##### Table of Contents



SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-K

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

For the fiscal year ended September 30, 2003

Commission file number 0-21630



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ACTION PERFORMANCE COMPANIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


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

1480 South Hohokam Drive
Tempe, Arizona 85281
(602) 337-3700
(Address, including zip code, and telephone number, including area code, of
principal executive offices)

Securities registered pursuant to Section 12(b) of the Exchange Act:

|                                       |  |                                          
|-------------------------------------- |  | -----------------------------------------
|Title of Each Class                    |  | Name of Each Exchange on Which Registered
|                                       |  |                                          
|Common Stock, par value $.01 per share |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2). Yes [X]  No [   ]

The aggregate market value of Common Stock held by nonaffiliates of the
registrant (15,996,853 shares) based on the closing price of the registrants
Common Stock as reported on the New York Stock Exchange on March 31, 2003,
which was the last business day of the registrants most recently completed
second fiscal quarter, was $338,333,441. For purposes of this computation, all
officers, directors and 10% beneficial owners of the registrant are deemed to
be affiliates. Such determination should not be deemed to be an admission that
such officers, directors or 10% beneficial owners are, in fact, affiliates of
the registrant.

As of December 1, 2003, there were outstanding 18,284,844 shares of
registrants common stock, par value $.01 per share.

Documents incorporated by reference: Portions of the registrants definitive
Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Report.





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TABLE OF CONTENTS



|                                                        |                                                                                                                           |  |  |  |  |  |  | 
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                 
|                                                        | ITEM 1. BUSINESS                                                                                                         
|                                                        | ITEM 2. PROPERTIES                                                                                                       
|                                                        | ITEM 3. LEGAL PROCEEDINGS                                                                                                
|                                                        | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                              
|PART II                                                
|                                                        | ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|                                                        | ITEM 6. SELECTED FINANCIAL DATA                                                                                          
|                                                        | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            
|                                                        | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                      
|                                                        | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                      
|                                                        | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             
|                                                        | ITEM 9A. CONTROLS AND PROCEDURES                                                                                         
|PART III                                               
|                                                        | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                              
|                                                        | ITEM 11. EXECUTIVE COMPENSATION                                                                                          
|                                                        | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS                  
|                                                        | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  
|                                                        | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          
|PART IV                                                
|                                                        | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                                                
|SIGNATURES                                             
|Index to Consolidated Financial Statements and Schedule
|EXHIBIT INDEX                                          
|EX-10.71                                               
|EX-21                                                  
|Ex-23.1                                                
|Ex-23.2                                                
|Ex-31.1                                                
|Ex-31.2                                                
|Ex-32.1                                                
|Ex-32.2                                                



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ACTION PERFORMANCE COMPANIES, INC.

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

|                                                        |  |                                                                                                               |  |     
|------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|                                                        |  |                                                                                                               |  | Page
|                                                        |  |                                                                                                               |  |     
|PART I                                                 
|ITEM 1                                                  |  | BUSINESS                                                                                                      |  | 1   
|ITEM 2.                                                 |  | PROPERTIES                                                                                                    |  | 24  
|ITEM 3.                                                 |  | LEGAL PROCEEDINGS                                                                                             |  | 24  
|ITEM 4.                                                 |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                           |  | 24  
|PART II                                                
|ITEM 5.                                                 |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 25  
|ITEM 6.                                                 |  | SELECTED FINANCIAL DATA                                                                                       |  | 26  
|ITEM 7.                                                 |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS                         |  | 27  
|ITEM 7A.                                                |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                    |  | 37  
|ITEM 8.                                                 |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                   |  | 37  
|ITEM 9.                                                 |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE                          |  | 37  
|ITEM 9A.                                                |  | CONTROLS AND PROCEDURES                                                                                       |  | 37  
|PART III                                               
|ITEM 10.                                                |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                            |  | 38  
|ITEM 11.                                                |  | EXECUTIVE COMPENSATION                                                                                        |  | 38  
|ITEM 12.                                                |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS                |  | 38  
|ITEM 13.                                                |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                |  | 38  
|ITEM 14.                                                |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                        |  | 38  
|PART IV                                                
|ITEM 15.                                                |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K                                              |  | 38  
|SIGNATURES                                              |  | 41                                                                                                           
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE |  | F-1                                                                                                          

Statement Regarding Forward-Looking Statements

The statements contained in this report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of applicable
securities laws. Forward-looking statements include statements regarding our
expectations, anticipation, intentions, beliefs, or strategies regarding the
future. Forward-looking statements also include statements regarding revenue,
margins, expenses, and earnings analysis for fiscal 2004 and thereafter; our
strategy to cultivate new license agreements, pursue strategic acquisitions and
alliances, and increase our mass-market distribution; and the success of
particular product or marketing programs. All forward-looking statements
included in this report are based on information available to us as of the
filing date of this report, and we assume no obligation to update any such
forward-looking statements. Our actual results could differ materially from
the forward-looking statements. Among the factors that could cause actual
results to differ materially are the factors discussed in Item 1, Business -
Risk Factors.

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PART I




ITEM 1. BUSINESS

Introduction

We are the leading designer and marketer of licensed motorsports products
related to NASCAR, including die-cast scaled replicas of motorsports vehicles,
apparel, and memorabilia. NASCAR is the most prominent motorsports sanctioning
body in the United States and sanctions the Nextel Cup (formerly Winston Cup)
series of stock car races. We currently have exclusive license agreements with
many of the most recognized names in NASCAR. We also design and sell products
relating to other motorsports, including racing sanctioned by the NHRA, Formula
One, the IRL, IROC, and the World of Outlaws. We distribute our products
through a broad range of channels, including a network of wholesale
distributors, leading mass-market retailers, mobile trackside stores, QVC, and
our members-only collectors club catalog. Sales of our products related to
NASCAR represented approximately 80% of our revenue during fiscal 2003 and we
expect sales of our products related to NASCAR will represent approximately 70%
of our revenue in fiscal 2004 as a result of recent acquisitions (See Recent
Acquisitions).

We focus on securing long-term license agreements with top motorsports drivers
and team owners. These license agreements generally provide us with an
exclusive right to market certain die-cast, apparel, and other products bearing
the drivers name, likeness, and image for periods typically ranging from six
to ten years. Racing fans are interested in purchasing products associated
with top drivers and team owners. As a result, we believe these license
agreements provide us with a significant competitive advantage.

We derive approximately 50% of our revenue from sales of licensed die-cast
scaled replicas of motorsports vehicles in the collectible and mass-retail
markets. In the United States, we market our Action Racing Collectables, AP,
Revell, and Brookfield Collectors Guild collectible die-cast brands primarily
through our network of wholesale distributors. We market our Winners Circle
brand die-cast products to mass-market retailers and our RCCA brand though our
collectors club, which is managed by QVC. In Germany, we market our
Minichamps collectible die-cast brand primarily through a worldwide network of
wholesale distributors.

We derive approximately 35% of our revenue from sales of licensed apparel,
gifts, and memorabilia. These products are marketed in the United States
primarily under our Chase Authentics brand and Winners Circle brand. We
market our Chase Authentics brand products through wholesale distributors and
our Winners Circle brand products to mass-market retailers.

We derive approximately 15% of our revenue from trackside sales in the United
States. We market Chase Authentics brand apparel and memorabilia and Action
Racing Collectables brand die-cast at mobile trackside stores. Approximately
90% of our trackside sales are derived from the sale of apparel and
memorabilia. As our revenues grow, we anticipate trackside sales will decrease
as a percentage of total revenue.

In this report, we refer to various distinct segments of motorsports racing,
including the National Association of Stock Car Auto Racing, or NASCAR; the
National Hot Rod Association, or NHRA; Formula One; the Indy Racing League, or
IRL; and International Race of Champions, or IROC; and the World of Outlaws.

Our fiscal year ends September 30. In this report, unless otherwise noted,
2003, 2002, 2001,
2000, and 1999, refer to our fiscal years.

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Our website is located at www.action-performance.com. Through our website, we
make available free of charge our annual reports on Form 10-K, our proxy
statements, our quarterly reports on Form 10-Q, our current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) under the Securities Exchange Act. These reports are available
as soon as reasonably practicable after we electronically file those materials
with the Securities and Exchange Commission. We also post on our website the
charters of our Audit, Compensation, and Nominating/Corporate Governance
Committees; our Corporate Governance Guidelines, Code of Business Conduct and
Ethics, and Code of Ethics for the CEO and Senior Financial Officers, and any
amendments or waivers thereto; and any other corporate governance materials
contemplated by SEC or NYSE regulations. The documents are also available in
print to any shareholder who requests by contacting our corporate secretary at
the company offices.

The Motorsports Industry

Motorsports is one of the fastest growing spectator sports in the United
States. Racing formats in the United States include, among others, NASCAR,
NHRA, IRL, IROC and World of Outlaws.

The most popular auto racing format in the United States is stock car racing,
the racing of specially equipped standard passenger automobiles. The most
prominent stock car sanctioning organization is NASCAR, which was founded and
developed in the late 1940s in the southeastern United States. Today, NASCAR
operates three primary racing series: The Nextel Cup (formerly Winston Cup),
the Busch Grand National, and the Craftsman Truck Series, each with races
throughout the United States. Of these, the Winston Cup, which in the 2003
season consisted of 39 televised events, is the most popular in terms of
attendance and television viewership. The Busch series included 34 racing
events in the 2003 season, and the Craftsman Truck series included 25 events.
We focus our product offerings on the Nextel Cup (formerly Winston Cup) items.
Busch series and Craftsman Truck series product offerings are limited primarily
to promotional items.

Sales of our products related to NASCAR represented approximately 80% of our
revenue during fiscal 2003. Based on television viewership and trackside
attendance, motorsports racing is one of the most watched and fastest growing
sports in the United States. Television ratings grew in 2001, due in part to a
six-year, $2.4 billion television broadcast contract with FOX, NBC, and their
affiliates. During the 2001 season, the first year of the new contract,
average household viewership of Winston Cup increased 36% compared with 2000.
In the 2002 season, the trend continued with NBC/TNT ratings increasing from
3.8 to 4.3 and Fox maintaining a 5.8 rating. Television ratings in the 2003
season were comparable to those in the 2002 season, with NASCAR the second most
watched regular season sport, second only to the NFL. NASCAR Winston Cup
viewership increased 3%, growing from 5.1 million in the 2001 season to 5.26
million in the 2002 season. Busch and Craftsman Truck Series viewership
increased 10% and 2%, respectively.

Since 2000, new speedways have been opened in the Kansas City and Chicago
metropolitan areas. These new speedways are bringing NASCAR and other major
motorsports events to new geographic markets with much larger population bases
than many of the traditional NASCAR venues located in the southeastern United
States, further expanding the awareness of NASCAR racing. In 2004, NASCAR has
moved an event held in 2003 in a geographic market with a smaller population
base to a track in a geographic market with a larger population base.

In June 2003, NASCAR changed the name of its top racing series from the
Winston Cup to the Nextel Cup. The change was the result of NASCAR
signing NEXTEL as the sponsor of its top series for a 10-year period, starting
with the 2004 season. The Nextel agreement ended 33 years of R.J. Reynolds
sponsorship of the series, branded the Winston Cup.

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According to NASCAR research, NASCAR boasts more Fortune 500 primary and major
associate sponsors than any other sport in the United States and NASCAR ranks
fourth behind the NFL and NCAA in major sports licensed product sales,
reporting an estimated $1.4 billion in calendar 2002. The demographic
profiles and loyal fan bases in motorsports have attracted significant
corporate sponsorship to many aspects of the motorsports industry. Sponsors
support racing team and venue operations, seek driver endorsements, and sponsor
major media coverage of motorsports. Major corporate sponsors of motorsports
include the major automobile manufacturers, consumer product companies, and
nationally recognized retail organizations.

We believe that the long-term nature of the broadcast contracts will provide
the incentive for networks to promote events heavily to increase ratings,
further the reach of NASCAR popularity into less penetrated markets, and
accelerate corporate sponsorship.

Our Competitive Strengths

We believe our leading market position
is a result of the following
competitive strengths:

Ability to Attract Additional Licensors and Distribution Partners

Our position as the leading designer and marketer of NASCAR-related motorsports
products enhances our appeal to new and existing licensors and distribution
partners. We believe our market-leading position enables us to maintain

advantageous license agreements with existing licensors and to secure new
license agreements with up-and-coming drivers; to enhance our distribution
channels; to secure additional shelf space in mass-retail establishments; and
to conduct successful special promotional programs.

License Agreements

We have exclusive, long-term license agreements with many of the most
recognized names in NASCAR, such as the Estate of Dale Earnhardt Sr., Dale
Earnhardt Jr., Jeff Gordon, Dale Jarrett, Bobby Labonte, Tony Stewart, Rusty
Wallace, and various other drivers and teams. These license agreements
generally provide us with an exclusive right to market certain die-cast,
apparel, and other products bearing the drivers name, likeness, and image for
periods typically ranging from six to ten years. Racing fans generally are
interested in purchasing products associated with top drivers and teams. As a
result, we believe these license agreements provide us with a significant
competitive advantage.

Significant Design and Development Expertise

We have significant expertise in product design and in the development of
innovative marketing and special promotional programs for our drivers, teams,
and large corporate sponsors. This expertise enables us to offer products with
significant customer appeal, to develop innovative marketing campaigns and
special promotional programs to promote the sale of our products, and to
attract additional consumer interest and revenue opportunities for our
licensors and the corporate sponsors of our promotional programs.

High Quality and Authenticity

Our well-recognized brands are known for high quality and authenticity,
providing us with a solid base of existing customers as well as an attractive
platform to launch new products. We believe that the significant time and
effort we devote to the quality and authenticity of our products enhances their
appeal and attractiveness to motorsports fans.

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Broad Distribution

We have established a broad range of distribution channels through which our
products are marketed, including a network of wholesale distributors that sell
to thousands of specialty retailers; leading mass-market retailers, including
Wal-Mart, Kmart, Target, and Toys R Us; mobile trackside stores; QVC; our
collectors catalog club; and the goracing.com Internet site.

Highly Scalable Operating Model

Our operating model allows us to service higher levels of sales with limited
increases in operating expenses and capital investment. The principal elements
of this operating structure include the following:



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

This model allows us to focus on our core strengths, which are the design and
marketing of motorsports products and innovative programs that appeal to
motorsports fans. Because we strive to structure our operations, so that many
of our operating expenses are fixed, increases in sales generally will result
in increased operating margins. We can limit advertising expenditures and
still increase revenues given the nature of our licensed products.

Our Growth Strategy

Our objective is to grow by leveraging our competitive strengths to maximize
our business opportunities resulting from the continued growth and popularity
of motorsports in general, and NASCAR in particular. Key elements of our
strategy include the following:

Capitalizing on Existing License Agreements and Cultivating New License
Agreements

We intend to capitalize on our existing license agreements and cultivate new
relationships with up-and-coming drivers and teams to assure we continue to
have the leading portfolio of license agreements. We currently have license
agreements with many of the leading racecar drivers, car owners, manufacturers,
sanctioning bodies, racetrack operators, and corporate sponsors. These license
agreements enable us to design and sell distinctive products that appeal to
motorsports enthusiasts. We believe that these relationships provide us with a
competitive advantage.

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Pursuing Strategic Acquisitions and Alliances

We plan to pursue opportunities to acquire other businesses and form strategic
alliances that fit our current business model and broaden our product
offerings, add distribution channels, increase management depth, or otherwise
offer growth opportunities. Recently, we have completed acquisitions
consistent with this strategy. In May 2001, we acquired the Winners Circle
trademark, helping us to gain entry into the mass-retail market for die-cast
scaled replicas. From June 2002 through September 2003, we completed several
acquisitions, which broadened our product offerings, added distribution reach,
or increased management depth. In June 2002, we acquired Trevco Trading Corp,
which designs and distributes primarily licensed seasonal gift products,
including products under NASCAR driver and team licenses, primarily to the
mass-retail market. In July 2002, we acquired terry and golf product
businesses, which we operate as McArthur Towel and Sports, Inc. In September
2002, we acquired a designer and marketer of premium licensed leather jackets
and other apparel, which we operate as Jeff Hamilton Collection, Inc. In
September 2003, we acquired Funline Merchandise Co., Inc., a marketer and
distributor of stylized die-cast motorsports vehicles, historically operating
in the mass-retail market.

Selectively Increasing Our Mass-Market Distribution and Establishing New
Distribution Channels

We plan to continue to increase our penetration of mass-market distribution
channels and establish new distribution channels in order to expand the market
for our products. For example, during 2001, we entered the mass-retail market
for die-cast scaled replicas of motorsports vehicles, and certain of our
products are now sold in Wal-Mart, Kmart, Toys "R" Us, and Target. Through acquisitions in
2002 and 2003, we further expanded our mass-market retail presence. In
addition, we plan to continue to enhance our other distribution channels, which
include the following:



| |  |  | our distributor network, which targets specialty retailers;               
| | - |  | --------------------------------------------------------------------------
|
| |  |  | our mobile trackside stores, which target motorsports event attendees;    
|
| |  |  | our collectors club, which is managed by QVC;                            
|
| |  |  | direct response television and e-business;                                
|
| |  |  | through our agreement with QVC;                                           
|
| |  |  | special promotion programs; and                                           
|
| |  |  | catalog-merchandising programs targeted at corporate motorsports sponsors.

Increasing Our Development of Special Promotional Programs

Our focus is to continue creating and conducting special promotional programs
under our licensing agreements that allow us to generate new product designs
with entertainment and sports properties. Special promotional programs
typically involve one-time productions of our licensed die-cast collectibles,
apparel, and memorabilia. These promotions often focus on milestones, such as
the 100th Anniversary of The New York Yankees, or spotlight new
entertainment releases, such as the release of Warner Brothers movie Terminator
3: Rise of the Machines. In association with Warner Brothers, we designed
racecars themed around the Terminator 3: Rise of the Machines movie for five
drivers, representing various racing series, such as NASCAR, IRL, and NHRA.
These unique items are then sold through our sales channels and distribution
chains. Since these items are unique, we increase demand beyond our standard
paint schemes.

We plan to continue to engage in discussions and contact third parties to bring
additional special promotions to a variety of racing series. All programs are
intended to increase brand awareness and name recognition, as well as to
increase excitement in the sport, enabling us to sell additional quantities of
our product.

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Continuing to Enhance Existing and Introducing New Products

We continually seek to enhance our existing products and to introduce new
products that appeal to motorsports enthusiasts. During the last three years,
we have launched several new products, such as die-cast replicas of raced
versions of motorsports vehicles, replica die-cast engines, and a NASCAR gift
line. We added the existing product lines of the acquired entities and intend
to expand each of the acquired product lines by adding NASCAR-licensed product.

Recent Acquisitions

In June 2002, we acquired Trevco Trading Corp. Trevco designs and distributes
primarily licensed seasonal gift products, including products under NASCAR
driver and team licenses. Products are produced by a contract manufacturer in
China and sold on a direct import basis, by both in-house and independent sales
representatives to mass retailers, many of which were not our customers
historically. We have entered into a long-term outsourcing agreement with
Trevcos contract manufacturer to continue current production and to design and
produce future product lines. We have enhanced the historical product line
with our licenses and sell those products to mass-retailers and through our
domestic distributors. We believe we broadened our management depth in gift
design, procurement, and marketing with the acquisition.

In July 2002, we acquired terry and golf product businesses, which operate as
McArthur Towel and Sports, Inc. McArthur distributes terry and golf products
primarily to specialty retailers and institutions. A portion of the acquired
product line is decorated with team logos under licenses with professional
teams in the National Football League, National Hockey League, National
Basketball Association, Major League Baseball, Professional Golf Association,
and colleges and universities. We distribute the products to teams for
in-stadium promotions and to specialty and mass retailers, golf pro shops, and
other organizations that promote and sponsor events with licensed premiums and
gifts. We are expanding the existing products by designing and producing
similar specialty licensed products with our licensed NASCAR driver and team
logos and images. We are also designing and distributing to the specialty
retailers die-cast decorated with team logos under licenses with professional
teams. We also believe the acquisition allowed us to broaden our management
depth in corporate promotions.

In September 2002, we acquired a producer of premium leather jackets and other
apparel, which we operate as Jeff Hamilton Collection, Inc. In connection with
the acquisition, we purchased the Jeff Hamilton marks. A portion of the
product line is decorated with team logos under licenses with the NBA, NFL, and
other major sports leagues. The product is marketed primarily to specialty
fashion and other upstairs retail channels. We are expanding this product
line by leveraging our existing licenses into new, high-margin products for our
NASCAR distribution channels. We believe we have enhanced our apparel design
capabilities as a result of the acquisition.

