  and  other,   net,  was  primarily
attributable  to an  increase in  interest  expense of $589,000  related to debt
incurred in  connection  with the  acquisitions  of Sports Image and  Motorsport
Traditions.

Nine Months Ended June 30, 1997 Compared with Nine Months Ended June 30, 1996

Net sales  increased  176.5% to $83.1 million for the nine months ended June 30,
1997 from $30.1  million for the nine months  ended June 30,  1996.  The Company
attributes the  improvement in sales during the first nine months of fiscal 1997
primarily to (i)  additional  revenue  streams from Sports Image and  Motorsport
Traditions,  which  were  acquired  by the  Company  during the first and second
quarters of fiscal  1997,  respectively;  (ii) the  continued  expansion  of the
die-cast  collectible  market and the  Company's  ability  to  produce  and sell
increased quantities of collectibles;  and (iii) an increase in collectors' club
membership.  The  number of  members  in the  collectors'  club  increased  from
approximately  65,000 members to  approximately  90,000 members at June 30, 1996
and June 30, 1997, respectively.

Gross profit  increased to $31.9 million for the nine months ended June 30, 1997
from $12.6 million for the nine months ended June 30, 1996,  representing  38.3%
and 42.0% of net sales,  respectively.  The  decrease  in the gross  profit as a
percentage of net sales for the  nine-month  period ended June 30, 1997 resulted
from increased  sales of apparel and souvenirs,  which  typically  provide lower
margins than sales of the Company's collectible products.

Selling,  general and administrative expenses increased to $15.9 million for the
nine-month  period  ended June 30, 1997 from $6.4  million  for the  nine-months
ended June 30, 1996,  representing  19.1% and 21.5% of net sales,  respectively.
The decrease in such expenses as a percentage of sales  resulted  primarily from
cost savings  achieved with the integration and  consolidation of operations for
the acquired entities of Sports Image and Motorsport Traditions. The integration
and consolidation  included the relocation of Motorsport  Traditions  operations
into Sport Image's facility,  the integration of management information systems,
and a reduction in excess labor.

Settlement  costs of $5.4 million for the nine-month  period ended June 30, 1997
resulted  from the one time  charge for the API  Settlement  and  related  legal
charges.  This  settlement  represents  6.5% of net sales.  See Part II,  Item 1
"Legal Proceedings".

Goodwill amortization increased to $833,000 for the nine-month period ended June
30, 1997 from $3,000 for the nine months  ended June 30,  1996.  The increase in
goodwill  amortization  is  related  to the  acquisitions  of  Sports  Image and
Motorsport  Traditions.  The  Company  recorded  goodwill  of $33.7  million  in
connection with the acquisitions that is amortized over a 25 year period.

The  change  in  interest  income  (expense)  and  other,   net,  was  primarily
attributable  to an increase in interest  expense of $1,458,000  related to debt
incurred in  connection  with the  acquisitions  of Sports Image and  Motorsport
Traditions.
                                       12
<PAGE>
Pro Forma Results of Operations

The Company had pro forma net income for the nine months  ended June 30, 1997 of
$4.8  million,  or $0.34 per  share,  compared  with  actual  net income of $5.1
million, or $0.36 per share. The difference in earnings per share on a pro forma
basis for the nine months ended June 30, 1997 is primarily attributable to lower
gross margins as a result of the  liquidation of inventory  following the end of
the  1996  racing  season  by  the  acquired  entities  prior  to  the  date  of
acquisition.  The  Company  intends to improve  the  management  and  control of
inventories  of the acquired  companies in order to reduce the need for seasonal
adjustments  to  inventory.  The pro forma  results of  operations  for the nine
months ended June 30, 1997 and 1996 reflect the amortization of goodwill arising
from the  acquisitions  of Sports Image and  Motorsport  Traditions  and include
additional interest expense associated with the financing of these acquisitions.
The  pro  forma  results  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.

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 holiday sales of its
products are increasing,  which has the effect of reducing seasonal fluctuations
in its sales.

Liquidity and Capital Resources

The Company's  working capital  position  increased to $62.1 million at June 30,
1997 from $18.1 million at September 30, 1996.  The increase of $44.0 million is
primarily  attributable  to the  Company's  1997  Public  Offering,  the working
capital acquired from the purchase of Sports Image and Motorsport  Traditions by
the Company, and results from operations.