In September 2003, we acquired Funline Merchandise Co., Inc., a distributor of
stylized non-NASCAR motorsports die-cast. Funline distributes Muscle Machines,
Jesse James WEST COAST CHOPPERS, and other popular die-cast collectible
vehicles. Funline distributes its products primarily to the mass-merchant
retail market. Since these products are sold at lower price-points than our
NASCAR die-cast product lines, we intend to use the Funline products and price
points with our existing distribution channels. We are expanding the existing
products by designing and distributing similar stylized die-cast vehicles with
our licensed NASCAR driver and team logos and images to sell in other
distribution channels. We believe we have enhanced our product line as a
result of the acquisition. We also believe the acquisition allowed us to
broaden our management depth in dealing with product design and trade processes
in China.

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Licenses

We focus on developing long-term relationships with, and we engage in
comprehensive efforts to license, popular drivers, team owners, and other
personalities in each top racing category, their sponsors, various sanctioning
bodies, and others in the motorsports industry. Through these licensing
efforts, we develop opportunities to market innovative products that appeal to
motorsports enthusiasts. We believe that our license agreements with top
racecar drivers and other licensors significantly enhance the consumer appeal
and marketability of our products. By aligning our company with top racing
personalities and providing them with a broad range of revenue opportunities,
we believe that we will be able to leverage those relationships to attract
additional licensors in order to generate increased revenue for our company as
well as increased earnings for the licensors.

Significant Driver License and Endorsement Agreements; Significant Team Owner
Licenses

We have long-term license agreements with former NASCAR Winston Cup Points
champions Dale Earnhardt, Jeff Gordon, Dale Jarrett, Bobby Labonte, Tony
Stewart, Rusty Wallace, and 12-time NHRA Funny Car champion John Force. These
licenses generally provide us with a right of first refusal to market certain
die-cast, apparel, and other products bearing the drivers name and likeness.
The license agreements also generally provide that, to the extent that we
exercise our right of first refusal, the driver will not personally market and
will not permit others to market, through the same channels of distribution
used by our company, any products bearing the drivers likeness that are the
same or similar to products marketed by our company. Each of the license
agreements requires us to pay the licensor royalties based on a percentage of
the wholesale or retail price of licensed products that we sell. Certain of
the license agreements also provide for minimum guaranteed royalty payments
each year during the term of the agreement. Certain of these license
agreements give the licensors the right to terminate or significantly shorten
the term of the agreements if our business is sold or transferred or if there
is a significant change in our management team.

We also have personal service and endorsement agreements with popular racecar
drivers. During the term of the endorsement agreements, we have the right to
use the drivers name, likeness, signature, and endorsement in connection with
the advertisement, promotion, and sale of the die-cast collectibles and other
products approved by the driver and marketed by our company.

We also have license agreements with several of the most popular NASCAR race
car team owners, including Chip Ganassi Racing; Dale Earnhardt, Inc. and The
Estate of Dale Earnhardt, Inc.; Evernham Motorsports, LLC; JG Motorsports,
Inc.; Redline Sports Marketing, Inc., which is the licensing entity for the Joe
Gibbs race teams; Richard Childress Racing Enterprises, Inc.; and Robert Yates
Racing, Inc. The team owner licenses provide us with either the exclusive
right or a right of first refusal to market certain products bearing the
likeness and number of each owners NASCAR cars and other racing vehicles. To
the extent that we exercise our right of first refusal, the team owner licenses
provide that the licensor will not permit others to market, through the same
distribution channels used by our company, any of the licensed products.
Certain of the team owner licenses also provide that the licensors will not
directly market any of the licensed products through such channels. Each of
the license agreements with the team owners requires us to pay the licensor
royalties based on a percentage of the wholesale or retail price of licensed
products that we sell. Certain of the license agreements also provide for
minimum guaranteed royalty payments to the licensors.

7



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The following table sets forth certain information with respect to the license
or personal service agreements with the drivers and team owners described
above:

|                                                      |  |                     |  |                  
|----------------------------------------------------- |  | ------------------- |  | -----------------
|Licensor                                              |  | Driver              |  | Expiration Date  
|                                                      |  |                     |  |                  
|The Estate of Dale Earnhardt and Dale Earnhardt, Inc. |  | Dale Earnhardt      |  | November 7, 2011 
|                                                      |  |                     |  |                  
|Jeff Gordon and JG Motorsports, Inc.                  |  | Jeff Gordon         |  | December 31, 2005
|                                                      |  |                     |  |                  
|Rusty Wallace and Rusty Wallace, Inc.                 |  | Rusty Wallace       |  | December 31, 2007
|                                                      |  |                     |  |                  
|John Force and John Force Racing, Inc.                |  | John Force          |  | December 31, 2007
|                                                      |  |                     |  |                  
|Robert Yates Racing, Inc.                             |  | Dale Jarrett        |  | December 31, 2017
|                                                      |  | Elliott Sadler      |  |                  
|                                                      |  |                     |  |                  
|Richard Childress Racing Enterprises, Inc.            |  | Kevin Harvick       |  | May 23, 2012     
|                                                      |  | Robby Gordon        |  |                  
|                                                      |  |                     |  |                  
|Redline Sports Marketing, Inc. (Joe Gibbs race teams) |  | Bobby Labonte       |  | December 31, 2006
|                                                      |  | Tony Stewart        |  |                  
|                                                      |  |                     |  |                  
|Dale Earnhardt, Inc.                                  |  | Dale Earnhardt, Jr. |  | December 31, 2005
|                                                      |  | Michael Waltrip     |  | December 31, 2004
|                                                      |  |                     |  |                  
|Evernham Motorsports, LLC                             |  | Bill Elliott, Jr.   |  | May 23, 2012     
|                                                      |  | Jeremy Mayfield     |  |                  
|                                                      |  | Kasey Kahne         |  |                  
|                                                      |  |                     |  |                  
|Chip Ganassi Racing                                   |  | Sterling Marlin     |  | December 31, 2011
|                                                      |  | Casey Mears         |  |                  
|                                                      |  | Jamie McMurray      |  |                  

Additional Product Licenses

We maintain other licenses with various other drivers, car owners, sponsors,
and manufacturers, including other NASCAR drivers, on a non-exclusive basis,
NHRA drivers and teams, Formula One teams, Ford Motor Company, several
divisions of General Motors Corp., and Daimler-Chrysler. We also maintain
licenses for some products with professional sports organizations, such as the
National Basketball Association, National Football League, National Hockey
League, Major League Baseball, and various professional sports franchises and
collegiate sports teams.

Other License Agreements

We have a license agreement with Revell-Monogram, Inc. that gives us the
exclusive right to use the Revell Racing, Revell Select, and Revell
Collection trademarks in connection with sales of NASCAR, NHRA, and certain
other motorsports-related die-cast collectibles in the United States and
Canada. The license also gives us an exclusive right to use the Revell
trademarks described above in connection with NASCAR, NHRA, and certain
motorsports-related die-cast products. The term of the Revell license runs
through December 31, 2007, at which time we may automatically extend for
successive one-year terms if sales exceed $12 million annually.

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We have a license agreement with NASCAR that gives us the non-exclusive right
to use the NASCAR name and logo on all of our NASCAR-related products and
product packaging as well as on related sales, marketing, and promotional
materials. We pay NASCAR royalty payments based on a percentage of the
wholesale or retail price of licensed products that we sell. The license
agreement had an original expiration of October 7, 2003, with respect to
licensed products that bear both the NASCAR mark and the name, image, or
likeness of a NASCAR driver, team, or track, automatically renewed for a five
year period beginning October 7, 2003, and automatically renews for an
additional five-year period beginning October 7, 2008, unless there is an event
of default, as defined in the license agreement.

Our license agreement with VF Imagewear (east), Inc. (VFI), formerly VF
Knitwear, gives VFI the right to use the Chase brands in a variety of retail
distribution channels. In some distribution channels, VFI has the exclusive
right to use certain of the Chase brands. VFI pays us royalties based on its
sales of Chase-branded apparel. VFI pays us a higher royalty in those
distribution channels where its rights are exclusive. The license agreement
expires on December 31, 2008, subject to VFIs right to extend the agreement
for two successive five-year terms.

Products

Our principal products are die-cast scaled replicas of actual motorsports
vehicles, apparel, and memorabilia. We added seasonal gifts, leather jackets,
terry products, and stylized die-cast motorsports vehicles to our product lines
through acquisitions in 2002 and 2003.

Die-cast

We design our collectible die-cast products as high-quality collectible items.
We design and market replicas of motorsports-related vehicles that are
constructed using die-cast bodies and chassis with free-spinning wheels and
tires. The die-cast replicas that we offer in the United States relate
principally to the NASCAR Nextel Cup (formerly Winston Cup) and NHRA drag
racing. In Germany, we offer Formula One and high-end auto manufacturer
die-cast replicas. Since our September 2003 acquisition of Funline, we also

offer stylized non-NASCAR motorsports die-cast.

Our die-cast replicas are scaled replicas of actual racing vehicles, pit
wagons, trucks and trailers, and vehicle transporters. We produce our die-cast
replicas to a reduced scale of the actual size of the vehicle, ranging from
scales of 1:9 to 1:96, with the predominant scales being 1:24 and 1:64. Many
of our die-cast replicas include features, such as opening hoods and trunks,
detailed engines, and working suspensions. We also devote a significant amount
of time and effort to the production of our die-cast replicas to assure that
the resulting products display a level of quality and detail that is superior
to competing products.

We sell approximately 90% of our die-cast replicas on a wholesale basis. At
retail, our die-cast replicas price ranges vary depending on size, type of
vehicle, and level of detail. Our 1:24 scale product is priced at retail at
prices ranging from approximately $40.00 to $120.00 and typically retail from
$60.00 to $70.00. We offer our die-cast replicas primarily through our
wholesale distributor network to specialty retailers, our collectors club, and
direct response television through our relationship with QVC, our trackside
stores, and special promotional programs.

We enhance the collectible value and appeal of our products through various
measures. These measures include the following:



| |  |  | designing die-cast collectibles that include features that are not offered by our competitors;                                                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | limiting the quantities of each collectible item that we produce and sell;                                                                                                   
|
| |  |  | specifying, on certain products themselves and on the packaging
material of certain other die-cast collectibles, the quantity of that
limited-edition item actually produced;
|
| |  |  | offering certain items for specified periods only through our collectors club; and                                                                                          

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| |  |  | designing packaging concepts to improve the display of each collectible item.
| | - |  | -----------------------------------------------------------------------------

We design and market licensed miniature die-cast replicas for the mass-retail
market through our Winners Circle brand of products. Our Winners Circle
die-cast products range in price at retail from $5.00 to $20.00, depending on
size, type of vehicle, and level of detail.

We believe that our presence in the mass-retail die-cast market furthers our
strategy to expand our presence in licensed die-cast racecar replica marketing
channels and expands our line of licensed motorsports merchandise for
mass-retail customers to include both die-cast products and apparel. Prior to
our acquisition of the Winners Circle brand and related die-cast inventory and
tooling from Hasbro Inc. in May 2001, we licensed to Hasbro the rights to
produce specific motorsports-related products for sale in the mass-market. The
mass-market die-cast products manufactured and marketed under the Winners
Circle brand are distinct from and are designed not to compete directly with
our limited edition motorsports die-cast collectible products.

The Funline die-cast product line, acquired in late 2003, has been designed and
marketed for the mass-retail market and ranges in price at retail from
$2.00-$20.00, depending on size, type of vehicle, and level of detail.

Apparel and Memorabilia

We design and market various licensed motorsports apparel, including t-shirts,
jackets, hats, and memorabilia, such as coffee mugs, ornaments, towels, key
chains, and tote bags. Each of these products generally features the name,
likeness, image, and car number of a popular racecar driver or other licensed
logos and images.

Our licensed motorsports apparel items utilize creative designs that are
printed or applied to high-quality shirts, hats, jackets, and other products.
We design and sell our motorsports apparel products in a wide range of styles
and sizes. We distribute our apparel and memorabilia products to mass-market
retailers, through mobile trackside stores, and to wholesale distributors.

We sell Winners Circle branded apparel to mass-market retailers. Most of our
apparel that is sold in other distribution channels bears our Chase brand
marks, including Chase Authentics and a stylized C, which is generally
embroidered on the shirt cuff or pocket. NASCAR drivers, including Jeff
Gordon, Dale Jarrett, Bobby Labonte, Terry Labonte, and Rusty Wallace, have
agreed, subject to certain exceptions, to assure that licensed apparel products
bearing their names, likeness, or signatures will also bear Chase brand
marks. These drivers have also agreed to endorse Chase-branded apparel as the
exclusive trackside apparel of the top NASCAR drivers.

Sales and Distribution

We distribute our products through a broad range of channels, including a
network of wholesale distributors, leading mass-market retailers, our
collectors club, QVC, and mobile trackside stores. We advertise our die-cast
collectibles in newspapers and magazines covering motorsports and the
collectibles markets. We also take measures to increase consumer awareness of
our products through radio and television advertising targeted at programs of
interest to motorsports enthusiasts.

Wholesale Distribution Network

Die-cast collectibles and apparel and memorabilia products are marketed on a
wholesale basis through distributors. Virtually all of the products of our
U.S. operations are distributed by 17 U.S. distributors to dealers in the
United States and Canada. The products of our German operations are
distributed worldwide through a network of 45 distributors operating in 45
countries throughout the world. The distributors solicit orders for our
die-cast and apparel products from thousands of specialty retailers throughout
the United States and thousands of specialty retailers in other countries
throughout the world. The retailers include stores specializing in motorsports
collectibles and apparel, stores specializing in other sports collectible
items, and a limited number of hobby shops.

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Mass-Market Retailers

Our in-house sales force and independent representatives market our Winners
Circle die-cast products on a wholesale basis to major discount and department
stores, such as Wal-Mart, Kmart, Toys R Us, and Target. We also utilize our
in-house sales force and independent representatives to market motorsports
apparel and memorabilia products on a wholesale basis to the same discount and
department stores, and to automotive retail stores and convenience stores.

Collectors Club

We market certain of our die-cast collectibles, for exclusive periods, through
our collectors club. Club members pay a lifetime membership fee to QVC that
entitles them to receive a membership kit and monthly catalogs. The
collectors club has approximately 80 thousand active members who have made a
purchase in the last year.

Under a ten-year outsourcing and exclusive supply agreement, QVC assumed
responsibilities for the day-to-day marketing and distribution operations of
our collectors club in 2001. Under the agreement, we retain ultimate control
over the decision-making processes regarding pricing, production quantities,
marketing, and promotion of the products to be sold to club members.

QVC Direct Response Television and Internet

We sell our products to QVC, which markets and sells our die-cast collectible
products during a weekly television program on QVC called For Race Fans Only.
Viewers can order our products, which are generally products that we sell to
our wholesale distributors, but have been specially produced and packaged, and
are marked For Race Fans Only.

We market our die-cast products, apparel, and memorabilia products through our
goracing.com Internet site, which serves as an online motorsports retail store.
Through a ten-year agreement, QVC has assumed the day-to-day responsibility
for operating and promoting our Internet site and processing online orders.

Mobile Trackside Stores

We operate approximately 30 fully equipped trackside stores to capitalize on
the large base of potential customers that attend NASCAR-sanctioned races and
other events throughout the United States. Some or all of our mobile trackside
stores travel to each NASCAR Winston Cup race (39 events in 2003) as well as to
other selected racing events. Each mobile trackside store is decorated with
the logos and color scheme of a particular racing team and driver and sells a
complete assortment of licensed motorsports die-cast collectibles, apparel, and
memorabilia dedicated to that team and driver. These mobile stores represent
the only authorized trackside opportunities for racing enthusiasts to purchase
motorsports products using the name and likeness of the driver and racing team
featured in the store.

Promotional Programs

We develop, design, and implement extensive special promotional programs that
feature themes or events intended to reinforce brand and corporate awareness
for sponsors and other entities, while increasing the market for our companys
products. These promotions often involve the top drivers in a variety of
motorsports series. We design and market a broad variety of specially designed
die-cast vehicles, apparel, and memorabilia for these programs. For example,
in association with Warner Brothers, we designed racecars themed around the
Terminator 3: Rise of the Machines movie, for five drivers that were raced in
NASCAR, IRL, and NHRA events during 2003. Other associations led to special
promotions in 2003 with KISS, Major League Baseball, and Nickelodeon.

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In addition to our special promotional programs, we work with large corporate
sponsors to design and create promotional programs aimed at increasing the
awareness of their brands and encouraging consumers to purchase their products.
We provide all levels of creative services (design, graphic layout, and
advertising support) and have the capacity to produce a wide array of
promotional products, such as die-cast replica racecars, t-shirts, and hats.
We also provide in-house marketing and distribution support for these
promotional programs, including in-bound order processing and order
fulfillment. For some programs, corporate sponsors use our products developed
for their program as a free or low-cost award with the purchase of their own
products, as sweepstakes offers, as employee gifts or other promotions. We
have successfully completed recent programs for United Parcel Service, NAPA
Auto Parts, and General Motors. The products that we develop and sell in
conjunction with these programs generally are sold directly to the sponsors
rather than through our usual distribution channels.

Design and Production

Die-cast Scaled Vehicles

We design each die-cast replica that we market. Many of our die-cast replicas
include features, such as opening hoods and trunks, detailed engines, and
working suspensions. We also devote a significant amount of time and effort to
the production of our die-cast replicas to assure that the resulting products
display a level of quality and detail that is superior to competing products.
For example, we produce most of our die-cast replicas with pad printing instead
of stickers or decals. Our mass-market die-cast replicas have fewer features
than our die-cast replicas.

Our design artists take numerous photographs of the actual racing cars, trucks,
and other vehicles to be produced as die-cast replicas. Working from these
photographs, our artists and engineers use computer software to create detailed
scale renderings of the vehicles. After approval of the rendering by the
vehicle owner, driver, team sponsor, and other licensors whose approval may be
required, we supply computerized renderings to one of our manufacturers in
China. The manufacturer produces a sample or model, which we then inspect for
quality and detail. After final approval, the manufacturer produces the
die-cast replicas, packages them, and ships the finished products to us or, in
certain instances, directly to our customers.

Virtually all of our die-cast replicas marketed in the United States are
manufactured under an agreement with Early Light Industrial Co. Ltd., a
manufacturer in China. We have had a relationship with Early Light since 1994.
The term of the agreement currently extends through October 31, 2006 and
automatically renews for five successive one-year periods unless terminated by
either party by giving written notice to the other party at least 90 days prior
to the end of the then-current term.

We own the tooling that Early Light uses to produce die-cast replicas for our
company, and we have partial control over the production of our die-cast
replicas under the manufacturing agreement. We invested $16.6 million in 2003
and expect to invest $9.0 million in 2004 for tooling used in manufacturing by
Early Light. We believe the breadth and quality of the tooling program
provides us with a competitive advantage in the motorsports collectible market.

We believe that Early Light is dedicated to high quality and productivity as
well as support for new product development. There are significant risks,
however, inherent in relying on a single manufacturer for a substantial portion
of our die-cast products.

We source the die-cast collectibles marketed by our German operations from
other manufacturers in China. We invested $6.7 million in 2003 for tooling,
which is used by these manufacturers. We currently do not have a formal,
long-term agreement with any of these manufacturers.

We source the die-cast stylized vehicles marketed under the Funline brand from
four manufacturers in China. We expect to invest less than $2.5 million in
2004 for tooling to be used by these manufacturers. We have no formal,
long-term agreements with any of these manufacturers.

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Apparel and Memorabilia

We currently obtain substantially all of our licensed motorsports apparel and
memorabilia products on a purchase order basis from approximately 200
third-party manufacturers and suppliers located primarily in the United States.
The apparel and memorabilia suppliers present product ideas and artistic
designs to us. We then select those products and artistic designs that we
believe will appeal to motorsports enthusiasts and distinguish our apparel and
memorabilia products from those of our competitors. We engage in a bidding
process for certain items, such as embroidered hats or t-shirt blanks, in order
to negotiate favorable prices and other terms. We also purchase and resell
certain finished items, such as tote bags and coolers, from domestic and
foreign companies under licenses with drivers and other licensors.

We work closely with the third-party apparel and memorabilia manufacturers in
order to assure that products conform to design specifications and meet or
exceed our quality requirements. We believe that a number of alternative
manufacturers for each of these products are readily available in the event
that we are unable to obtain products from any particular manufacturer. We own
the tooling and dies used to manufacture certain of our motorsports consumer
products. As we develop new motorsports apparel and memorabilia products that
require specialized tooling, we intend to build or purchase the new tooling
that will be required to permit the third-party manufacturers to produce those
items.

In connection with our acquisition of Trevco Trading Corporation, we entered
into a manufacturing agreement with a Hong Kong company, expiring in September
2006, for the manufacture and design of licensed ornaments, figurines, and
other gifts.

Competition

Our motorsports die-cast product competes with similar licensed and unlicensed
product, marketed as collectibles, and, to a lesser extent, marketed as toys.
Our motorsports apparel and memorabilia compete with similar products sold or
licensed by drivers, team owners, sponsors, and other licensors with which we
currently do not have licenses as well as with sports apparel licensors and
manufacturers in general, and with unlicensed products. Other companies also
may increase their participation in our markets. Our promotional products
compete for advertising dollars against other specialty advertising programs
and media, such as television, radio, newspapers, magazines, and billboards.

We believe that our relationships and licenses with top racecar drivers, car
owners, and other popular licensors represent a significant advantage over our
competitors in the motorsports collectible and consumer products industry. We
strive to expand and strengthen these relationships and to develop
opportunities to market innovative licensed collectible and consumer products
that appeal to motorsports enthusiasts. Our ability to compete successfully
depends on a number of factors both within and outside our control.

Intellectual Property

Our business depends upon valuable trademarks and other rights that we license
from third parties. We regard our trademarks, trade dress, copyrights, and
other intellectual properties as important to our success. Our intellectual
property rights consist primarily of our trademarks, trade names, logos, and
art. We have copyright protection for all original material that we produce to
promote our products and services.

We have registered trademarks for certain of our Action names and logos, and
our Winners Circle, Chase, and certain goracing.com brands. We have applied
for federal registration in the United States for various other Action names
and logos, as well as goracing.com and other marks.

Employees

As of September 30, 2003, we had approximately 560 full-time employees. We have
experienced no work stoppages, and we are not a party to a collective
bargaining agreement. We believe that we maintain good relations with our
employees.

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Executive Officers

The following table sets forth certain information regarding each of our executive officers.

|                      |  |     |    |               |  |                                            
|--------------------- |  | --- | -- | ------------- |  | -------------------------------------------
|Name                  |  | Age |    | Position Held
|                      |  |     |    |              
|Fred W. Wagenhals     |  |     | 62 |               |  | Chairman of the Board, President, and Chief
|                      |  |     |    |               |  | Executive Officer                          
|R. David Martin       |  |     | 57 |               |  | Chief Financial Officer, Secretary,        
|                      |  |     |    |               |  | Treasurer, and Director                    
|Melodee L. Volosin    |  |     | 39 |               |  | Executive Vice President  Sales and       
|                      |  |     |    |               |  | Director                                   
|John S. Bickford, Sr. |  |     | 56 |               |  | Executive Vice President  Strategic       
|                      |  |     |    |               |  | Alliances and Director                     

Fred W. Wagenhals, founded our company during 1992, and has served as our
Chairman of the Board, President, and Chief Executive Officer for more than
five years.

R. David Martinhas served as our Chief Financial Officer since August 2000, as
Secretary and Treasurer since March 2001, and as a director since December
2000. Mr. Martin joined Deloitte & Touche in June 1968 and served as a partner
of that firm from August 1978 until May 2000.

Melodee L. Volosinhas served
as our Executive Vice President - Sales since
December 1999 and as a director since January 1997. Ms. Volosin served as our
Vice President  Wholesale Division from September 1997 until December 1999.

John S. Bickford, Sr.has
served as our Executive Vice President - Strategic
Alliances since July 1997 and as a director of our company since January 1997.
Since 1976, Mr. Bickford has served as President of MPD Racing Products, Inc.,
which manufactures racecar parts for distribution through speed shops and
high-performance engine shops. Mr. Bickford currently serves as a director of
Equipoise Balancing, Inc., a privately held company.

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Risk Factors

The following factors, in addition to those discussed elsewhere in this report,
should be carefully considered in evaluating our company and our business.

Any decrease in popularity or growth rate of motorsports, and NASCAR racing in
particular, could adversely affect our business, including our net sales.

The popularity of motorsports and its appeal to consumers have a significant
effect on sales of our products. Motorsports competes for television
viewership, event attendance, merchandise sales, and sponsorship funding with
other sports, entertainment, and recreational events. The competition for the
attention of consumers in the sports, entertainment, and recreation industries
is intense. Sales of licensed merchandise related to NASCAR racing accounted
for approximately 80% of our revenue during 2003. We expect that products
related to NASCAR racing will continue to account for a significant portion of
our revenue for the foreseeable future. As a result, the popularity of NASCAR
sanctioned racing is critical to the success of our business. The popularity
of NASCAR racing depends on many factors, including the extent and popularity
of television coverage of NASCAR racing events. Any decrease in the popularity
or growth rate of motorsports, and NASCAR racing in particular, could have a
material adverse effect on our business, including our net sales.

If our existing license agreements are not profitable, or if we are unable to
enter into profitable license agreements in the future or renew our existing
profitable license agreements, our business could be adversely affected.

We market our products under license agreements with racecar drivers, team
owners, sponsors, automobile and truck manufacturers, NASCAR, NHRA, and other
entities. We believe these license agreements are critical to the consumer
appeal and marketability of our products because most racing fans are
interested in purchasing products associated with top drivers and teams. The
license agreements vary in scope and duration, but generally authorize us to
sell specified licensed products for designated periods of time. Some license
agreements require us to pay minimum royalties or other fixed amounts
regardless of the level of sales of the licensed products or the profitability
of those sales.

The success of any particular license agreement depends on many factors,
including the following:



| |  |  | the reasonableness of the license fees under the applicable license
agreement to revenue generated by sales of the licensed products under
the agreement;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the popularity and success of the particular licensor; and                                                                                               
|
| |  |  | in the case of driver licensors, the performance, public image, and health of the driver.                                                                

A drivers popularity could be adversely affected if the driver fails to
maintain a successful racing career or engages in behavior that the general
public considers objectionable. If our existing license agreements were not
profitable, our business would be adversely affected.

Our business also depends on our ability to enter into profitable license
agreements with new licensors, including up-and-coming drivers, and to renew
our existing profitable license agreements on advantageous terms in the future.
It is difficult to predict which car drivers, team owners, and other licensors
will prove to be successful licensors, particularly in the case of
up-and-coming drivers. In some cases the process for obtaining the license
rights from potential licensors is competitive. Our ability to renew our
existing profitable license agreements depends largely on our relationship with
the particular licensor, which may be affected by a number of factors outside
our control. If we are unable to enter into profitable license agreements with
new licensors or renew our existing profitable license agreements, particularly
our licenses for Jeff Gordon and Dale Earnhardt, Jr. products that expire
December 31, 2005, our business could be materially adversely affected.

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If we were unable to enforce and preserve our rights under our license
agreements, we would lose the competitive advantage provided by these
agreements.

The ability to enforce our rights under our license agreements may be limited
by the interpretation and enforcement of those agreements. Some license
agreements contain provisions that allow the licensor to terminate the
agreement upon the occurrence of certain events, including a change in the
drivers team owner or sponsor, a change of control of our company, or
designated changes in our management team. Other license agreements contain
provisions that depend upon our achieving designated performance levels. For
example, some of our exclusive license agreements become non-exclusive if
designated sales figures are not met. The termination, cancellation, or
inability to renew or enforce any of our material license agreements would have
a material adverse effect on our business.

If we were unable to maintain and capitalize on our key license agreements, our
business would be adversely affected.

A large portion of our revenue is generated under a relatively small number of
our most successful license agreements. Products sold under licenses from our
top five drivers under license currently account for approximately 50% to 60%
of our sales. Our success depends, in part, on our ability to capitalize on
revenue opportunities from these licenses, which involves various factors,
including the following:



| |  |  | our ability to maintain our relationships with these licensors; and                                                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to develop and market motorsports products and special
promotions that appeal to our customers and that capitalize on the
success of these licensors.

Our failure to maintain these key licenses or to capitalize on the revenue
opportunities utilizing these licenses would have a material adverse effect on
our business.

Any disruptions in the business of our third-party manufacturers, particularly
Early Light Industrial Co. Ltd., could adversely affect our business.

We depend on third parties to manufacture all of our motorsports die-cast
replicas and most of our apparel and racing fan memorabilia. As a result, we
have limited control over the manufacturing processes themselves and any
significant difficulties encountered by the third-party manufacturers that
result in product defects, production delays, cost overruns, or the inability
to fulfill orders on a timely basis could have a material adverse effect on our
business.

In particular, we rely on one manufacturer, Early Light Industrial Co. Ltd.,
which operates facilities in one town in China, to produce most of our die-cast
products. In 2003, products manufactured by Early Light accounted for
approximately 40% of our revenue. Our manufacturing agreement with Early Light
extends through October 31, 2006, and then automatically renews for successive
one-year periods unless terminated by either party. We generally do not have
long-term contracts with our other third-party manufacturers.

We own most of the tools and dies used in the manufacturing process, but we
believe that it would take a period of time for us to secure other third-party
manufacturers to produce our products with our tools and dies in the event our
relationship with Early Light was terminated. Our operations would be
adversely affected by the following:



| |  |  | the loss of our relationship with certain of our current
manufacturers, particularly Early Light;                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the disruption or termination of the operations of one or more of
our current key manufacturers, particularly Early Light; or

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| |  |  | the disruption or termination of sea or air transportation with our
China-based die-cast manufacturers, even for a relatively short period
of time.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Furthermore, a material portion of the tools, dies, and molds used to
manufacture our die-cast products and certain of our apparel and memorabilia
products are located in the facilities of our third-party manufacturers. Any
significant damage to the facilities of our third-party manufacturers,
particularly to Early Lights facility, could result in the loss of or damage
to a material portion of our key tools, dies, and molds and the resultant
production delays while new facilities are being arranged and replacement
tools, dies, and molds are being produced. We do not maintain an inventory of
sufficient size to provide protection for any significant period against an
interruption of manufacturing resources, particularly if we are required to
obtain alternative manufacturing sources. Therefore, any significant damage to
the facilities of our third-party manufacturers, particularly to Early Lights
facility, would have a material adverse effect on our business.

Our business could be adversely affected if we are unable to continue to design
and market high-quality products that appeal to our customers.

Our success depends on our ability to continue to create and market new
products, especially those related to our most popular licensors. Demand for
our motorsports products depends on a wide variety of factors, including the
following:



| |  |  | the popularity of motorsports, particularly NASCAR racing;                   
| | - |  | -----------------------------------------------------------------------------
|
| |  |  | the popularity of the drivers, teams, and others with which we have licenses;
|
| |  |  | the success of our special promotional programs;                             
|
| |  |  | marketing and advertising expenditures devoted to motorsports;               
|
| |  |  | cultural and demographic trends; and                                         
|
| |  |  | general economic conditions.                                                 

Because these factors can change rapidly, customer demand also can shift
quickly. We frequently are able to market new products successfully for only a
limited time.

Our ability to increase our sales and marketing efforts to stimulate customer
demand and our ability to monitor third-party manufacturing arrangements in
order to maintain satisfactory delivery schedules and product quality are
important factors in our long-term prospects. Because of the amount of time
and financial resources that may be required to bring new products to market,
we may not always be able to forecast accurately required production quantities
or to respond to changes in customer tastes and demands. We could experience a
material adverse effect on our business, financial conditions, and operating
results if we are unable to respond quickly to market changes or a slowdown in
demand for our products.

The demand for certain of our die-cast products depends, in part, on their
collectible value and appeal. We cannot assure that these products will
achieve or maintain long-term collectible appeal or value.

We face a variety of risks associated with the acquisition and integration of
new business operations.

We plan to consider opportunities to acquire other businesses. Our growth may
be slower than anticipated if we are unable to identify suitable acquisition
candidates and make acquisitions on commercially acceptable terms.

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The integration of the management, personnel, operations, products, services,
technologies, and facilities of any businesses that we acquire in the future
could involve unforeseen difficulties. These difficulties could disrupt our
ongoing business, distract our management and employees, and increase our
expenses.

Unforeseen liabilities and difficulties can arise in connection with the
operation of acquired businesses. Contractual or other remedies may not be
sufficient to compensate us in the event unforeseen liabilities or other
difficulties arise. We may not be able to achieve revenue increases, integrate
facilities, functions, and personnel in order to achieve operating
efficiencies; or otherwise realize anticipated strategic advantages or cost
savings as a result of acquisitions. The inability to achieve revenue
increases or cost savings could have a material adverse effect on our business,
financial condition, and operating results.

We face risks associated with our exclusive relationship with QVC and the
outsourcing of the operations of our collectors club.

We have outsourced the day-to-day operations and distribution of our
collectors club products to QVC since 2001 under a ten-year exclusive
agreement, although we remain responsible for acquisition of licenses, product
selection, development, and manufacturing. We face risks associated with our
agreement with QVC, including the following:



| |  |  | the ability of QVC to operate the collectors club in a successful manner;               
| | - |  | -----------------------------------------------------------------------------------------
|
| |  |  | potential damage to our reputation as a result of reduced levels of customer service; and
|
| |  |  | reduced sales generated from collectors club products.                                  

Any disruption in the operations and distribution of collectors club products
by QVC could have a material adverse effect on our business.

Our business could be adversely affected by the loss of key members of our
senior management, particularly Fred W. Wagenhals.

Our future success depends substantially upon the efforts and abilities of Fred
W. Wagenhals, our Chairman of the Board, President, and Chief Executive
Officer. In particular, Mr. Wagenhals relationships with our licensors and
third-party manufacturers are important to the success of our business. Some
of our license agreements provide the licensor with the option to terminate or
materially modify the terms of the agreement in the event that Mr. Wagenhals no
longer serves our company in certain designated capacities. The loss of
services of Mr. Wagenhals would have a material adverse effect on our company.
We maintain key person insurance on the life of Mr. Wagenhals in the amount of
$3.0 million.

In addition, our future success depends substantially upon the efforts and
abilities of other members of our senior management team, including R. David
Martin, our Chief Financial Officer, Melodee L. Volosin, our Executive Vice
President  Sales, and John S. Bickford, Sr., our Executive Vice President 
Strategic Alliances.

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We depend on a limited number of wholesale distributors to sell a significant
portion of our products.

We currently market our products on a wholesale basis through 17 distributors
operating in the United States. We depend on these distributors to sell our
products to thousands of specialty retailers throughout the United States. If
a significant distributor discontinues selling our products, performs poorly,
does not pay for purchased products, reorganizes, or liquidates and is unable
to continue selling our products, our business, financial condition, and
operating results could be adversely affected. Our failure or inability to
replace poorly performing distributors could have a material adverse effect on
our business.

We may experience seasonal fluctuations in sales that could affect our earnings
and the trading price of our common stock.

We may experience seasonality in our business, which could result in
unfavorable quarterly earnings comparisons and affect the trading price of our
common stock. Because the auto-racing season is concentrated between the
months of February and November, the second and third calendar quarters of each
calendar year (our third and fourth fiscal quarters) generally are
characterized by higher sales of motorsports products. In addition, variances
in our quarter-to-quarter operating results may result from various factors,
including the following:



| |  |  | the timing and extent of body changes to racecars;                                                                                                                                                                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing and extent of driver, sponsor and team changes;                                                                                                                                                             
|
| |  |  | the timing of and ability to complete special promotional programs,
which typically result in significant levels of revenue and expense and
involve difficult coordination and scheduling issues with multiple
parties;
|
| |  |  | the timing of major races, which generally generate significant
levels of revenue and income; and                                                                                                                      
|
| |  |  | the timing of Chinese New Year, which affects our ability to work
with Early Light to bring our products to market in time for the
beginning of the racing season.                                                     

As a result of these and other factors, we may experience seasonality and
quarterly fluctuations in our business, which could result in unfavorable
quarterly earnings comparisons and affect the trading price of our common
stock. Fluctuations in quarterly sales may require us to take temporary
measures, including changes in personnel levels and production and marketing
activities. These factors and any seasonal and cyclical patterns that emerge
in consumer purchasing could result in unfavorable quarterly earnings
comparisons. Any shortfall in revenue or fluctuations in operating results may
have an adverse effect on our business and stock price. You should not rely on
quarter-to-quarter comparisons of our operating results as an indication of
future performance.

Our competitive position depends on a number of factors, and we may encounter
competition from companies that are able to devote greater resources to
marketing and promotional campaigns than we do.

Our competitive position depends on a number of factors, both within and
outside our control, including the following:



| |  |  | our relationships with and the popularity of race car drivers,
teams, and other licensors of the products we sell;   
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to develop and maintain effective marketing programs
that enable us to sell products to motorsports fans;

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| |  |  | the success of our distribution channels; and                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to recognize industry trends, anticipate shifts in
consumer demands, and identify and market new products.

Other companies may increase their participation in the motorsports markets.
Certain current and potential competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
or inventory availability policies, and devote substantially more resources to
their business than we do.

Our motorsports die-cast collectibles and mass-retail die-cast replicas compete
with die-cast and other motorsports collectibles and die-cast replicas of
motorsports vehicles that are sold through mass retail channels. Our
motorsports apparel and memorabilia compete with similar products sold or
licensed by drivers, owners, sponsors, and other licensors with which we
currently do not have licenses as well as with sports apparel licensors and
manufacturers in general. Our promotional programs must compete for
advertising dollars against other specialty advertising programs and media,
such as television, radio, newspapers, magazines, and billboards.

We face risks associated with our international operations.

We obtain our die-cast products from overseas manufacturers, particularly Early
Light, the primary China-based third-party manufacturer of our die-cast
products. Because of the manufacturing of these products overseas, we face
risks in addition to the risks generally involved in utilizing third-party
manufacturers. We also maintain business operations in Germany, and we market
motorsports products throughout the world. Our reliance on third-party
manufacturers to provide personnel and facilities in China; our maintenance of
personnel, equipment, and inventories abroad; and our plans to expand our
product sales in international markets expose us to certain economic and
political risks and operating challenges. These risks and challenges include
the following:



| |  |  | coordination of multi-national operations;                                                                                                                              
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | compliance with local laws and regulatory requirements, as well as
changes in such laws and requirements;                                                               
|
| |  |  | difficulties in supervising foreign operations;                                                                                                                         
|
| |  |  | the requirement to provide an international letter of credit in an
amount equal to the purchase order for purchases of die-cast products
from China-based manufacturers;
|
| |  |  | overlap of tax issues;                                                                                                                                                  
|
| |  |  | political and economic conditions abroad; and                                                                                                                           
|
| |  |  | the possibility of expropriation or nationalization of assets.                                                                                                          

To the extent we are unable to adequately address these risks and challenges,
some of which are beyond our control, our business may be adversely affected.

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Because we import our die-cast products, our business is subject to potential
adverse trade regulations and restrictions.

Protectionist trade legislation in either the United States or China, such as a
change in the current tariff structures, export compliance laws, or other trade
policies, could adversely affect our ability to obtain our products from our
third-party manufacturers or the price at which we can obtain those products.
Any developments that adversely affect trade relations between the United
States and China in the future could impact our ability to obtain die-cast
products from our third-party manufacturers.

Substantially all of our products are subject to U.S. Customs Service duties
and regulations. These regulations include requirements that we disclose
information regarding the country of origin on our products, such as Made in
China. Within its discretion, the U.S. Customs Service may also establish new
regulations, including regulations regarding the amount of duty to be paid and
the value of merchandise to be reported. Our costs could increase if the
Generalized System of Preferences program is not renewed or extended each year.
The Generalized System of Preferences allows selected products of beneficiary
countries to enter the United States duty free. In addition, we could be
adversely affected if countries that are currently accorded Most Favored
Nation status by the United States, such as China, cease to have such status.
We cannot predict what regulatory changes may occur or the type or amount of
any financial impact these changes may have on us in the future. Failure to
comply with these regulations may result in the imposition of additional duties
or penalties or forfeiture of merchandise.

In addition, China may impose new quotas, duties, tariffs, or other changes or
restrictions. This could adversely affect our business, financial condition,
results of operations, and ability to continue to import products at current or
increased levels.

We have exposure to Chinese and European currency rate fluctuations.

Our die-cast manufacturers invoice us in U.S. dollars. These manufacturers may
be subject to the effects of exchange rate fluctuations should the Chinese
currency not be stable with the U.S. dollar. The value of the Chinese currency
depends to a large extent on the Chinese government policies and Chinas
domestic and international economic and political developments. Since 1994,
the official exchange rate for the conversion of the Chinese currency to U.S.
dollars has generally been stable. However, we can offer no assurance that
this currency will continue to remain stable against the U.S. dollar. The cost
of our products could ultimately be affected by changes in the value of Chinese
currency.

Substantially all of our sales are denominated in either U.S. dollars or euros,
with less than 10% being denominated in euros. As a result, international
customers for our products primarily bear any risks associated with exchange
rate fluctuations subsequent to the date of the purchase order. We may,
however, experience losses as a result of exchange rate fluctuations between
the dollar and the euro. We have sought to partially manage such exposure by
entering into forward exchange contracts or engaging in similar hedging
strategies and may do so in the future. Any currency exchange strategy may be
unsuccessful in avoiding exchange-related losses, and the failure to manage
currency risks effectively may have a material adverse effect on our business,
financial condition, and operating results. In addition, revenue earned in
foreign countries may be subject to taxation by more than one jurisdiction,
which would adversely affect our earnings.