On June 24,  1997,  the Company  sold  1,770,000  shares of its common  stock in
connection with the 1997 Public Offering and an additional 315,000 shares of its
common  stock on July 17,  1997  pursuant to the  exercise  of the  underwriters
over-allotment  option.  The net proceeds to the Company from this offering were
$49.9 million,  after deducting  estimated  offering  expenses and  underwriting
discounts and commissions.

Capital   expenditures   for  the  nine  months  ended  June  30,  1997  totaled
approximately $5.3 million, of which approximately $4.1 million was utilized for
the Company's continued investment in tooling.

On January 16, 1997,  the Company sold an aggregate of 187,500  shares of common
stock to Hasbro,  Inc. at a price of $14.50 per share,  with net proceeds to the
Company of approximately $2.6 million.

During the nine months ended June 30, 1997, the Company issued 211,516 shares of
common stock upon the  exercise of employee  stock  options,  resulting in total
proceeds to the Company of approximately $1.0 million.

In November  1996,  the Company  purchased  substantially  all of the assets and
assumed  certain  liabilities  of Sports  Image,  Inc.  The  purchase  price was
approximately  $30.0 million,  consisting of a $24.0 million promissory note due
January 2, 1997 and 403,361 shares of the Company's  common stock. On January 2,
1997, the Company repaid the promissory note with the proceeds from the issuance
of senior  notes and a  portion  of the  borrowings  under the  credit  facility
described  below.  The terms of this  acquisition were determined by arms-length
negotiations between  representatives of Sports Image and representatives of the
Company. In fiscal 1996, the Company derived  approximately 16% of its net sales
from Sports Image, a distributor of the Company's die-cast collectible products.

In  January  1997,  the  Company  acquired  substantially  all of the assets and
assumed certain  liabilities of Motorsport  Traditions  Limited  Partnership and
acquired all of the capital stock of Creative  Marketing & Promotions,  Inc. for
approximately $13.0 million, consisting of cash in the amount of $5.4 million, a
promissory note in the
                                       13
<PAGE>
principal  amount of $1.6  million,  and an aggregate  of 342,857  shares of the
Company's  common  stock.  The  terms of the  acquisitions  were  determined  by
arms-length   negotiations   between   representatives   of  the   sellers   and
representatives of the Company.

On January 2, 1997, the Company  entered into the $16.0 million credit  facility
(the "Credit  Facility") with First Union National Bank of North  Carolina.  The
Credit  Facility  consists of a revolving  line of credit (the "Line of Credit")
for up to $10.0 million  through  September 30, 1997 and up to $6.0 million from
September  30,  1997  to  March  31,  1998,   and  a  $6.0  million   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 Sports Image and Motorsport  Traditions.  The Company
utilized  $4.0 million of the Line of Credit to provide part of the cash portion
of the purchase price for Motorsport  Traditions and an additional  $4.0 million
of the Line of Credit to repay a portion of the $24.0  million  promissory  note
issued in  connection  with the  acquisition  of  Sports  Image.  The  Letter of
Credit/BA  Facility is available for issuances of letters of credit and eligible
bankers'  acceptances in an aggregate amount up to $10.0 million,  as amended in
April 1997,  to enable the  Company to finance  purchases  of products  from its
overseas  vendors.   The  Company  had  outstanding   purchase   commitments  of
approximately $5.3 million under the Letter of Credit/BA Facility as of June 30,
1997.  The Credit  Facility will mature on March 31, 1998.  The Credit  Facility
contains certain  provisions that, among other things,  will require the Company
to comply with  certain  financial  ratios and net worth  requirements  and will
limit the  ability  of the  Company  and its  subsidiaries  to incur  additional
indebtedness or to sell assets or engage in certain mergers or consolidations.