Any material increase in the cost of the raw materials used to manufacture our
products could have a material adverse effect on our cost of sales.

We do not directly purchase the raw materials used to manufacture most of our
products. We may, however, be subject to variations in the prices we pay our
third-party manufacturers for products if their raw materials, labor, or other
costs increase. We may not be able to pass along cost increases to our
customers. As a result, any material increase in the cost of raw materials,
labor, or other costs associated with the manufacturing of our products could
have a material adverse effect on our cost of sales.

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We have limited protection of our intellectual property, and others could
infringe on or misappropriate our rights.

We regard our trademarks, trade dress, copyrights, and other intellectual
properties as important to our success. Our failure to protect our
intellectual property could adversely affect our business, operating results,
and financial position. Our intellectual property rights consist primarily of
our trademarks, trade names, logos, and art. We have copyright protection for
all original material that we produce to promote our products.

We have registered trademarks for certain of our Action names and logos, and
our Winners Circle, Chase, and certain goracing.com brands. We have applied
for federal registration in the United States for various other Action names
and logos, as well as goracing.com and other marks. Our ability to prevent
others from using trademarks or names similar to marks and names that we use
may be adversely impacted if our marks are regarded as descriptive or weak.
Our inability to obtain trademark protection for our marks and names could have
a material adverse effect on our business.

We may not be able to obtain effective trademark, service mark, copyright, and
trade secret protection in every country in which we market our products. We
may find it necessary to take legal action in the future to enforce or protect
our intellectual property rights or to defend against claims of infringement
from others. Policing unauthorized use of our proprietary rights is difficult.
Litigation can be very expensive and can distract our managements time and
attention, which could adversely affect our business. In addition, we may not
be able to obtain a favorable outcome in any intellectual property litigation.

As part of our confidentiality procedures, we generally enter into agreements
with our employees and consultants. These agreements may be ineffective in
preventing misappropriation of intellectual property and could be
unenforceable. Misappropriation of our intellectual property or the litigation
costs associated with our intellectual property could have a material adverse
effect on us. In addition, we may receive notices from third parties that
claim that aspects of our business infringe on their rights. While we are not
currently subject to any such claim, any future claim, with or without merit,
could result in significant litigation costs and diversion of resources,
including the attention of management, and could require us to enter into
royalty and license agreements.

Product liability, product recalls, and other claims relating to the use of our
products could adversely affect our business.

Because we sell our products to consumers, we face product liability risks
relating to the use of our products. We also must comply with a variety of
product safety and product testing regulations. If we fail to comply with
these regulations or if we face product liability claims, we may be subject to
damage awards or settlement costs that exceed our insurance coverage and we may
incur significant costs in complying with recall requirements. Even if a
product liability claim is without merit, the claim could harm our business.

The market price of our common stock has been, and in the future could be,
extremely volatile.

The market price of our common stock has fluctuated dramatically. The trading
price of our common stock in the past has been, and in the future could be,
subject to wide fluctuations in response to a number of factors, including the
following:



| |  |  | quarterly variations in our operating results;                                        
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | actual or anticipated announcements of new products by our company or our competitors;
|
| |  |  | changes in analysts estimates of our financial performance;                          
|
| |  |  | general conditions in the markets in which we compete; and                            

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| |  |  | worldwide economic and financial conditions.
| | - |  | --------------------------------------------

The stock market also has experienced extreme price and volume fluctuations
that have affected the market prices for more rapidly expanding companies and
that often have been unrelated to the operating performance of these companies.
These broad market fluctuations and other factors may adversely affect the
market price of our common stock.

Sales of additional shares of common stock could have a depressive effect on
the market price of our common stock.

Almost all of our outstanding common stock is eligible for resale in the public
market without restriction or further registration unless held by an
affiliate of our company, as that term is defined under applicable securities
laws. A portion of the shares of common stock outstanding is restricted
shares, as that term is defined in Rule 144 under the securities laws, and may
be sold only in compliance with Rule 144, pursuant to registration under the
securities laws, or pursuant to an exemption from the registration
requirements. Affiliates also are subject to certain of the resale limitations
of Rule 144. Generally, under Rule 144, each person who beneficially owns
restricted securities with respect to which at least one year has elapsed since
the later of the date the shares were acquired from us or an affiliate of our
company may, every three months, sell in ordinary brokerage transactions or to
market makers an amount of shares equal to the greater of 1% of our
then-outstanding common stock or the average weekly trading volume for the four
weeks prior to the proposed sale of the shares. The majority of the shares
held by our officers and directors currently are available for sale under Rule
144. Sales of substantial amounts of common stock by our shareholders, or even
the potential for such sales, may have a depressive effect on the market price
of our common stock.

It may be difficult for a third party to acquire us, even if the acquisition
would be in the best interests of shareholders.

As an Arizona corporation, our articles of incorporation contain provisions
that may have the effect of making more difficult or delaying attempts by
others to obtain control of our company, even when those attempts may be in the
best interests of our shareholders. Our articles of incorporation also
authorize our board of directors, without shareholder approval, to issue one or
more series of preferred stock, which could have voting, liquidation, dividend,
conversion, or other rights that adversely affect or dilute the voting power of
the holders of common stock.

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ITEM 2. PROPERTIES

We lease a 65,000 square foot building in Tempe, Arizona as our corporate
headquarters. The initial term of the lease expires in October 2009, with a
ten-year renewal option. In addition, we use approximately 8,500 square feet
of another leased facility in Phoenix, Arizona as warehouse space.

We lease a facility in the vicinity of Charlotte, North Carolina, containing
approximately 181,000 square feet for our operations in that area. We utilize
approximately 42,000 square feet of the facility for offices and approximately
139,000 square feet for warehouse space and distribution operations. The
initial term of the lease expires in June 2018, with four five-year renewal
options. We also rent mall space for retail stores to support the Charlotte
operation, seasonally, for periods of less than one year.

We lease a facility in Atlanta, Georgia, containing approximately 92,000 square
feet, of which we utilize approximately 20,000 square feet for offices and
approximately 72,000 square feet for manufacturing and warehouse operations.
The lease on this facility expires in April 2008.

We lease a 45,000 square foot facility in Baraboo, Wisconsin. We utilize
approximately 10,000 square feet of the facility for offices and approximately
35,000 square feet for warehouse space and distribution operations. The term
of this lease expires in December 2004.

We lease a 38,750 square foot facility in Los Angeles, California. We utilize
approximately 9,000 square feet of the facility for offices and approximately
29,750 square feet for apparel assembly and warehouse operations. The term of
this lease expires in March 2005.

We also lease 48,000 square foot and 35,000 square foot portions of larger
facilities in City of Industry, California. We utilize approximately 5,700
square feet of the space for offices and remainder for die-cast warehouse
operations. The terms of these leases expire in February 2006 and January
2007.

We own a facility in Aachen, Germany, which is approximately 64,000 square
feet. We utilize approximately 46,000 square feet of this facility for our
European warehouse and distribution operations and approximately 18,000 square
feet for office space. We have approximately 52,000 square feet of additional
warehouse space under construction with completion scheduled for March 2004.




ITEM 3. LEGAL PROCEEDINGS

We are involved in various legal proceedings arising out of our operations in
the ordinary course of business. We do not believe that such proceedings, even
if determined adversely, will have a material adverse effect on our business,
financial condition, or results of operations.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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PART II




ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER
PURCHASES OF EQUITY
SECURITIES

Our common stock has been listed on the New York Stock Exchange under the
symbol ATN since February 20, 2002. From April 27, 1993, the date of our
initial public offering, until February 19, 2002, our common stock was quoted
on the Nasdaq National Market under the symbol ACTN. The following table
sets forth the high and low sale prices of the common stock for each calendar
quarter indicated as reported on the New York Stock Exchange or Nasdaq National
Market , as applicable.

|      |                                           |  |              |       |     |  |   |       | 
|----- | ----------------------------------------- |  | ------------ | ----- | --- |  | - | ----- | 
|      |                                           |  | Common Stock
|      |                                           |  |             
|      |                                           |  | High         |       | Low
|      |                                           |  |              |       |    
|2003: |                                           |  |              |       |     |  |   |      
|      | First Quarter                             |  | $            | 21.60 |     |  | $ | 14.65 | 
|      | Second Quarter                            |  |              | 24.56 |     |  |   | 16.50 | 
|      | Third Quarter                             |  |              | 26.99 |     |  |   | 18.15 | 
|      | Fourth Quarter (through December 1, 2003) |  |              | 27.71 |     |  |   | 16.74 | 
|2002: |                                           |  |              |       |     |  |   |      
|      | First Quarter                             |  | $            | 50.27 |     |  | $ | 30.03 | 
|      | Second Quarter                            |  |              | 51.99 |     |  |   | 27.75 | 
|      | Third Quarter                             |  |              | 34.30 |     |  |   | 20.68 | 
|      | Fourth Quarter                            |  |              | 26.71 |     |  |   | 15.80 | 
|2001: |                                           |  |              |       |     |  |   |      
|      | First Quarter                             |  | $            | 11.56 |     |  | $ | 2.31  | 
|      | Second Quarter                            |  |              | 27.00 |     |  |   | 10.25 | 
|      | Third Quarter                             |  |              | 29.25 |     |  |   | 14.75 | 
|      | Fourth Quarter                            |  |              | 37.17 |     |  |   | 17.13 | 

On December 1, 2003, the closing sale price of our common stock on the New York
Stock Exchange was $19.44 per share. As of December 1, 2003, there were 435
holders of record of our common stock.

During September 2003, we issued 372,960 shares of common stock at $24.85 per
share to three former shareholders of Funline Merchandise Co., Inc. in
connection with our acquisition of the stock of Funline. We issued the shares
without registration under the Securities Act in reliance on the exemption
provided by Section 4(2) of the Securities Act as a transaction by an issuer
not involving a public offering.

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

Dividend Policy

In September 2002, we initiated an ongoing quarterly dividend policy with an
initial dividend of $0.03 per share. A summary of dividends paid on common
stock after September 30, 2002 follows (in thousands, except per share data):

|       |  |                |      |                  |  |                    |  |                    |  |                  |  |  |  |  |  | 
|------ |  | -------------- | ---- | ---------------- |  | ------------------ |  | ------------------ |  | ---------------- |  |  |  |  |  | 
|Amount |  | Rate Per Share |      | Declaration Date |  | Record Date        |  | Paid              
|       |  |                |      |                  |  |                    |  |                   
|$532   |  | $              | 0.03 |                  |  | September 19, 2002 |  | October 10, 2002   |  | October 28, 2002
|$535   |  | $              | 0.03 |                  |  | December 2, 2002   |  | December 23, 2002  |  | January 13, 2003
|$535   |  | $              | 0.03 |                  |  | March 5, 2003      |  | March 21, 2003     |  | April 14, 2003  
|$894   |  | $              | 0.05 |                  |  | June 2, 2003       |  | June 13, 2003      |  | July 14, 2003   
|$914   |  | $              | 0.05 |                  |  | September 22, 2003 |  | September 26, 2003 |  | October 13, 2003

As long as our cash flow from operations remains adequate for our planned
operations, we intend to pay cash dividends in the future.

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ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial data presented below as of and for the five
years ended September 30, 2003, are derived from our consolidated financial
statements. The selected financial data should be read in conjunction with
Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and the Notes
thereto included elsewhere in this report.

|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---------------------------------------- | ------- | ------- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                |  | Fiscal Year Ended September 30,
|                                                                |  |                                
|                                                                |  | 2003                            |         | 2002 |  | 2001                                     |         | 2000(2) |  | 1999
|                                                                |  |                                 |         |      |  |                                          |         |         |  |     
|                                                                |  |                                 |         |      |  | (in thousands, except per share amounts) |         |         |  |     
|Consolidated Statement of
Operations Data (1):                  |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Net sales                                                       |  | $                               | 370,643 |      |  | $                                        | 406,902 |         |  | $    | 323,352 |   |  | $ | 258,105 |   |  | $ | 347,842 |  
|Cost of sales                                                   |  |                                 | 245,879 |      |  |                                          | 250,810 |         |  |      | 208,375 |   |  |   | 209,102 |   |  |   | 216,165 |  
|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Gross profit                                                    |  |                                 | 124,764 |      |  |                                          | 156,092 |         |  |      | 114,977 |   |  |   | 49,003  |   |  |   | 131,677 |  
|Selling, general and
administrative expenses (3)                |  |                                 | 83,783  |      |  |                                          | 77,214  |         |  |      | 69,456  |   |  |   | 107,942 |   |  |   | 71,636  |  
|Amortization of goodwill and
trademark (4)                      |  |                                 |        |      |  |                                          |        |         |  |      | 4,097   |   |  |   | 11,295  |   |  |   | 2,895   |  
|Amortization of licenses and
other intangibles                  |  |                                 | 3,416   |      |  |                                          | 2,797   |         |  |      | 2,060   |   |  |   | 5,458   |   |  |   | 3,923   |  
|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) from operations                                   |  |                                 | 37,565  |      |  |                                          | 76,081  |         |  |      | 39,364  |   |  |   | (75,692 | ) |  |   | 53,223  |  
|Interest expense                                                |  |                                 | (2,085  | )    |  |                                          | (3,029  | )       |  |      | (5,102  | ) |  |   | (6,291  | ) |  |   | (6,929  | )
|Gain (loss) on extinguishment of
debt (6)                       |  |                                 | 34      |      |  |                                          | (1,361  | )       |  |      | 14,219  |   |  |   |        |   |  |   |        |  
|Foreign exchange gains (7)                                      |  |                                 | 3,704   |      |  |                                          | 1,500   |         |  |      |        |   |  |   |        |   |  |   |        |  
|Other income (expense)                                          |  |                                 | (1,492  | )    |  |                                          | (638    | )       |  |      | (1,040  | ) |  |   | (696    | ) |  |   | 601     |  
|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                               |  |                                 | 37,726  |      |  |                                          | 72,553  |         |  |      | 47,441  |   |  |   | (82,679 | ) |  |   | 46,895  |  
|Income taxes (6)                                                |  |                                 | 13,499  |      |  |                                          | 27,606  |         |  |      | 15,505  |   |  |   | (24,592 | ) |  |   | 18,526  |  
|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                               |  | $                               | 24,227  |      |  | $                                        | 44,947  |         |  | $    | 31,936  |   |  | $ | (58,087 | ) |  | $ | 28,369  |  
|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss) per common
share, assuming dilution (5)       |  | $                               | 1.33    |      |  | $                                        | 2.41    |         |  | $    | 1.90    |   |  | $ | (3.52   | ) |  | $ | 1.65    |  
|                                                                |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Weighted average number of
common shares, assuming dilution
(5) |  |                                 | 18,259  |      |  |                                          | 19,231  |         |  |      | 16,849  |   |  |   | 16,515  |   |  |   | 19,179  |  
|Cash dividends declared                                         |  | $                               | 2,878   |      |  | $                                        | 532     |         |  | $    |        |   |  | $ |        |   |  | $ |        |  
|Book value per share                                            |  | $                               | 14.32   |      |  | $                                        | 12.84   |         |  | $    | 9.31    |   |  | $ | 6.27    |   |  | $ | 10.22   |  
|Consolidated Balance Sheet Data (1):                            |  |                                 |         |      |  |                                          |         |         |  |      |         |   |  |   |         |   |  |   |         |  
|Working capital                                                 |  | $                               | 113,593 |      |  | $                                        | 117,518 |         |  | $    | 90,303  |   |  | $ | 64,524  |   |  | $ | 107,797 |  
|Total assets                                                    |  |                                 | 374,758 |      |  |                                          | 337,916 |         |  |      | 278,953 |   |  |   | 255,917 |   |  |   | 335,747 |  
|Total debt                                                      |  |                                 | 34,992  |      |  |                                          | 40,783  |         |  |      | 57,420  |   |  |   | 109,278 |   |  |   | 111,921 |  
|Total shareholders equity                                      |  |                                 | 261,593 |      |  |                                          | 229,388 |         |  |      | 159,826 |   |  |   | 102,718 |   |  |   | 172,991 |  



|(1) |  | This financial data includes the results of acquired operations,
including Funline Merchandise Co., Inc., acquired in September 2003;
Trevco, McArthur and Jeff Hamilton, acquired in 2002; and Goodsports
Holdings Pty Ltd. (Goodsports), acquired in 1999, and closed in 2001.
Results also include net sales of Winners Circle product beginning as of
the date of acquisition of the Winners Circle trademark in 2001. Prior
to acquisition of the Winners Circle trademark, we recorded license
income with respect to Winners Circle products.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(2) |  | Results in 2000 include charges of $17.5 million arising from the
decision to abandon our Internet strategy relating to goracing.com. The
goracing.com network at that time consisted of various motorsports
related, e-commerce enabled Web sites that we developed, operated and
maintained. The goracing.com charges include provision for the write-off
of goodwill, endorsements, sponsorship commitments, employee severance and
termination costs, and the withdrawal of the initial public offering of
goracing.com. In addition, as a result of the decision to abandon our
Internet strategy and in response to demand changes, we evaluated our
operations and concluded it was necessary to reorganize the company and
refocus on our core strengths. Consequently, in addition to the
goracing.com charges, 2000 includes charges of $47.3 million for inventory
write-downs because anticipated sponsorship and driver and marketing
programs did not materialize, a provision for vendor discounts anticipated
but not received due to lower than anticipated volumes, a change in the
estimated useful lives of tooling, write-downs of prepaid royalties and
sponsorship fees because we decided to concentrate future production on
core drivers and core programs, a write-down of goodwill because the
die-cast helmet product line was deemed worthless, and other items. The
total $64.8 million of restructuring and other special charges are
reflected as follows: $32.6 million in cost of sales, $20.3 in selling
general and administrative expenses, $6.4 million in amortization of
goodwill and trademark, $3.1 million in amortization of licenses and other
intangibles, and $2.4 million in other income (expense).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Results in 1999 include settlement costs and related legal and other
expenses of $3.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(4) |  | Amortization of goodwill and trademark ceased October 1, 2001, with the
adoption of SFAS No. 142, Goodwill and Other Intangible Assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(5) |  | The impacts of outstanding 43⁄4% convertible subordinated notes were
not included in the calculation of diluted EPS for 2003, 2001 and 2000,
because to do so would have been antidilutive. The impact of certain
options and warrants for all years presented were not included in the
calculation of diluted EPS, because to do so would be antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(6) |  | Amounts for 2002 and 2001 have been adjusted to reflect adoption of SFAS
No. 145 effective October 1, 2001. Prior to adoption, gains on
extinguishment of debt were reflected as extraordinary items.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(7) |  | Beginning in May 2002, euro exchange rate gain or loss on intercompany
advances to our German subsidiary is included in operations. Prior to May
2002, these advances, denominated in dollars, were deemed permanently
reinvested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   




ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

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

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



| |  |  | We have the ability to exert a high degree of control over product pricing.          
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | Manufacturing costs are largely fixed due to outsourcing under fixed-price contracts.

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| |  |  | Royalties are paid generally as a percentage of sales.                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Due to our agreements with distributors and QVC, incremental volume
does not proportionately increase our operating expenses.
|
| |  |  | Research and development is limited to basic design and engineering.                                                         
|
| |  |  | Capital expenditures are principally limited to tooling for die-cast.                                                        
|
| |  |  | Functions such as manufacturing and others outside of our core skills are generally outsourced.                              

Revenue

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

We distribute our products through a broad range of channels, including a
network of wholesale distributors, leading mass-market retailers, mobile
trackside stores, QVC, and our collectors club catalog. We recognize revenue
when persuasive evidence of an arrangement exists, title passes to the
customer, the fee is fixed or determinable, and collection is probable. Most
distributor sales are recognized when product is shipped to a distributor
because title to the product passes to the distributors at shipment. Sales to
mass-market retailers are recognized when title to product passes to the
retailer, either at time of shipment to the retailer or receipt by the
retailer. Under terms of our consignment agreement with QVC, collectors club
catalog sales are recognized when QVC ships product to the consumer. We
recognize trackside sales when the consumer purchases product at the point of
sale. A portion of the product sold through television programming is
consignment product, for which sales are recognized when QVC ships the product
to the consumer. Internet and other sales are generally recognized when
delivered to the consumer.

Cost of Sales

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

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



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

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Selling, General, and Administrative Expenses

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

Seasonality

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

Application of Critical Accounting Policies

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

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

Allowance for Doubtful Accounts

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

Inventory

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

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Licenses and Royalties

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

Goodwill and Other Intangibles

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

Deferred Tax Assets

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

Stock-Based Compensation

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

Results of Operations

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

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|                                               |  |      |       |      |  |      |       |   |  |  |       |  
|---------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                               |  | 2003 |       | 2002 |  | 2001
|                                               |  |      |       |      |  |     
|Net sales                                      |  |      | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Cost of sales                                  |  |      | 66.3  |      |  |      | 61.6  |   |  |  | 64.4  |  
|                                               |  |      |       |      |  |      |       |   |  |  |       |  
|Gross profit                                   |  |      | 33.7  |      |  |      | 38.4  |   |  |  | 35.6  |  
|Selling, general and administrative expense    |  |      | 22.6  |      |  |      | 19.0  |   |  |  | 21.5  |  
|Amortization of goodwill and trademark (1)     |  |      |      |      |  |      |      |   |  |  | 1.3   |  
|Amortization of licenses and other intangibles |  |      | 0.9   |      |  |      | 0.7   |   |  |  | 0.6   |  
|                                               |  |      |       |      |  |      |       |   |  |  |       |  
|Income from operations                         |  |      | 10.2  |      |  |      | 18.7  |   |  |  | 12.2  |  
|Interest expense                               |  |      | (0.6  | )    |  |      | (0.7  | ) |  |  | (1.6  | )
|Gain (loss) on extinguishment of debt          |  |      |      |      |  |      | (0.3  | ) |  |  | 4.4   |  
|Foreign exchange gains                         |  |      | 1.0   |      |  |      | 0.4   |   |  |  |      |  
|Other income (expense)                         |  |      | (0.4  | )    |  |      | (0.2  | ) |  |  | (0.3  | )
|                                               |  |      |       |      |  |      |       |   |  |  |       |  
|Income before income taxes                     |  |      | 10.2  |      |  |      | 17.9  |   |  |  | 14.7  |  
|Income taxes                                   |  |      | 3.6   |      |  |      | 6.8   |   |  |  | 4.8   |  
|                                               |  |      |       |      |  |      |       |   |  |  |       |  
|Net income                                     |  |      | 6.6   | %    |  |      | 11.1  | % |  |  | 9.9   | %
|                                               |  |      |       |      |  |      |       |   |  |  |       |  



|(1) |  | Goodwill and trademark amortization ceased effective October 1, 2001 with
the adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth for the years indicated, net sales by channel of
distribution and net sales from the operations of acquired entities.

|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------------------------- | --------------------------------------- | ------------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                          |                                         |                                |         | 2003    |         | 2002 |         | 2001   
|                                                                          |                                         |                                |         |         |         |      |         |        
|Domestic Die-cast:                                                        |                                         |                                |         |         |         |      |         |         |         |   |         |        
|                                                                          | Wholesale distribution and promotion    |                                | $       | 102,279 |         |      | $       | 146,286 |         |   | $       | 101,066 |        
|                                                                          | Wholesale to mass-merchant retailers    |                                |         | 22,140  |         |      |         | 35,900  |         |   |         | 6,382   |        
|                                                                          | Retail
through collectors catalog club |                                |         | 24,406  |         |      |         | 27,295  |         |   |         | 28,123  |        
|Foreign Die-cast - wholesale distribution and promotion                   |                                         |                                | 34,631  |         |         |      | 29,433  |         |         |   | 28,793  |        
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        
|                                                                          |                                         | Total die-cast                 |         |         | 183,456 |      |         |         | 238,914 |   |         |         | 164,364 | 
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        
|Domestic Apparel and Memorabilia:                                         |                                         |                                |         |         |         |      |         |         |         |   |         |        
|                                                                          | Wholesale distribution and promotion    |                                |         | 82,254  |         |      |         | 65,032  |         |   |         | 57,625  |        
|                                                                          | Wholesale to mass-merchant retailers    |                                |         | 49,496  |         |      |         | 42,523  |         |   |         | 25,428  |        
|Foreign Apparel and Memorabilia- wholesale
distribution and promotion (1) |                                         |                                |        |         |         |      |        |         |         |   | 11,055  |        
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        
|                                                                          |                                         | Total apparel and memorabilia: |         |         | 131,750 |      |         |         | 107,555 |   |         |         | 94,108  | 
|Retail at Trackside                                                       |                                         |                                | 52,456  |         |         |      | 57,264  |         |         |   | 59,901  |        
|Royalties and Other                                                       |                                         |                                | 2,981   |         |         |      | 3,169   |         |         |   | 4,979   |        
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        
|Net Sales                                                                 |                                         | $                              | 370,643 |         |         | $    | 406,902 |         |         | $ | 323,352 |        
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        
|Net Sales from Businesses Acquired in 2002                                |                                         | $                              | 35,468  |         |         | $    | 12,967  |         |         | $ |        |        
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        
|Net Sales from Businesses Acquired in 2003                                |                                         | $                              | 480     |         |         | $    |        |         |         | $ |        |        
|                                                                          |                                         |                                |         |         |         |      |         |         |         |   |         |        



|(1) |  | The foreign apparel and memorabilia operation, based in England was
closed effective September 30, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------

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Year Ended September 30, 2003 Compared with Year Ended September 30, 2002

Net sales decreased 8.9% to $370.6 million for 2003, from $406.9 million in
2002. Domestic die-cast sales decreased $60.7 million, or 29.0%, from the
prior year while foreign die-cast sales increased $5.2 million, or 17.7%.
Domestic wholesale distribution and promotion die-cast revenues were down in
part due to the four-month delay in producing Monte Carlo and Pontiac products
arising from the retooling of those products, and in part due to reduced
special paint scheme product volumes resulting from the lack of high-impact
specials and the economic environment. Mass-merchant retail domestic die-cast
revenues were down because our largest customer ordered virtually no product
for delivery in the second half of 2003. Although shipping to this customer
has resumed, we cannot predict 2004 order levels from this customer. The 17.7%
increase in foreign die-cast sales approximated the change in the average
euro-to-U.S. dollar exchange rate between 2003 and 2004. The increase in
domestic apparel and memorabilia segment sales, exclusive of trackside was
$24.2 million, or 22.5% from the prior year, and included a $22.5 million
increase from businesses acquired in 2002. Trackside sales decreased 8.4% to
$52.5 million from revenues of $57.3 million in the prior year. Trackside
revenues were impacted by adverse weather conditions and a weak economy.

Gross profit declined to 33.7% of sales in 2003 from 38.4% in 2002. The
decline in domestic margin was attributable to die-cast product cost increases,
the impact of largely fixed tooling costs on lower die-cast volumes, increased
freight expenses, and a program to reduce apparel and other specialty
inventories before the end of fiscal 2003. Foreign die-cast margins were lower
as a result of higher tooling depreciation. These declines in gross margin
were partially offset by the impact of higher margin apparel sales being a
larger component of total sales in 2003 compared to 2002.

Selling, general, and administrative expenses were $83.8 million in 2003
compared to $77.2 million in 2002. Selling, general, and administrative
expenses increased principally as a result of higher promotional expenses,
increased commissions, a $0.8 million charge related to the settlement of a
mediation proceeding, and a $1.7 million receivable allowance provision for one
customer with overdue invoices.

Interest expense of $2.1 million in 2003, was $0.9 million lower than interest
expense for 2002 as a result of convertible subordinated note repurchases.

Foreign exchange gains included $3.7 million of foreign currency translation
gains in 2003 versus $1.5 million in 2002. The gains resulted from the impact
the 14.4% improvement in the euro-to-U.S. dollar exchange rate had on German
advances payable, which are denominated in U.S. dollars.

Other income (expense) increased $0.9 million in 2003 from $0.6 million in
2002, to $1.5 million in 2003 because 2003 included $0.7 million of interest
expense related to settlement of an IRS audit through 2000.

The effective tax rate of 35.8% for 2003 was lower than the 38.0% effective tax
rate in 2002, primarily because the 2003 income tax provision includes credits
of $1.4 million reflecting adjustments of prior tax rates and the release of
valuation allowances.

Year Ended September 30, 2002 Compared with Year Ended September 30, 2001

Net sales increased 25.8% to $406.9 million in 2002, from $323.4 million in the
prior year. Sales increased in both die-cast and apparel distribution
channels. Domestic die-cast sales increased 54.5% from the prior year while
foreign die-cast sales increased 2.2%. Sales of die-cast products to mass
retailers under the Winners Circle brand, purchased in June 2001, accounted
for 40% of the increase in domestic die-cast sales. The remaining increase in
domestic die-cast sales reflects a continuation of the increase in consumer
demand, which began in the second quarter of 2001. Domestic apparel and
memorabilia segment sales, exclusive of trackside, increased $24.5 million, or
29.5%, from the prior year. Revenues from businesses acquired in 2002
accounted for 52.9% of this increase. The remaining increase in revenues
reflects increased demand from both wholesale and mass retail channels.

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Trackside sales decreased 4.4% to $57.3 million from $59.9 million. Trackside
revenues in 2001 reflected substantial sales of Dale Earnhardt Sr. product.
Revenues for 2001 included $11.1 million from Goodsports, which was closed
effective September 30, 2001.

Gross profit improved to 38.4% of sales in 2002 from 35.6% in 2001. Domestic
die-cast margins improved as the depreciation of tooling and dies has declined
as a percentage of revenues. In addition, segments generally benefited from
stable costs and increased volume. Effective September 30, 2001, we also
closed the Goodsports foreign apparel operation, which had a lower margin than
the corporate average. These improvements in gross margin were partially
offset by the negative impacts of higher margin apparel sales being a smaller
component of total sales this year than last year.

Selling, general, and administrative expenses were $77.2 million, or 19.0% of
sales, in 2002 compared to $69.5 million, or 21.5% of sales in 2001, reflecting
strong expense controls and the leverage we obtain from increased revenues due
to our business model in which there is only limited variability in each
seasonal quarter.

Goodwill and trademark amortization ceased effective October 1, 2001, with the
adoption of SFAS 142. Goodwill and trademark amortization in 2001 was $4.1
million, or 1.3% of sales.

Interest expense of $3.0 million in 2002, was $2.1 million lower than interest
expense for the prior year as a result of the convertible subordinated note
repurchases and other long-term debt reductions.

Foreign exchange gains included $1.5 million in 2002, which resulted from the
impact the improvement in the euro-to-U.S. dollar exchange rate had on German
advances payable, which are denominated in U.S. dollars, after May 2002. Prior
to May 2002, the advances were deemed permanently reinvested, and related
foreign exchange gains were included in accumulated other comprehensive income
(loss).

The 38.0% effective tax rate for 2002 was higher than the 30.7% effective rate
for 2001 because 2001 benefited from the recognition of U.S. tax benefits from
the closure of our UK operation and valuation allowance reduction.

Quarterly Results of Operations

The following table sets forth certain unaudited quarterly results of
operations for each of the quarters in the two years ended September 30, 2003
(in thousands, except per share amounts). All quarterly information was
obtained from unaudited financial statements not otherwise contained in this
report. We believe that all necessary adjustments have been made to present
fairly the quarterly information when read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this report. The
operating results for any quarter are not necessarily indicative of the results
for any future period.

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|                                                            |  |             |        |             |  |             |        |             |  |   |        |  |  |   |         |    
|----------------------------------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | - | ------ |  |  | - | ------- | ---
|                                                            |  | 2003       
|                                                            |  |            
|                                                            |  | 1st Quarter |        | 2nd Quarter |  | 3rd Quarter |        | 4th Quarter
|                                                            |  |             |        |             |  |             |        |            
|Net sales                                                   |  | $           | 85,799 |             |  | $           | 91,056 |             |  | $ | 87,617 |  |  | $ | 106,171 |    
|Gross profit                                                |  |             | 30,522 |             |  |             | 32,051 |             |  |   | 31,059 |  |  |   | 31,132  |    
|Income from operations                                      |  |             | 12,260 |             |  |             | 11,417 |             |  |   | 9,817  |  |  |   | 4,071   | (a)
|Net income                                                  |  | $           | 7,966  |             |  | $           | 7,254  |             |  | $ | 6,311  |  |  | $ | 2,696   | (a)
|Net income per common
share, assuming
dilution              |  | $           | 0.44   |             |  | $           | 0.40   |             |  | $ | 0.35   |  |  | $ | 0.15    | (a)
|Weighted average
number of common
shares, assuming
dilution |  |             | 19,003 |             |  |             | 18,998 |             |  |   | 18,291 |  |  |   | 18,368  |    

|                                                            |  |             |        |             |  |             |         |             |  |   |         |     |  |   |         | 
|----------------------------------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------- | ----------- |  | - | ------- | --- |  | - | ------- | 
|                                                            |  | 2002       
|                                                            |  |            
|                                                            |  | 1st Quarter |        | 2nd Quarter |  | 3rd Quarter |         | 4th Quarter
|                                                            |  |             |        |             |  |             |         |            
|Net sales                                                   |  | $           | 84,136 |             |  | $           | 100,185 |             |  | $ | 112,085 |     |  | $ | 110,496 | 
|Gross profit                                                |  |             | 31,851 |             |  |             | 38,857  |             |  |   | 43,738  |     |  |   | 41,646  | 
|Income from operations                                      |  |             | 14,173 |             |  |             | 19,347  |             |  |   | 22,834  |     |  |   | 19,727  | 
|Net income                                                  |  | $           | 8,230  |             |  | $           | 11,161  |             |  | $ | 12,544  | (b) |  | $ | 13,012  | 
|Net income per common
share, assuming
dilution              |  | $           | 0.46   |             |  | $           | 0.60    |             |  | $ | 0.66    | (b) |  | $ | 0.70    | 
|Weighted average
number of common
shares, assuming
dilution |  |             | 19,053 |             |  |             | 19,261  |             |  |   | 19,388  |     |  |   | 19,148  | 

|   |  |                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | Results
in the fourth quarter of 2003 include the impacts of a
$0.8 million pre-tax charge related to the settlement of a
mediation proceeding and a $1.7 million pre-tax receivable
allowance provision for one customer with overdue invoices.
|b) |  | Results
in the third quarter of 2002 include the impact of a
$1.6 million pre-tax gain on extinguishment of debt.                                                                                                                               

Our revenue and operating results are subject to quarterly fluctuations as a
result of seasonality factors related to the commencement (February) and
completion (November) of the NASCAR race season. We believe that
quarter-to-quarter comparisons of our past financial results may not
necessarily be meaningful and should not be relied upon as an indication of
future performance.

Liquidity and Capital Resources

Working capital declined $3.9 million to $113.6 million at September 30, 2003,
from $117.5 million at September 30, 2002. Cash decreased $20.1 million to
$49.5 million at September 30, 2003, from $69.6 million at September 30, 2002.
Cash decreased due to net property and equipment expenditures ($33.1 million),
repurchase of convertible notes ($8.9 million), common stock purchases for
treasury ($2.0 million), dividends to common shareholders ($2.5 million),
acquisition of Funline ($14.8 million), and other activities. The decreases in
cash were offset by increases in cash for a three-year, 5.2% mortgage on the
building expansion in Germany ($3.0 million), and cash generated from
operations.

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Days sales outstanding, calculated on quarterly sales, increased to 55.3 days
as of September 30, 2003, excluding the $6.4 million of Funline receivables
acquired September 25, 2003, compared to 51.0 days as of September 30, 2002.
The increase in days sales outstanding reflects the higher percentage of our
sales derived in the fourth quarter of 2003 from segments of our business which
generally have longer payment terms, including the acquired apparel and
memorabilia operations. It also reflects the lower percentage of sales
derived in the fourth quarter of 2003 from domestic die-cast sales to
mass-merchant retailers, which typically have shorter payment terms.

At September 30, 2003, inventories increased $1.3 million, excluding the $8.5
million of Funline inventory acquired as of September 25, 2003, over amounts at
September 30, 2002. Die-cast inventories declined $0.7 million from amounts at
September 30, 2002. Apparel and other inventories increased $2.0 million due
to businesses acquired in 2002. Backlog was approximately $61 million at
September 30, 2003, and $90 million at September 30, 2002.

During 2003, we repurchased 43⁄4% convertible subordinated notes with a face
value of $9.0 million for cash of $8.9 million. In total, since January 1,
2001, we have repurchased notes with a face value of $70.1 million, using $25.8
million in cash and 1.1 million shares of common stock. We continually
evaluate opportunities to redeem or repurchase the notes.

As of September 30, 2003, 43⁄4% convertible subordinated notes with a face
value of $29.9 million remained outstanding. The subordinated notes are
convertible, at the option of the holders, into shares of common stock at the
initial conversion price of $48.20 per share, subject to adjustments in certain
events. Interest on notes is payable semi-annually on April 1 and October 1 of
each year. The notes mature on April 1, 2005. The notes are general unsecured
obligations of our company, subordinated in right of payment to all existing
and future senior indebtedness, as defined in the notes. The indenture
governing the notes does not limit or prohibit our company or our subsidiaries
from incurring additional debt, including senior indebtedness. We have the
option to redeem the notes in whole or in part at any time, at redemption
prices set forth in the indenture governing the notes. Upon the occurrence of
a change in control or a termination of trading, as defined in the
indenture, the holders of the subordinated notes will have the right to require
us to repurchase all or any part of such holders notes at 100% of their
principal amount, plus accrued and unpaid interest.

Capital expenditures related principally to ongoing investments in tooling,
investments made to upgrade our IT systems in Charlotte, North Carolina, the
installation of a point-of-sales system in trackside trailers, and building
additions in Charlotte, North Carolina and Aachen, Germany. Capital
expenditures totaled $33.1 million during 2003, and included $9.0 million
applicable to foreign operations. Capital expenditures for 2004 are expected
to approximate $23 million.

During 2003, as a result of acquisitions, we entered into amendments to our
loan and security agreement with Bank One that increased the revolving credit
facility, modified certain covenants, and extended the term of the agreement
through March 31, 2005. The amended agreement provides for a revolving credit
facility of $35 million. The agreement provides for borrowings of up to $20
million to support letters of credit, to the extent not utilized for
borrowings. Prior to the amendments, the revolving credit facility was $20
million. Outstanding letters of credit totaled $11.0 million at September 30,
2003.

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

Under the agreement, as amended, we are required to meet certain financial
tests principally related to ratios of debt coverage, total liabilities to
tangible net worth, and funded indebtedness to EBIDA (earnings before interest,
depreciation, and amortization). We were in compliance with those covenants at
September 30, 2003. We have never borrowed under the agreement, originally
dated September 2000.

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

In September 2002, we initiated an ongoing quarterly dividend policy with an
initial dividend of $0.03 per share. A summary of dividends paid on common
stock after September 30, 2002, follows (in thousands, except per share data):

|       |  |                |      |                  |  |                    |  |                    |  |                  |  |  |  |  |  | 
|------ |  | -------------- | ---- | ---------------- |  | ------------------ |  | ------------------ |  | ---------------- |  |  |  |  |  | 
|Amount |  | Rate Per Share |      | Declaration Date |  | Record Date        |  | Paid              
|       |  |                |      |                  |  |                    |  |                   
|$532   |  | $              | 0.03 |                  |  | September 19, 2002 |  | October 10, 2002   |  | October 28, 2002
|$535   |  | $              | 0.03 |                  |  | December 2, 2002   |  | December 23, 2002  |  | January 13, 2003
|$535   |  | $              | 0.03 |                  |  | March 5, 2003      |  | March 21, 2003     |  | April 14, 2003  
|$894   |  | $              | 0.05 |                  |  | June 2, 2003       |  | June 13, 2003      |  | July 14, 2003   
|$914   |  | $              | 0.05 |                  |  | September 22, 2003 |  | September 26, 2003 |  | October 13, 2003

Contractual Obligations and Commercial Commitments

Aggregate future minimum payments due contractually under royalty agreement
guarantees, personal service agreements, long-term debt, noncancellable
operating leases, commercial letters of credit, and other unconditional
purchase obligations are as follows as of September 30, 2003 (in thousands):

|           |  |            |        |            |  |           |       |          |  |             |        |       |  |               |        |  |  |   |        |  |  |   |         | 
|---------- |  | ---------- | ------ | ---------- |  | --------- | ----- | -------- |  | ----------- | ------ | ----- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|           |  | Royalty    |        | Personal   |  |           |       |          |  |             |        |       |  | Unconditional |        |  |  |  
|           |  | Agreement  |        | Service    |  | Long-term |       | Lease    |  | Purchase    |        |       |  |              
|Year       |  | Guarantees |        | Agreements |  | Debt      |       | Payments |  | Obligations |        | Total
|           |  |            |        |            |  |           |       |          |  |             |        |      
|2004       |  | $          | 20,327 |            |  | $         | 1,681 |          |  | $           | 567    |       |  | $             | 4,811  |  |  | $ | 12,000 |  |  | $ | 39,386  | 
|2005       |  |            | 20,589 |            |  |           | 1,383 |          |  |             | 30,251 |       |  |               | 4,423  |  |  |   |       |  |  |   | 56,646  | 
|2006       |  |            | 12,508 |            |  |           | 707   |          |  |             | 338    |       |  |               | 3,890  |  |  |   |       |  |  |   | 17,443  | 
|2007       |  |            | 7,103  |            |  |           | 244   |          |  |             | 361    |       |  |               | 3,423  |  |  |   |       |  |  |   | 11,131  | 
|2008       |  |            | 4,830  |            |  |           |      |          |  |             | 385    |       |  |               | 2,508  |  |  |   |       |  |  |   | 7,723   | 
|Thereafter |  |            | 24,950 |            |  |           |      |          |  |             | 3,090  |       |  |               | 11,937 |  |  |   |       |  |  |   | 39,977  | 
|           |  |            |        |            |  |           |       |          |  |             |        |       |  |               |        |  |  |   |        |  |  |   |         | 
|Total      |  | $          | 90,307 |            |  | $         | 4,015 |          |  | $           | 34,992 |       |  | $             | 30,992 |  |  | $ | 12,000 |  |  | $ | 172,306 | 
|           |  |            |        |            |  |           |       |          |  |             |        |       |  |               |        |  |  |   |        |  |  |   |         | 

Unconditional purchase obligations at September 30, 2003, were approximately $1
million for property and equipment and $11 million of outstanding letters of
credit.