On January 2, 1997, the Company  issued an aggregate of $20.0 million  principal
amount of senior notes (the "Senior  Notes") to three insurance  companies.  The
Senior  Notes  bear  interest  at the  rate of  8.05%  per  annum,  provide  for
semi-annual  payments of accrued  interest,  and will mature on January 2, 1999.
The  Company  may not prepay the Senior  Notes  prior to  maturity,  but will be
required  to 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, will require the Company to
comply with certain  financial ratios and net worth  requirements and will limit
the ability of the Company and its subsidiaries to incur additional indebtedness
or to sell  assets or engage in certain  mergers or  consolidations.  The Senior
Notes are  guaranteed  by Sports Image and  Motorsport  Traditions.  The Company
utilized  the  proceeds  from the  Senior  Notes to repay the  remainder  of the
promissory note issued in connection with the acquisition of Sports Image.

In July 1997,  the  Company  agreed in  principal  to acquire all of the capital
stock of Robert Yates  Promotions,  Inc. ("RYP") for $5.7 million.  Negotiations
are continuing related to certain contingent liabilities which may be assumed by
the Company. RYP sells licensed motorsports products through trackside trailers,
and generated  approximately $3.0 million in revenues during calendar year 1996.
This transaction will be accounted for as a purchase.

In July 1997, the Company acquired  substantially  all of the assets and assumed
certain liabilities of Image Works, Inc. ("Image Works"). The Company paid $4.25
million in cash and assumed a three-year note payable of $750,000 as part of the
purchase  price.  In addition,  the Company  agreed to an additional  contingent
payment of up to $1.4  million  based  upon the  attainment  of certain  revenue
objectives  through  September 30, 2000.  Image Works  designs and  manufactures
screen  printed  and  embroidered  motorsports  apparel  items for  distribution
through  mass   retailers  and  corporate   accounts.   Image  Works   generated
approximately $22 million in revenues during 1996. Terms of the acquisition were
determined by arms length negotiations between Image Works and the Company. This
transaction will be accounted for as a purchase. 
                                       14
<PAGE>
The  Company  is a  defendant  in  various  lawsuits.  The  Company  has made no
provision in its  financial  statements  with respect to these  matters with the
exception of the API Settlement. The imposition of damages in one or more of the
cases against the Company could have a material  adverse effect on the Company's
financial position.

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 any additional  acquisitions.  However,
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 affect 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-KSB for the
year ended  September  30,  1996,  as filed  with the  Securities  and  Exchange
Commission.
                                       15
<PAGE>
PART II - OTHER INFORMATION

ITEM 1.  Legal Proceedings

Litigation and Environmental Matters

     A  lawsuit,  purportedly  on behalf of Action  Products,  Inc.  ("API"),  a
     dissolved Arizona corporation, was instituted on December 22, 1995, against
     the Company,  Fred W. Wagenhals,  and others, in the United States District
     Court  for the  District  of  Arizona.  The  complaint  requested  damages,
     including  punitive  and treble  damages,  in an  unspecified  amount.  The
     complaint  alleged  that the Company,  Mr.  Wagenhals  and others  breached
     contractual  and  other  duties  to  API,   appropriated  certain  business
     opportunities  of API and  additionally  claimed that these activities were
     part of a fraudulent scheme. In June 1997 the Company,  Mr. Wagenhals,  and
     other  defendants,  and the  plaintiff  reached an  agreement to settle the
     lawsuit. The settlement agreement was signed, and approved by the Court, in
     July 1997.  Pursuant  to this  settlement  agreement,  the  Company  made a
     payment of $4.9 million to the plaintiff,  and all parties  executed mutual
     releases.  In connection  with the  settlement,  Mr.  Wagenhals  waived any
     claims he may have had to the settlement  proceeds as an approximately  20%
     shareholder of API.

     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  (Civil Action Nos.  1:97-CV-0569-RCF
     and  1:97-CV-0570-RCF).  The lawsuits allege that the defendants engaged in
     price fixing and other anti-competitive  activities in violation of federal
     anti-trust  laws.  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 of
     action 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 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. 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.  The Company intends to vigorously defend the claims asserted in
     the amended and consolidated complaint.