In certain sublease arrangements, we remain the primary obligor under the terms
of the original lease agreements. Commitments under these subleases expire as
follows (in thousands):

|           |  |                      |       | 
|---------- |  | -------------------- | ----- | 
|Year       |  | Sublease Commitments
|           |  |                     
|2004       |  | $                    | 384   | 
|2005       |  |                      | 384   | 
|2006       |  |                      | 384   | 
|2007       |  |                      | 352   | 
|2008       |  |                      |      | 
|Thereafter |  |                      |      | 
|           |  |                      |       | 
|Total      |  | $                    | 1,504 | 
|           |  |                      |       | 

One of our sublessees fell in arrears on lease payments during 2002. In fiscal
2002, we reserved $3.0 million, representing our then current estimate of the
total potential loss under the building sublease agreements. In August 2003,
we moved our corporate headquarters to this building from our previous
corporate headquarters, which is also a leased building. We currently estimate
that the $0.9 million reserve remaining at September 30, 2003, will be adequate
to cover lease payments on the previous headquarters building until sublet.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is limited to interest rate risk associated with
our credit instruments and foreign currency exchange rate risk associated with
operations in Germany.

At September 30, 2003, we had $29.9 million outstanding under our convertible
subordinated notes at an interest rate of 43⁄4% and approximately $5.1
million of debt outstanding at various rates and terms, principally under
promissory notes and capital leases. Interest rates on these credit
instruments are fixed and comparable to current market rates.

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

We currently use a derivative as part of our risk management strategy related
to a portion of our exposure to currency fluctuations on intercompany advances
to our German subsidiary, denominated in dollars, for which the euro exchange
rate gain or loss is included in operations. These advances totaled $18.4
million at September 30, 2003. In June 2003, we entered into a foreign
currency forward contract designed to partially offset the effect changes in
the euro exchange rate have on earnings related to these advances. This
forward contract does not qualify for hedge accounting and is recorded on the
balance sheet at fair value. Changes in fair value are recorded each period in
other income (expense). At September 30, 2003, this forward with a notional
value of 5.0 million euros ($5.8 million as of September 30, 2003), remained
unsettled. The notional amount does not quantify risk or represent our
liability, but is used in calculation of cash settlements under the contract.
During 2003, $129 thousand of net unrealized losses on the contract were
recorded in other income (expense). We realized a $47 thousand loss on the
contract upon settlement at maturity in November 2003.

In November 2003, we entered into another forward contract with a notional
value of 5.0 million euros, and a six-month maturity. We are exposed to credit
risk on this contract in the event of non-performance by the counterparty.
However, the counterparty to this transaction is a major financial institution
we deem credit worthy. We do not anticipate non-performance.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements, the notes thereto, and reports
thereon, commencing at page F-1 of this report, which financial statements,
notes, and report are incorporated herein by reference.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable




ITEM 9A. CONTROLS AND PROCEDURES

We have evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of September 30, 2003. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have each concluded that our
disclosure controls and procedures are effective to ensure that we record,
process, summarize, and report information required to be disclosed by us in
our annual reports filed under the Securities Exchange Act within the time
periods specified by the Securities and Exchange Commissions rules and forms.
During the period covered by this report, there have not been any changes in
our internal controls over financial reporting that have materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item relating to directors of our company is
incorporated herein by reference to the definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 for our 2004
Annual Meeting of Shareholders. The information required by this Item relating
to our executive officers is included in Item 1, Business - Executive
Officers.




ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to
the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2004 Annual Meeting of Shareholders.






|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this Item is incorporated herein by reference to
the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2004 Annual Meeting of Shareholders.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference to
the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2004 Annual Meeting of Shareholders.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference to
the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2004 Annual Meeting of Shareholders.




PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Financial Statements and Financial Statement Schedules



| | (1) |  | Financial Statements are listed in the Index to Consolidated
Financial Statements and Schedule on page F-1 of this Report.                                                  
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The Financial Statement
Schedule II - VALUATION AND
QUALIFYING ACCOUNTS is listed in the Index to Consolidated Financial
Statements and Schedule on page F-1 of this report.

(b)  Reports on Form 8-K 



| |  |  | We filed a current report on Form 8-K, dated July 23, 2003,
reporting that we issued a press release announcing our third
quarter fiscal year 2003 results.          
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We filed a current report on Form 8-K, dated September 25, 2003,
reporting that we issued a press release announcing the acquisition
of Funline Merchandise Co., Inc.

(c)  Exhibits

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|        |  |                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                          
|Number  |  | Exhibit                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                          
|3.1     |  | First Amended and Restated Articles of Incorporation of Registrant,
as amended (12)                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                          
|3.2     |  | Amended and Restated Bylaws of Registrant (1)                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                          
|4.1     |  | Form of Certificate of Common Stock (2)                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                          
|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 (3)                                                                                                 
|        |  |                                                                                                                                                                                                                                                          
|10.4.2  |  | 1993 Stock Option Plan, as amended and restated through January 16, 1997
(6)                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                          
|10.8    |  | Form of Indemnification Agreement entered into with the Directors of the
Registrant (2)                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                          
|10.27   |  | Manufacturing Agreement between the Registrant and Early Light
International Co. Ltd. dated November 1, 2000 (5)                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                          
|10.52   |  | 1998 Non-qualified Stock Option Plan(3)                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                          
|10.49   |  | Standard Form Industrial Lease dated April 8, 1997, between
Hewson/Breckner-Baseline, L.L.C. and Action Performance Companies, Inc.
(7)                                                                                                                  
|        |  |                                                                                                                                                                                                                                                          
|10.50   |  | Lease Agreement dated July 9, 1997, by and between Performance Park
Partners, LLC and Sports Image, Inc. (7)                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                          
|10.52   |  | 1998 Non-qualified Stock Option Plan (3)                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                          
|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. (3)                                  
|        |  |                                                                                                                                                                                                                                                          
|10.56   |  | 1999 Employee Stock Purchase Plan (8)                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                          
|10.57   |  | Standard Form Industrial Lease (Single Tenant) dated June 28, 1999,
between H-B Tempe, L.L.C. and Action Performance Companies, Inc. (9)                                                                                                                 
|        |  |                                                                                                                                                                                                                                                          
|10.58   |  | Master Lease Agreement dated August 9, 1999 between General Electric
Capital Corporation and goracing.com, inc., together with Schedule No. 01,
Commitment Letter dated October 4, 1999, and Corporate Guaranty by Action
Performance Companies, Inc. (9)
|        |  |                                                                                                                                                                                                                                                          
|10.59   |  | Distribution Agreement dated September 13, 2000 by and between the
Registrant and QVC, Inc. (5)                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                          
|10.60   |  | Sublease dated March 28, 2000 by and between Action Performance
Companies, Inc., and Integrated Information Systems, Inc. (5)                                                                                                                            
|        |  |                                                                                                                                                                                                                                                          
|10.61   |  | Equipment Sublease dated March 28, 2000 by and among goracing.com, inc.,
Action Performance Companies, Inc., and Integrated Information Systems,
Inc. (5)                                                                                                
|        |  |                                                                                                                                                                                                                                                          
|10.62   |  | Equipment Sublease dated March 28, 2000 by and between Integrated
Information Systems, Inc. and goracing.com, inc. (5)                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                          
|10.63   |  | Loan and Security Agreement dated September 29, 2000 by and among Action
Performance Companies, Inc., certain subsidiaries and affiliates, as
guarantors, and American National Bank and Trust Company of Chicago. (5)                                   
|        |  |                                                                                                                                                                                                                                                          
|10.64   |  | Pledge Agreement dated October 2, 2000 by and between Racing
Collectables Club of America, Inc., and American National Bank and Trust
Company of Chicago.(5)                                                                                             
|        |  |                                                                                                                                                                                                                                                          
|10.65   |  | Pledge Agreement dated October 2, 2000 by and between Action Performance
Companies, Inc., and American National Bank and Trust Company of Chicago.
(5)                                                                                                   
|        |  |                                                                                                                                                                                                                                                          
|10.66   |  | Pledge Agreement dated October 2, 2000 by and between goracing.com,
inc., and American National Bank and Trust Company of Chicago. (5)                                                                                                                   
|        |  |                                                                                                                                                                                                                                                          
|10.67   |  | Second Amendment to Loan and Security Agreement, dated January 31, 2001,
by and among Action Performance Companies, Inc., and certain subsidiaries
and affiliates, as guarantors, and Bank One, NA. (10)                                                 
|        |  |                                                                                                                                                                                                                                                          
|10.68   |  | First Amended and Restated 2000 Stock Option Plan (11)                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                          
|10.69   |  | Consent and Third Amendment to Loan and Security Agreement, dated
September 2002, by and among Action Performance Companies, Inc., and
certain subsidiaries and affiliates, as guarantors, and Bank One, NA. (12)                                        
|        |  |                                                                                                                                                                                                                                                          
|10.70   |  | Fifth Amendment to Loan and Security Agreement, dated March 12, 2003, by
and among Action Performance Companies, Inc., and certain subsidiaries and
affiliates, as guarantors, and Bank One, NA. (13)                                                    

39



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##### Table of Contents



|        |  |                                                                                                                                                                                                     
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                     
|Number  |  | Exhibit                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                     
|10.71   |  | Sixth Amendment to Loan and Security Agreement, dated September 23,
2003, by and among Action Performance Companies, Inc., and certain
subsidiaries and affiliates, as guarantors, and Bank One, NA.
|        |  |                                                                                                                                                                                                     
|21      |  | List of Subsidiaries of the Registrant                                                                                                                                                              
|        |  |                                                                                                                                                                                                     
|23.1    |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                               
|        |  |                                                                                                                                                                                                     
|23.2    |  | Statement regarding consent of Arthur Andersen LLP                                                                                                                                                  
|        |  |                                                                                                                                                                                                     
|31.1    |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.                                          
|        |  |                                                                                                                                                                                                     
|31.2    |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.                                          
|        |  |                                                                                                                                                                                                     
|32.1    |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                  
|        |  |                                                                                                                                                                                                     
|32.2    |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                  



---



|(1)  |  | Incorporated by reference to the Registrants Form 10-QSB for the quarter
ended March 31, 1996, as filed with the Securities and Exchange Commission
on May 2, 1996.       
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by reference to the Registrants Registration Statement on
Form SB-2 and amendments thereto (Registration No. 33-57414-LA).                                   
|    
|(3)  |  | Incorporated by reference to the Registrants Form 10-Q for the quarter
ended March 31, 1998, as filed with the Securities and Exchange Commission
on May 15, 1998.        
|    
|(4)  |  | Incorporated by reference to the Registrants Registration Statement on
Form S-8 (Registration No. 333-82879).                                                             
|    
|(5)  |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 2000, as filed with the Securities and Exchange
Commission on December 29, 2000.  
|    
|(6)  |  | Incorporated by reference to the Registrants Form 10-Q for the quarter
ended March 31, 1997, as filed with the Securities and Exchange Commission
on May 15, 1997.        
|    
|(7)  |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 1997, as filed with the Securities and Exchange
Commission on December 22, 1997.  
|    
|(8)  |  | Incorporated by reference to the Registrants Registration Statement on
Form S-8 (Registration No. 333-82879).                                                             
|    
|(9)  |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 1999, as filed with the Securities and Exchange
Commission on December 29, 1999.  
|    
|(10) |  | Incorporated by reference to the Registrants Form 10-Q for the quarter
ended December 31, 2001, as filed with the Securities and Exchange
Commission on February 13, 2002.
|    
|(11) |  | Incorporated by reference to the Registrants Registration Statement on
Form S-8 (Registration No. 333-88114).                                                             
|    
|(12) |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 2002, as filed with the Securities and Exchange
Commission on December 20, 2002.  
|    
|(13) |  | Incorporated by reference to the Registrants Form 8-K dated March 12,
2003, as filed with the Securities and Exchange Commission on March 18,
2003.                       

40



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.       
|                        |  |                                           |  | 
|Date: December 15, 2003 |  | /s/ Fred W. Wagenhals                     |  | 
|                        |  |                                           |  | 
|                        |  | Fred W. Wagenhals, Chairman of the Board, |  | 
|                        |  | President, and Chief Executive Officer    |  | 

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.

|                          |  |                                                 |  |                  
|------------------------- |  | ----------------------------------------------- |  | -----------------
|Signature                 |  | Capacity                                        |  | Date             
|                          |  |                                                 |  |                  
|/s/ Fred W. Wagenhals     |  | Chairman of the Board, President, and Chief     |  | December 15, 2003
|                          |  | Executive Officer (Principal Executive Officer) |  |                  
|Fred W. Wagenhals         |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ R. David Martin       |  | Chief Financial Officer, Secretary, Treasurer,  |  | December 15, 2003
|                          |  | and Director (Principal Financial and           |  |                  
|R. David Martin           |  | Accounting Officer)                             |  |                  
|                          |  |                                                 |  |                  
|/s/ Melodee L. Volosin    |  | Executive Vice President  Sales and Director   |  | December 15, 2003
|                          |  |                                                 |  |                  
|Melodee L. Volosin        |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ John S. Bickford, Sr. |  | Executive Vice President - Strategic Alliances  |  | December 15, 2003
|                          |  | and Director                                    |  |                  
|John S. Bickford, Sr.     |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ Herbert M. Baum       |  | Director                                        |  | December 15, 2003
|                          |  |                                                 |  |                  
|Herbert M. Baum           |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ Edward J. Bauman      |  | Director                                        |  | December 15, 2003
|                          |  |                                                 |  |                  
|Edward J. Bauman          |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ Roy A. Herberger, Jr. |  | Director                                        |  | December 15, 2003
|                          |  |                                                 |  |                  
|Roy A. Herberger, Jr.     |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ Robert L. Matthews    |  | Director                                        |  | December 15, 2003
|                          |  |                                                 |  |                  
|Robert L. Matthews        |  |                                                 |  |                  
|                          |  |                                                 |  |                  
|/s/ Lowell L. Robertson   |  | Director                                        |  | December 15, 2003
|                          |  |                                                 |  |                  
|Lowell L. Robertson       |  |                                                 |  |                  

41



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ACTION PERFORMANCE COMPANIES, INC.
Index to Consolidated Financial Statements and Schedule

|                                                                                                                     |  |      |      | 
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                     |  | Page
|                                                                                                                     |  |     
|Report of Independent Auditors                                                                                       |  |      | F-2  | 
|Report of Independent Public Accountants                                                                             |  |      | F-3  | 
|Consolidated Balance Sheets as of September 30, 2003 and 2002                                                        |  |      | F-4  | 
|Consolidated Statements of Operations and Comprehensive Income for the Years
Ended September 30, 2003, 2002 and 2001 |  |      | F-5  | 
|Consolidated Statements of Shareholders Equity for the Years
Ended September 30, 2003, 2002 and 2001                |  |      | F-6  | 
|Consolidated Statements of Cash Flows for the Years
Ended September 30, 2003, 2002 and 2001                          |  |      | F-7  | 
|Notes to Consolidated Financial Statements                                                                           |  |      | F-8  | 
|Schedule II  Valuation and Qualifying Accounts                                                                      |  |      | F-25 | 

F-1



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Action Performance Companies,
Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Action Performance Companies, Inc. and its subsidiaries at
September 30, 2003 and 2002, and the results of their operations and their
cash flows for each of the two years in the period ended September 30, 2003 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedules
for the years ended September 30, 2003 and 2002, present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Companys management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. The Companys consolidated financial statements as of
September 30, 2001, and for the year then ended, prior to the revision
described in the Goodwill and Other Intangibles Note to the consolidated
financial statements, were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an unqualified
opinion on those financial statements.

As discussed above, the Companys consolidated financial statements as of
September 30, 2001, and for the year then ended, were audited by
independent accountants who have ceased operations. As described in the
Goodwill and Other Intangibles Note, those financial statements have been
revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
which was adopted by the Company as of October 1, 2001. We audited the
transitional disclosures for 2001 included in the Goodwill and Other
Intangibles Note. In our opinion, the transitional disclosures for 2001 in the
Goodwill and Other Intangibles Note are appropriate. However, we were not
engaged to audit, review, or apply any procedures to the 2001 financial
statements of the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 financial statements taken as a whole.

/s/PricewaterhouseCoopers LLP

Phoenix, Arizona
November 3, 2003

F-2



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##### Table of Contents



THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP (ANDERSEN). THIS REPORT HAS NOT BEEN REISSUED BY ANDERSEN AND ANDERSEN DID
NOT CONSENT TO THE INCORPORATION BY REFERENCE OF THIS REPORT (AS INCLUDED IN
THIS FORM 10-K) INTO ANY OF THE COMPANYS REGISTRATION STATEMENTS.

AS DISCUSSED IN THE GOODWILL AND OTHER INTANGIBLES NOTE, THE COMPANY HAS
REVISED ITS FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2001 TO
INCLUDE THE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. THE
ANDERSEN REPORT DOES NOT EXTEND TO THESE CHANGES. THE REVISIONS TO THE 2001
FINANCIAL STATEMENTS RELATED TO THESE TRANSITIONAL DISCLOSURES WERE REPORTED ON
BY PRICEWATERHOUSECOOPERS LLP, AS STATED IN THEIR REPORT APPEARING HEREIN.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Action Performance Companies, Inc.:

We have audited the accompanying consolidated balance sheets of ACTION
PERFORMANCE COMPANIES, INC. (an Arizona corporation) and subsidiaries as of
September 30, 2001 and 2000, and the related consolidated statements of
operations and comprehensive income (loss), shareholders equity and cash flows
for each of the three years in the period ended September 30, 2001. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Action Performance Companies,
Inc. and subsidiaries as of September 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements and schedule is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

/s/Arthur Andersen LLP
Phoenix, Arizona
November 2, 2001

F-3



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##### Table of Contents



ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS

September 30, 2003 and 2002
(in thousands, except per share data)

|                                     |                                                                                          |                             |         |         |         |      |         |         |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------- | --------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | 
|                                     |                                                                                          |                             |         | 2003    |         | 2002
|                                     |                                                                                          |                             |         |         |         |     
|ASSETS                               |                                                                                          |                             |         |         |         |      |         |        
|CURRENT ASSETS:                      |                                                                                          |                             |         |         |         |      |         |        
|                                     | Cash and cash equivalents                                                                |                             | $       | 49,462  |         |      | $       | 69,585  |        
|                                     | Accounts receivable, net of allowance of $3,634 and $2,127                               |                             |         | 69,890  |         |      |         | 61,313  |        
|                                     | Inventories                                                                              |                             |         | 43,232  |         |      |         | 33,467  |        
|                                     | Prepaid royalties                                                                        |                             |         | 6,540   |         |      |         | 6,938   |        
|                                     | Deferred income taxes                                                                    |                             |         | 5,291   |         |      |         | 3,155   |        
|                                     | Prepaid expenses and other                                                               |                             |         | 3,161   |         |      |         | 2,397   |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | Total current assets        |         |         | 177,576 |      |         |         | 176,855 | 
|LONG-TERM ASSETS:                    |                                                                                          |                             |         |         |         |      |         |        
|                                     | Property and equipment, net                                                              |                             |         | 62,951  |         |      |         | 46,378  |        
|                                     | Goodwill                                                                                 |                             |         | 87,448  |         |      |         | 84,514  |        
|                                     | Licenses and other Intangibles, net                                                      |                             |         | 44,426  |         |      |         | 24,000  |        
|                                     | Other                                                                                    |                             |         | 2,357   |         |      |         | 6,169   |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | Total long-term assets      |         |         | 197,182 |      |         |         | 161,061 | 
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | $                           | 374,758 |         |         | $    | 337,916 |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                          |                             |         |         |         |      |         |        
|CURRENT LIABILITIES:                 |                                                                                          |                             |         |         |         |      |         |        
|                                     | Accounts payable                                                                         |                             | $       | 36,734  |         |      | $       | 28,958  |        
|                                     | Accrued royalties                                                                        |                             |         | 11,762  |         |      |         | 15,146  |        
|                                     | Accrued expenses                                                                         |                             |         | 11,764  |         |      |         | 10,545  |        
|                                     | Taxes payable                                                                            |                             |         | 3,156   |         |      |         | 4,265   |        
|                                     | Current portion of long-term debt                                                        |                             |         | 567     |         |      |         | 423     |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | Total current liabilities   |         |         | 63,983  |      |         |         | 59,337  | 
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|LONG-TERM LIABILITIES:               |                                                                                          |                             |         |         |         |      |         |        
|                                     | Deferred income taxes                                                                    |                             |         | 10,890  |         |      |         | 4,554   |        
|                                     | 43⁄4% convertible subordinated notes                                                       |                             |         | 29,935  |         |      |         | 38,935  |        
|                                     | Other long-term debt                                                                     |                             |         | 4,490   |         |      |         | 1,425   |        
|                                     | Other                                                                                    |                             |         | 926     |         |      |         | 1,142   |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | Total long-term liabilities |         |         | 46,241  |      |         |         | 46,056  | 
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|MINORITY INTERESTS                   |                                                                                          |                             | 2,941   |         |         |      | 3,135   |        
|COMMITMENTS AND CONTINGENCIES        |                                                                                          |                             |         |         |         |      |         |        
|SHAREHOLDERS EQUITY:                |                                                                                          |                             |         |         |         |      |         |        
|                                     | Preferred stock, no par value, 5,000 shares authorized,
no shares issued and outstanding |                             |         |        |         |      |         |        |        
|                                     | Common stock, $.01 par value, 62,500 shares authorized;
18,464 and 17,948 shares issued  |                             |         | 185     |         |      |         | 179     |        
|                                     | Additional paid-in capital                                                               |                             |         | 157,301 |         |      |         | 146,545 |        
|                                     | Treasury stock, at cost, 190 and 80 shares                                               |                             |         | (3,999  | )       |      |         | (1,975  | )      
|                                     | Accumulated other comprehensive loss                                                     |                             |         | (2,488  | )       |      |         | (4,606  | )      
|                                     | Retained earnings                                                                        |                             |         | 110,594 |         |      |         | 89,245  |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | Total shareholders equity  |         |         | 261,593 |      |         |         | 229,388 | 
|                                     |                                                                                          |                             |         |         |         |      |         |         |        
|                                     |                                                                                          | $                           | 374,758 |         |         | $    | 337,916 |        
|                                     |                                                                                          |                             |         |         |         |      |         |         |        

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

F-4



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ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Years Ended September 30, 2003, 2002 and 2001
(in thousands, except per share data)

|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |        |        | 
|------------------------------------- | ---------------------------------------------- | ------------------------ | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                      |                                                |                          |         | 2003   |        | 2002 |         | 2001  
|                                      |                                                |                          |         |        |        |      |         |       
|Net sales                             |                                                | $                        | 370,643 |        |        | $    | 406,902 |        |        | $ | 323,352 |       
|Cost of sales                         |                                                |                          | 245,879 |        |        |      | 250,810 |        |        |   | 208,375 |       
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|Gross profit                          |                                                |                          | 124,764 |        |        |      | 156,092 |        |        |   | 114,977 |       
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|Operating expenses:                   |                                                |                          |         |        |        |      |         |        |        |   |         |       
|                                      | Selling, general and administrative            |                          |         | 83,783 |        |      |         | 77,214 |        |   |         | 69,456 |       
|                                      | Amortization of goodwill and trademark         |                          |         |       |        |      |         |       |        |   |         | 4,097  |       
|                                      | Amortization of licenses and other intangibles |                          |         | 3,416  |        |      |         | 2,797  |        |   |         | 2,060  |       
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|                                      |                                                | Total operating expenses |         |        | 87,199 |      |         |        | 80,011 |   |         |        | 75,613 | 
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|Income from operations                |                                                |                          | 37,565  |        |        |      | 76,081  |        |        |   | 39,364  |       
|Interest expense                      |                                                |                          | (2,085  | )      |        |      | (3,029  | )      |        |   | (5,102  | )     
|Gain (loss) on extinguishment of debt |                                                |                          | 34      |        |        |      | (1,361  | )      |        |   | 14,219  |       
|Foreign exchange gains                |                                                |                          | 3,704   |        |        |      | 1,500   |        |        |   |        |       
|Other income (expense)                |                                                |                          | (1,492  | )      |        |      | (638    | )      |        |   | (1,040  | )     
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|Income before income taxes            |                                                |                          | 37,726  |        |        |      | 72,553  |        |        |   | 47,441  |       
|Income taxes                          |                                                |                          | 13,499  |        |        |      | 27,606  |        |        |   | 15,505  |       
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|Net income                            |                                                |                          | 24,227  |        |        |      | 44,947  |        |        |   | 31,936  |       
|Currency translation                  |                                                |                          | 2,118   |        |        |      | 1,019   |        |        |   | 1,014   |       
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|Comprehensive income                  |                                                | $                        | 26,345  |        |        | $    | 45,966  |        |        | $ | 32,950  |       
|                                      |                                                |                          |         |        |        |      |         |        |        |   |         |       
|EARNINGS PER COMMON SHARE:            |                                                |                          |         |        |        |      |         |        |        |   |         |       
|                                      | Basic-                                         |                          | $       | 1.36   |        |      | $       | 2.56   |        |   | $       | 1.95   |       
|                                      | Diluted-                                       |                          | $       | 1.33   |        |      | $       | 2.41   |        |   | $       | 1.90   |       

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

F-5



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##### Table of Contents



ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Years Ended September 30, 2003, 2002 and 2001
(in thousands)

|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  |             |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------ | ------ | ---------- |  | -------- | --- | ------ |  | ------------- | ------- | -------- |  | ----- | ------ | - |  | ----------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  | Accumulated |        |   |  |   |         |   |  |  
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  | Other       |        |   |  |   |         |   |  |  
|                                                          |  | Common Stock |        | Additional |  |          |     |        |  | Comprehensive |         |          |  |       |        |   |  |            
|                                                          |  |              |        | Paid-in    |  | Treasury |     | Income |  | Retained      |         |          |  |      
|                                                          |  | Shares       |        | Amount     |  | Capital  |     | Stock  |  | (Loss)        |         | Earnings |  | Total
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |      
|BALANCE, SEPTEMBER 30, 2000                               |  |              | 16,964 |            |  | $        | 170 |        |  | $             | 102,813 |          |  | $     | (6,520 | ) |  | $           | (6,639 | ) |  | $ | 12,894  |   |  | $ | 102,718 |  
|Common stock purchases, 380 shares                        |  |              |       |            |  |          |    |        |  |               |        |          |  |       | (1,560 | ) |  |             |       |   |  |   |        |   |  |   | (1,560  | )
|Treasury stock issuances for note
repurchases, 829 shares |  |              |       |            |  |          |    |        |  |               | 12,628  |          |  |       | 6,859  |   |  |             |       |   |  |   |        |   |  |   | 19,487  |  
|Stock option exercises                                    |  |              | 329    |            |  |          | 3   |        |  |               | 2,986   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 2,989   |  
|Stock option tax benefits                                 |  |              |       |            |  |          |    |        |  |               | 1,396   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 1,396   |  
|Warrant issuances for services and
licenses               |  |              |       |            |  |          |    |        |  |               | 1,641   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 1,641   |  
|Other                                                     |  |              | 20     |            |  |          |    |        |  |               | 205     |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 205     |  
|Currency translation                                      |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             | 1,014  |   |  |   |        |   |  |   | 1,014   |  
|Net income                                                |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             |       |   |  |   | 31,936  |   |  |   | 31,936  |  
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  |             |        |   |  |   |         |   |  |   |         |  
|BALANCE, SEPTEMBER 30, 2001                               |  |              | 17,313 |            |  |          | 173 |        |  |               | 121,669 |          |  |       | (1,221 | ) |  |             | (5,625 | ) |  |   | 44,830  |   |  |   | 159,826 |  
|Cash dividends declared                                   |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             |       |   |  |   | (532    | ) |  |   | (532    | )
|Common stock purchases, 83 shares                         |  |              |       |            |  |          |    |        |  |               |        |          |  |       | (2,038 | ) |  |             |       |   |  |   |        |   |  |   | (2,038  | )
|Treasury stock issuances for note
repurchases, 145 shares |  |              |       |            |  |          |    |        |  |               | 5,638   |          |  |       | 1,284  |   |  |             |       |   |  |   |        |   |  |   | 6,922   |  
|Common stock issuances for note
repurchases               |  |              | 95     |            |  |          | 2   |        |  |               | 4,514   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 4,516   |  
|Stock option exercises                                    |  |              | 437    |            |  |          | 4   |        |  |               | 6,465   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 6,469   |  
|Stock option tax benefits                                 |  |              |       |            |  |          |    |        |  |               | 2,864   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 2,864   |  
|Warrant issuances for services and
licenses               |  |              |       |            |  |          |    |        |  |               | 2,903   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 2,903   |  
|Shares issued for business acquisitions                   |  |              | 84     |            |  |          |    |        |  |               | 2,343   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 2,343   |  
|Other                                                     |  |              | 19     |            |  |          |    |        |  |               | 149     |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 149     |  
|Currency translation                                      |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             | 1,019  |   |  |   |        |   |  |   | 1,019   |  
|Net income                                                |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             |       |   |  |   | 44,947  |   |  |   | 44,947  |  
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  |             |        |   |  |   |         |   |  |   |         |  
|BALANCE, SEPTEMBER 30, 2002                               |  |              | 17,948 |            |  |          | 179 |        |  |               | 146,545 |          |  |       | (1,975 | ) |  |             | (4,606 | ) |  |   | 89,245  |   |  |   | 229,388 |  
|Cash dividends declared                                   |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             |       |   |  |   | (2,878  | ) |  |   | (2,878  | )
|Common stock purchases, 110 shares                        |  |              |       |            |  |          |    |        |  |               |        |          |  |       | (2,024 | ) |  |             |       |   |  |   |        |   |  |   | (2,024  | )
|Stock option exercises                                    |  |              | 140    |            |  |          | 2   |        |  |               | 819     |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 821     |  
|Stock option tax benefits                                 |  |              |       |            |  |          |    |        |  |               | 623     |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 623     |  
|Shares issued for business acquisitions                   |  |              | 373    |            |  |          | 4   |        |  |               | 9,264   |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 9,268   |  
|Other                                                     |  |              | 3      |            |  |          |    |        |  |               | 50      |          |  |       |       |   |  |             |       |   |  |   |        |   |  |   | 50      |  
|Currency translation                                      |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             | 2,118  |   |  |   |        |   |  |   | 2,118   |  
|Net income                                                |  |              |       |            |  |          |    |        |  |               |        |          |  |       |       |   |  |             |       |   |  |   | 24,227  |   |  |   | 24,227  |  
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  |             |        |   |  |   |         |   |  |   |         |  
|BALANCE, SEPTEMBER 30, 2003                               |  |              | 18,464 |            |  | $        | 185 |        |  | $             | 157,301 |          |  | $     | (3,999 | ) |  | $           | (2,488 | ) |  | $ | 110,594 |   |  | $ | 261,593 |  
|                                                          |  |              |        |            |  |          |     |        |  |               |         |          |  |       |        |   |  |             |        |   |  |   |         |   |  |   |         |  

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

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ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended September 30, 2003, 2002 and 2001
(in thousands)

|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |         |         |         |  
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ------- | ------- | ------ | ------- | ------- | ------- | ------- | ------- | -
|                                                                                  |                                                                            |                                       |                                       |         | 2003   |        | 2002    |         | 2001  
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|Net income                                                                        |                                                                            | $                                     | 24,227                                |         |        | $      | 44,947  |         |        | $       | 31,936  |        
|Adjustments to reconcile net income to net cash
provided by operating activities- |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|                                                                                  |                                                                            | Deferred income taxes                 |                                       |         | 3,354  |        |         |         | (133   | )       |         |         | 8,560   |        
|                                                                                  |                                                                            | Depreciation and amortization         |                                       |         | 26,153 |        |         |         | 23,722 |         |         |         | 28,366  |        
|                                                                                  |                                                                            | (Gain) loss on extinguishment of debt |                                       |         | (34    | )      |         |         | 1,361  |         |         |         | (14,219 | )      
|                                                                                  |                                                                            | Stock option tax benefits             |                                       |         | 623    |        |         |         | 2,864  |         |         |         | 1,396   |        
|                                                                                  |                                                                            | Other                                 |                                       |         | 982    |        |         |         | 1,976  |         |         |         | 2,285   |        
|                                                                                  | Change in assets and liabilities, net of businesses
acquired and disposed: |                                       |                                       |         |        |        |         |         |        |         |         |         |        
|                                                                                  |                                                                            |                                       | Accounts receivable, net              |         |        | (1,865 | )       |         |        | (18,518 | )       |         |         | (19,347 | )
|                                                                                  |                                                                            |                                       | Inventories                           |         |        | (363   | )       |         |        | (4,522  | )       |         |         | 5,935   |  
|                                                                                  |                                                                            |                                       | Prepaid royalties                     |         |        | 15     |         |         |        | 3,285   |         |         |         | (2,960  | )
|                                                                                  |                                                                            |                                       | Other assets                          |         |        | 2,890  |         |         |        | (2,116  | )       |         |         | 699     |  
|                                                                                  |                                                                            |                                       | Accounts payable and accrued expenses |         |        | (6,117 | )       |         |        | 5,869   |         |         |         | 1,413   |  
|                                                                                  |                                                                            |                                       | Accrued royalties                     |         |        | (4,241 | )       |         |        | (1,655  | )       |         |         | 7,069   |  
|                                                                                  |                                                                            |                                       | Taxes payable and receivable, net     |         |        | (1,851 | )       |         |        | (3,366  | )       |         |         | 22,337  |  
|                                                                                  |                                                                            |                                       | Other liabilities                     |         |        | (4,285 | )       |         |        | (989    | )       |         |         | (581    | )
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|                                                                                  | Net cash provided by operating activities                                  |                                       |                                       | 39,488  |        |        |         | 52,725  |        |         |         | 72,889  |        
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|Property and equipment purchases                                                  |                                                                            |                                       | (33,366                               | )       |        |        | (25,800 | )       |        |         | (16,580 | )      
|Property and equipment sales proceeds                                             |                                                                            |                                       | 245                                   |         |        |        | 261     |         |        |         | 60      |        
|(Acquisitions) dispositions of businesses and intangibles,
net of costs           |                                                                            |                                       | (15,795                               | )       |        |        | (19,006 | )       |        |         | 2,513   |        
|Other                                                                             |                                                                            |                                       |                                      |         |        |        | (238    | )       |        |         |        |        
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|                                                                                  | Net cash used in investing activities                                      |                                       |                                       | (48,916 | )      |        |         | (44,783 | )      |         |         | (14,007 | )      
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|Long-term debt borrowings  German mortgage                                       |                                                                            |                                       | 3,001                                 |         |        |        |        |         |        |         |        |        
|Long-term debt repayments                                                         |                                                                            |                                       | (9,429                                | )       |        |        | (6,397  | )       |        |         | (17,111 | )      
|Stock option and other exercise proceeds                                          |                                                                            |                                       | 871                                   |         |        |        | 6,618   |         |        |         | 3,019   |        
|Common stock purchases for treasury                                               |                                                                            |                                       | (2,024                                | )       |        |        | (1,975  | )       |        |         | (1,482  | )      
|Dividends paid - common shareholders                                              |                                                                            |                                       | (2,497                                | )       |        |        |        |         |        |         |        |        
|Dividends paid - minority interest shareholders                                   |                                                                            |                                       | (1,256                                | )       |        |        | (1,353  | )       |        |         | (1,676  | )      
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|                                                                                  | Net cash used in financing activities                                      |                                       |                                       | (11,334 | )      |        |         | (3,107  | )      |         |         | (17,250 | )      
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|Effect of exchange rate changes on cash and cash
Equivalents                      |                                                                            |                                       | 639                                   |         |        |        | 236     |         |        |         | 124     |        
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|Net change in cash and cash equivalents                                           |                                                                            |                                       | (20,123                               | )       |        |        | 5,071   |         |        |         | 41,756  |        
|Cash and cash equivalents, beginning of year                                      |                                                                            |                                       | 69,585                                |         |        |        | 64,514  |         |        |         | 22,758  |        
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        
|Cash and cash equivalents, end of year                                            |                                                                            | $                                     | 49,462                                |         |        | $      | 69,585  |         |        | $       | 64,514  |        
|                                                                                  |                                                                            |                                       |                                       |         |        |        |         |         |        |         |         |        

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

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##### Table of Contents



ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE COMPANY

Operations

Action Performance Companies, Inc., an Arizona corporation, and its U.S. and
German subsidiaries (Action) designs and sells licensed motorsports collectible
and consumer products. Our products include die-cast scaled replicas of
motorsports vehicles, apparel (including t-shirts, hats, and jackets), seasonal
gifts, leather jackets, terry products, golf gifts and memorabilia. In the
United States, we are a licensee of, among others, the National Association for
Stock Car Auto Racing (NASCAR), Indy Racing League (IRL), World of Outlaws and
National Hot Rod Association (NHRA). In Germany, we merchandise Formula One
and high-end auto manufacturer die-cast replica vehicles. We closed our
Australian and England subsidiaries (collectively Goodsports) effective
September 30, 2001. See Acquisitions and Dispositions for further
discussion.

Our products are marketed in the United States, Germany and worldwide through:



| |  |  | Distributor networks which target specialty retailers;                        
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | Mobile trackside stores which target motorsports event attendees;             
|
| |  |  | Mass-market retailers;                                                        
|
| |  |  | A members only collectors catalog club, managed by QVC;                      
|
| |  |  | Television programming on QVC;                                                
|
| |  |  | Internet sites including goracing.com, an Internet site maintained by QVC; and
|
| |  |  | Other distribution channels.                                                  

We work closely with drivers, teams, owners, track operators, and sponsors, to
design and merchandise products. We outsource production of the die-cast and
most of the apparel and memorabilia. We retain ownership and control over
designs and tooling, however, and maintain close working relationships with
outsourced manufacturers to help assure quality product.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Action
Performance Companies, Inc. and its wholly owned and majority owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. Our fiscal year ends September 30. Certain
reclassifications have been made in prior period financial statements to
conform to the current presentation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and disclosure of contingent assets and liabilities. Estimates
are used for, but not limited to, the accounting for doubtful accounts,
inventory values, depreciation, amortization, prepaid royalty allowances, taxes
and contingencies. Actual results could differ from those estimates.

F-8



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Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, title
passes to the customer, the fee is fixed or determinable and collection is
probable. Most distributor sales are recognized when product is shipped to a
distributor because title to the product passes to the distributors at
shipment. Sales to mass-market retailers are recognized when title to product
passes to the retailer, either at time of shipment to the retailer or receipt
by the retailer. Under terms of our consignment agreement with QVC,
collectors club catalog sales are recognized when QVC ships product to the
consumer. We recognize trackside sales when the consumer purchases product at
the point of sale. A portion of the product sold through television
programming is consignment product, for which sales are recognized when QVC
ships the product to the consumer. Internet and other sales are generally
recognized when delivered to the consumer.

Inventory

Inventories are stated at cost (first-in, first-out method or average cost) or
estimated net realizable value if lower. The cost of purchased inventory
includes the cost of the purchased product and freight in. Cost of sales also
includes freight out.

Licenses and Royalties

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

Personal Services

Amounts due under personal service agreements for driver appearance fees and
similar matters, are expensed to selling, general and administrative over the
term during which the services are provided.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and all highly liquid investments with
original maturities of three months or less.

Property and Equipment

Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which range up to 25 years. Depreciation of tooling and other production assets
is included in cost of sales. All other depreciation is included in selling,
general and administrative. Maintenance and repairs are charged to expense as
incurred. The costs of renewals and betterments that materially extend the
useful lives of assets or increase their productivity are capitalized.

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Long-Lived Assets

We periodically evaluate long-lived assets used in operations for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be fully recoverable. Determination of recoverability is based on the
sum of the expected long-term undiscounted cash flows compared to the carrying
amount of the long-lived assets being evaluated.