     On June 4, 1997, Petty Enterprises, Inc. Licensing Division filed a lawsuit
     against the Company and Fred W.  Wagenhals in the General  Court of Justice
     for Randolph  County,  North Carolina (Case No. 97 CVS 1070). The complaint
     alleges that the Company  engaged in activities  that resulted in trademark
     infringement,  fraud, unfair competition,  marketing  unlicensed  products,
     misappropriation  of business  opportunities,  breach of  contract,  unjust
     enrichment,  conversion,  and violations of the North  Carolina  Unfair and
     Deceptive  Trade  Practices  Act and the Lanham  Act.  In  particular,  the
     plaintiff  alleges  that the  Company  manufactured  and sold  products  in
     quantities  greater  than  the  amounts  permitted  under  certain  license
     agreements,  manufactured  and sold  certain  products for which it did not
     have  licenses,  misrepresented  the number of licensed  products  actually
     manufactured  and sold,  and  underpaid  royalties  to the  licensors.  The
     complaint  also  alleges  that these acts  constitute a pattern of improper
     activity.  The complaint  requests an unspecified  amount of actual damages
     plus treble an punitive damages,  as well as injunctive relief. The Company
     has now  removed  the  litigation  from the  General  Court of Justice  for
     Randolph County to the United States District Court for the Middle District
     of North Carolina.  In the United 
                                       16
<PAGE>
     States District Court, the Company has filed an answer and counterclaim, as
     well as a motion to dismiss or strike  plaintiff's  fraud claim,  or in the
     alternative,  to require more definite statement.  Further, the Company has
     filed a third party  complaint in the litigation  against Brett Nelson,  an
     officer and/or agent for Petty  Enterprises,  Inc. alleging  defamation and
     damage to reputation,  tortious  interference  with actual and  perspective
     business  relations,  and  violations  of the  North  Carolina  Unfair  and
     Deceptive Trade Practices Act. The Company intends to vigorously defend and
     prosecute this litigation.

     On June 4, 1997,  Kellogg Company filed a lawsuit against Fred W. Wagenhals
     and the  Company  in the  United  States  District  Court  for the  Western
     District of Michigan (Civil Action No.  4:97CV78;  Judge Wendell A. Miles).
     The complaint  alleges that after expiration of its 1996 license  agreement
     with  Kellogg,  the Company  produced 1997 model year products for which it
     did not have a valid license.  The complaint requests an unspecified amount
     of actual  damages plus treble  damages,  punitive  damages and  attorneys'
     fees, an accounting,  destruction of all infringing  products together with
     all means of making the same,  as well as  injunctive  relief.  The Company
     intends to defend vigorously this lawsuit.

ITEM 2.  Changes in Securities

     Not applicable

ITEM 3.  Defaults Upon Securities

     Not applicable

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

     Submissions of Matters to a Vote of Security Holders

     The  Company's  1997 Annual  Meeting of  Shareholders  was held on April 3,
     1997.  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            12,149,338                   412,290
     Tod J. Wagenhals             12,149,438                   412,190
     Christopher S. Besing        12,149,438                   412,190
     Joseph M. Mattes             12,148,938                   412,690
     Melodee L. Volosin           12,149,438                   412,190
     John S. Bickford             12,149,438                   412,190
     John M. Lloyd                12,149,438                   412,190
     Robert H. Manschot           12,149,438                   412,190

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

     Proposal to amend and restate the Company's 1993 Stock Option Plan.

     Votes in Favor     Opposed             Abstained         Broker Non-Vote
     --------------     -------             ---------         ---------------
       6,725,827       3,150,414             110,325                0

     Proposal  to  ratify  the   appointment  of  Arthur  Andersen  LLP  as  the
     independent  auditors of the  Company for the fiscal year ending  September
     30, 1997.

     Votes in Favor     Opposed             Abstained         Broker Non-Vote
     --------------     -------             ---------         ---------------
       12,441,310        14,263              106,055                0
                                       17
<PAGE>
ITEM 5.  Other Information

     Not applicable

ITEM 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits

         11.1   Computation of Primary Earnings Per Share
         11.2   Computation of Fully Diluted Earnings Per Share
         27     Financial Data Schedule

     (b) Reports on Form 8-K

     Not applicable

                                       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.

Signature                              Capacity                       Date
---------                              --------                       ----

/s/ Fred W. Wagenhals      Chairman of the Board, President,    August 13, 1997
----------------------      and Chief Executive Officer
Fred W. Wagenhals           (Principal Executive Officer)


/s/ Christopher S. Besing  Vice President, Chief Financial      August 13, 1997
-------------------------   Officer, Treasurer, and Director
Christopher S. Besing       (Principal Financial and Accounting Officer)

                                       19