Goodwill and Other Intangibles

Goodwill represents the cost in excess of the fair value of net assets acquired
in business combinations. Licenses and other intangibles, which have
definitive lives, are amortized using the straight-line method over their
contractual lives or their estimated useful life if shorter. Goodwill and
intangibles with indefinite lives are subject to an impairment test, based on
fair value, at least annually. We evaluate goodwill and other intangibles for
impairment annually, and when impairment indicators arise, in accordance with
SFAS 142. For goodwill, we first compare the fair value of a reporting unit
with its carrying amount, including goodwill. If the carrying amount of a
reporting unit exceeds the fair value of a reporting unit, additional tests
would be used to measure the amount of impairment loss, if any. We use a
present value technique to measure reporting unit fair value. If the carrying
amount of any other intangible asset exceeds its fair value, we would recognize
an impairment loss for the difference between fair value and the carrying
amount.

We have completed impairment evaluations of goodwill and of other intangibles,
which include licenses and trademarks and other intangibles, in accordance with
SFAS 142. The reporting units for SFAS 142 are domestic die-cast, domestic
apparel and memorabilia, foreign die-cast, and corporate and other, which are
also our reporting segments. Goodwill and trademarks, which have an indefinite
life, have been allocated to those reporting units as indicated below in
Segment Information. We have made no adjustments to income (loss) to date in
connection with the evaluations.

Currency Translation

Financial information relating to foreign operations is reported in accordance
with SFAS No. 52, Foreign Currency Translation. The financial statements of
non-U.S. subsidiaries are measured using the local currency as the functional
currency. Assets and liabilities of these non-U.S. subsidiaries are translated
at exchange rates in effect as of each balance sheet date, and related revenues
and expenses are translated at average exchange rates in effect during the
period. The resulting currency translation adjustments are recorded directly
to shareholders equity as a component of other comprehensive income (loss).

Stock-Based Compensation

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

|                         |  |         |      |         |  |         |      |   |  |  |      |  
|------------------------ |  | ------- | ---- | ------- |  | ------- | ---- | - |  |  | ---- | -
|                         |  | 2003    |      | 2002    |  | 2001   
|                         |  |         |      |         |  |        
|Volatility               |  |         | 54.1 | %       |  |         | 57.2 | % |  |  | 81.0 | %
|Risk-free interest rate  |  |         | 2.1  | %       |  |         | 2.6  | % |  |  | 4.5  | %
|Dividend rate            |  |         | 0.7  | %       |  |         | 0.7  | % |  |  | 0.0  | %
|Expected life of options |  | 3 years |      | 3 years |  | 3 years

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

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|             |             |  |      |        |      |  |      |        |  |  |   |        | 
|------------ | ----------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|             |             |  | 2003 |        | 2002 |  | 2001
|             |             |  |      |        |      |  |     
|Net Income:  |             |  |      |        |      |  |      |        |  |  |   |       
|             | As Reported |  | $    | 24,227 |      |  | $    | 44,947 |  |  | $ | 31,936 | 
|             | Pro Forma   |  | $    | 20,560 |      |  | $    | 41,822 |  |  | $ | 29,228 | 
|Basic EPS:   |             |  |      |        |      |  |      |        |  |  |   |       
|             | As Reported |  | $    | 1.36   |      |  | $    | 2.56   |  |  | $ | 1.95   | 
|             | Pro Forma   |  | $    | 1.15   |      |  | $    | 2.38   |  |  | $ | 1.78   | 
|Diluted EPS: |             |  |      |        |      |  |      |        |  |  |   |       
|             | As Reported |  | $    | 1.33   |      |  | $    | 2.41   |  |  | $ | 1.90   | 
|             | Pro Forma   |  | $    | 1.13   |      |  | $    | 2.24   |  |  | $ | 1.74   | 

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 is effective for certain
contracts entered into or modified by the Company after June 30, 2003. The
adoption of SFAS No. 149 had no impact on our financial position, results of
operations, or cash flows.

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

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

ACQUISITIONS AND DISPOSITIONS

In September 2003, we acquired Funline Merchandise Co.; Inc. (Funline), a
distributor of non-NASCAR die-cast vehicles. The initial purchase price of
$14.8 million in cash, including payment of $3.8 million of existing debt, $9.3
million in common stock, and $0.1 million in accrued transaction costs was
allocated as follows (in thousands):

|                                           |  |   |        |  
|------------------------------------------ |  | - | ------ | -
|Accounts receivable, net                   |  | $ | 6,068  |  
|Inventories                                |  |   | 8,839  |  
|Prepaid royalties                          |  |   | 423    |  
|Prepaid expenses and other                 |  |   | 100    |  
|Property and equipment (primarily tooling) |  |   | 1,712  |  
|Trademark                                  |  |   | 19,513 |  
|Non-compete and other intangibles          |  |   | 1,695  |  
|Accounts payable                           |  |   | (9,791 | )
|Taxes payable                              |  |   | (640   | )
|Accrued royalties                          |  |   | (857   | )
|Accrued expenses                           |  |   | (2,842 | )
|                                           |  |   |        |  
|Purchase price                             |  | $ | 24,220 |  
|                                           |  |   |        |  

Under the terms of the agreement, if Funline achieves certain revenue targets
we pay additional consideration as follows for the periods indicated:

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|                          |                        |  |                       |               |                   |  |                   |               |         |  |               |               |        
|------------------------- | ---------------------- |  | --------------------- | ------------- | ----------------- |  | ----------------- | ------------- | ------- |  | ------------- | ------------- | -------
|                          |                        |  | September 26, 2003 to |               | Year Ended        |  | Year Ended       
|                          |                        |  | December 31, 2003     |               | December 31, 2004 |  | December 31, 2005
|                          |                        |  |                       |               |                   |  |                  
|Target revenue            |                        |  | $12.0 - $17.0         | million       |                   |  | $35.0 - $45.0     | million       |         |  | $45.0 - $55.0 | million      
|Additional Consideration- |                        |  |                       |               |                   |  |                   |               |         |  |               |              
|                          | Cash                   |  |                       | $1.0 - $2.0   | million           |  |                   | $1.0 - $2.0   | million |  |               | $1.0 - $2.0   | million
|                          | Shares of common stock |  |                       | 23,310-46,620 | shares            |  |                   | 23,310-46,620 | shares  |  |               | 23,310-46,620 | shares 

The additional consideration for each of the periods will be added to the
Funline purchase price if and when the financial targets are achieved. Net
assets were assigned to the domestic die-cast segment.

In September 2002, we acquired a producer of premium leather jackets and other
apparel, which operates as Jeff Hamilton Collection, Inc. A portion of the
product is decorated with team logos under licenses with many of the major
sports leagues. The initial purchase price of $4.5 million in cash, including
payment of certain existing liabilities, and $1.0 million in common stock was
allocated $1.0 million to tangible net assets, primarily inventory, $4.3
million to trademark and $0.2 million to other intangible assets consisting of
backlog, licenses and non-contractual customer relationships. Under the terms
of the agreement, we pay additional consideration if Jeff Hamilton achieves net
income before income tax targets in 2003 and 2004. As of September 30, 2003,
Jeff Hamilton achieved the net income before income tax target for 2003 and
additional consideration of $1.0 million in cash was accrued at September 30,
2003, and allocated to the trademark. The additional consideration for 2004 of
$0.7 million cash will be added to the purchase price if and when the financial
targets are achieved. Net assets were assigned to the domestic apparel and
memorabilia segment.

In July 2002, we acquired terry and golf product businesses, which operates as
McArthur Towel and Sports, Inc. McArthur distributes terry and golf products to
specialty retailers and institutions. A portion of the product is decorated
with team logos under licenses with many of the major sports leagues and
college teams. The purchase price of $4.6 million in cash was allocated $2.3
million to tangible net assets, primarily inventory, $1.9 million to goodwill
(which is expected to be deductible for tax purposes), and $0.4 million to
other intangible assets, consisting of backlog, patent, licenses and
non-contractual customer relationships. Net assets were assigned to the
domestic apparel and memorabilia segment.

In June 2002, we acquired Trevco Trading Corp. Trevco markets gifts and
ornaments, which are produced overseas, to mass retailers. The initial cash
purchase price of $5.5 million was allocated $0.5 million to tangible net
assets, $2.3 million to goodwill (which is expected to be deductible for tax
purposes) and $2.7 million to other intangible assets, consisting of backlog,
non-contractual customer relationships and a five-year non-compete agreement.
The intangible assets are being amortized over lives ranging from three months
to five years. Under the terms of the merger agreement, additional
consideration was payable if Trevco achieved revenue and operating income
targets for the five months ended September 30, 2002. As of September 30,
2002, Trevco achieved its revenue and operating targets and an additional $1.0
million in cash and $1.3 million in stock were accrued to goodwill as
additional purchase price. Under the terms of the merger agreement, we may
issue a second round of additional consideration, either 50 thousand or 75
thousand shares of common stock, if Trevco achieves revenue and operating
income targets in 2004. The additional consideration will be added to the
purchase price if and when the financial targets are achieved. Trevcos sales
fall primarily in our fourth quarter. Net assets were assigned to the domestic
apparel and memorabilia segment.

In September 2001, the board of directors approved the liquidation of
Goodsports Holdings Pty Ltd, a subsidiary and marketer of licensed Formula One
products, operating primarily in England. In October 2001, liquidation
proceedings began in England. We received no proceeds from the liquidation.
In 2001, we accrued $0.9 million, pre-tax, for severance, legal, accounting and
other costs related to the liquidation. In 1999, we had acquired Goodsports
for consideration consisting of assumption of certain liabilities. Historical
operating results for Goodsports are summarized in Segment Information as the
foreign apparel and memorabilia segment.

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Effective May 2001, we acquired Hasbros Winners Circle brand name and related
die-cast inventory and tooling. We allocated $0.5 million of the initial $1.3
million purchase price to tooling and inventory, and the remainder to the
trademark and a five-year non-compete agreement. As additional consideration
for the trademark, we agreed to pay 3% of related product sales, excluding
apparel, to Hasbro, quarterly, for five years. The additional consideration
increased the trademark by $0.7 million in 2003, $1.1 million in 2002 and $0.4
million in 2001. The trademark has an indefinite life and, accordingly, will
not be amortized under SFAS 142. We began designing, manufacturing and
marketing Winners Circle die-cast racecar toy replicas for the mass-retail
market in May 2001. Winners Circle net assets were assigned to the domestic
die-cast segment. In 2002, we began selling mass-market apparel under the
Winners Circle brand.

Pro forma financial information has not been presented as the acquisitions in
each of the years 2003, 2002, and 2001, both individually and in the aggregate,
are not material to our financial position or results of operations.

SEGMENT INFORMATION

Reportable segments are based on divisions operating geographically, domestic
and abroad, and specializing in either die-cast or apparel and memorabilia.
The domestic die-cast operations are based in Phoenix, Arizona and Los Angeles,
California areas. The domestic apparel and memorabilia operation is based in
Charlotte, North Carolina with a mass-market retail distribution center in
Atlanta, Georgia and warehouse and distribution facilities in Charlotte, North
Carolina, Baraboo, Wisconsin and Los Angeles, California. Trackside operations
are included in the domestic apparel and memorabilia segment. The foreign
die-cast operation is based in Aachen, Germany. The foreign apparel and
memorabilia operation (Goodsports) was based in England. Goodsports was closed
effective September 30, 2001.

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

|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |        | 
|--------- | -------------------------------- | ------------------------------------------- | - | -------- | ------- | -------- | - | ------------ | - | ------------ | - | ------------ | ------ | --- | - | ------- | ------ |  | - | ------ | ------ | 
|          |                                  |                                             |   |          |         |          |   | Inter-       |   | Depreciation |   | Operating    |        |     |   |        
|          |                                  |                                             |   | External |         | segment  |   | and          |   | Income       |   | Net Capital 
|          |                                  |                                             |   | Revenues |         | Revenues |   | Amortization |   | (Loss)       |   | Expenditures
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |             
|          |                                  |                                             |   |          |         |          |   |              |   |              |   | (a)          |        | (a) |   |         |        | 
|2003:     |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |       
|          | Domestic die-cast                |                                             | $ | 148,825  |         |          | $ | 7,645        |   |              | $ | 11,034       |        |     | $ | 36,534  |        |  | $ | 16,608 |       
|          | Domestic apparel and memorabilia |                                             |   | 184,206  |         |          |   | 391          |   |              |   | 3,189        |        |     |   | 24,382  |        |  |   | 3,556  |       
|          | Foreign die-cast                 |                                             |   | 34,631   |         |          |   |             |   |              |   | 6,505        |        |     |   | 5,885   |        |  |   | 9,025  |       
|          | Corporate and other              |                                             |   | 2,981    |         |          |   | 2,018        |   |              |   | 5,425        |        |     |   | (29,171 | )      |  |   | 3,932  |       
|          | Eliminations                     |                                             |   |         |         |          |   | (10,054      | ) |              |   |             |        |     |   | (65     | )      |  |   |       |       
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |       
|          |                                  | Total per consolidated
financial statements |   | $        | 370,643 |          |   | $            |  |              |   | $            | 26,153 |     |   | $       | 37,565 |  |   | $      | 33,121 | 
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |       
|2002 (d): |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |       
|          | Domestic die-cast                |                                             | $ | 209,481  |         |          | $ | 11,582       |   |              | $ | 10,536       |        |     | $ | 70,590  |        |  | $ | 7,704  |       
|          | Domestic apparel and memorabilia |                                             |   | 164,819  |         |          |   | 7            |   |              |   | 2,769        |        |     |   | 26,911  |        |  |   | 3,724  |       
|          | Foreign die-cast                 |                                             |   | 29,433   |         |          |   |             |   |              |   | 4,494        |        |     |   | 5,515   |        |  |   | 9,696  |       
|          | Corporate and other              |                                             |   | 3,169    |         |          |   | 1,553        |   |              |   | 5,923        |        |     |   | (26,726 | )      |  |   | 4,415  |       
|          | Eliminations                     |                                             |   |         |         |          |   | (13,142      | ) |              |   |             |        |     |   | (209    | )      |  |   |       |       
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |       
|          |                                  | Total per consolidated
financial statements |   | $        | 406,902 |          |   | $            |  |              |   | $            | 23,722 |     |   | $       | 76,081 |  |   | $      | 25,539 | 
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |       
|2001 (d): |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |       
|          | Domestic die-cast                |                                             | $ | 135,571  |         |          | $ | 9,972        |   |              | $ | 13,568       |        |     | $ | 36,274  |        |  | $ | 8,670  |       
|          | Domestic apparel and memorabilia |                                             |   | 142,954  |         |          |   |             |   |              |   | 5,028        |        |     |   | 23,181  |        |  |   | 386    |       
|          | Foreign die-cast                 |                                             |   | 28,793   |         |          |   | 122          |   |              |   | 3,789        |        |     |   | 6,385   |        |  |   | 6,692  |       
|          | Foreign apparel                  |                                             |   | 11,055   |         |          |   | 190          |   |              |   | 263          |        |     |   | (2,591  | )      |  |   | 257    |       
|          | Corporate and other              |                                             |   | 4,979    |         |          |   | 1,126        |   |              |   | 5,718        |        |     |   | (23,059 | )      |  |   | 515    |       
|          | Eliminations                     |                                             |   |         |         |          |   | (11,410      | ) |              |   |             |        |     |   | (826    | )      |  |   |       |       
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |       
|          |                                  | Total per consolidated
financial statements |   | $        | 323,352 |          |   | $            |  |              |   | $            | 28,366 |     |   | $       | 39,364 |  |   | $      | 16,520 | 
|          |                                  |                                             |   |          |         |          |   |              |   |              |   |              |        |     |   |         |        |  |   |        |       

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|                                 |                                             |   |                     |         |                         |   |           |         |           |   |        |         |  |   |        |        | 
|-------------------------------- | ------------------------------------------- | - | ------------------- | ------- | ----------------------- | - | --------- | ------- | --------- | - | ------ | ------- |  | - | ------ | ------ | 
|                                 |                                             |   | Identifiable Assets |         | Goodwill and Trademarks
|                                 |                                             |   |                     |         |                        
|                                 |                                             |   | Sept. 30,           |         | Sept. 30,               |   | Sept. 30, |         | Sept. 30,
|                                 |                                             |   | 2003                |         | 2002                    |   | 2003      |         | 2002     
|                                 |                                             |   |                     |         |                         |   |           |         |          
|Domestic die-cast (b)            |                                             | $ | 98,847              |         |                         | $ | 60,744    |         |           | $ | 33,953 |         |  | $ | 13,769 |       
|Domestic apparel and
memorabilia |                                             |   | 131,845             |         |                         |   | 122,775   |         |           |   | 62,840 |         |  |   | 61,841 |       
|Foreign die-cast                 |                                             |   | 58,619              |         |                         |   | 47,660    |         |           |   | 18,232 |         |  |   | 15,334 |       
|Corporate and other (c)          |                                             |   | 93,387              |         |                         |   | 114,369   |         |           |   |       |         |  |   |       |       
|Eliminations                     |                                             |   | (7,940              | )       |                         |   | (7,632    | )       |           |   |       |         |  |   |       |       
|                                 |                                             |   |                     |         |                         |   |           |         |           |   |        |         |  |   |        |       
|                                 | Total per consolidated
financial statements |   | $                   | 374,758 |                         |   | $         | 337,916 |           |   | $      | 115,025 |  |   | $      | 90,944 | 
|                                 |                                             |   |                     |         |                         |   |           |         |           |   |        |         |  |   |        |       



|(a) |  | Goodwill and trademark ceased amortizing October 1, 2001, with the
adoption of SFAS 142. Deprecation and amortization and operating income
(loss), included goodwill and trademark amortization totaling $4.1 million
($0.7 million for domestic die-cast, $2.9 million for domestic apparel and
memorabilia, and $0.5 million for foreign die-cast) for 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Domestic die-cast identifiable assets include the Winners Circle
trademark, purchased from Hasbro in May 2001. As additional consideration
we pay 3% of the related product sales to Hasbro, quarterly through May
2006. The additional consideration is added to the cost of the trademark
quarterly.                                                       
|   
|(c) |  | Corporate and other assets includes $45.4 million in cash and cash
equivalents at September 30, 2003, and $66.3 million in cash and cash
equivalents at September 30, 2002.                                                                                                                                                                                   
|   
|(d) |  | Certain prior period amounts have been reclassified to conform to the
current year presentation.                                                                                                                                                                                                                                                              

INVENTORIES

Inventories consist of the following at September 30 (in thousands):

|                                                                                           |  |      |        |      |  |   |        | 
|------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                           |  | 2003 |        | 2002
|                                                                                           |  |      |        |     
|Apparel blank stock and other raw materials                                                |  | $    | 5,202  |      |  | $ | 4,304  | 
|Die-cast collectibles (including $8.5 million of
Funline die-cast acquired September 2003) |  |      | 18,816 |      |  |   | 11,176 | 
|Finished apparel                                                                           |  |      | 19,214 |      |  |   | 17,987 | 
|                                                                                           |  |      |        |      |  |   |        | 
|                                                                                           |  | $    | 43,232 |      |  | $ | 33,467 | 
|                                                                                           |  |      |        |      |  |   |        | 

We depend upon third parties to manufacture all die-cast product and most
apparel and memorabilia. Most significantly, one manufacturer produces over
80% of die-cast product. Any difficulty experienced by this manufacturer in
producing and delivering the die-cast collectible product could have an adverse
effect on our results of operations.

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##### Table of Contents



PROPERTY AND EQUIPMENT

Property and equipment consists of the following at September 30 (in
thousands):

|                                    |  |      |          |      |  |                       |         |   |  |            |  | 
|----------------------------------- |  | ---- | -------- | ---- |  | --------------------- | ------- | - |  | ---------- |  | 
|                                    |  | 2003 |          | 2002 |  | Estimated Useful Life
|                                    |  |      |          |      |  |                      
|Land                                |  | $    | 708      |      |  | $                     | 596     |   |  |            |  | 
|Building and leasehold improvements |  |      | 17,530   |      |  |                       | 12,342  |   |  | 2-25 years
|Tooling                             |  |      | 128,867  |      |  |                       | 96,051  |   |  | 1-3 years 
|Equipment, software and other       |  |      | 27,537   |      |  |                       | 22,815  |   |  | 3-5 years 
|Trackside trailers and vehicles     |  |      | 11,019   |      |  |                       | 9,916   |   |  | 5 years   
|                                    |  |      |          |      |  |                       |         |   |  |            |  | 
|                                    |  |      | 185,661  |      |  |                       | 141,720 |   |  |            |  | 
|Less  accumulated depreciation     |  |      | (122,710 | )    |  |                       | (95,342 | ) |  |            |  | 
|                                    |  |      |          |      |  |                       |         |   |  |            |  | 
|                                    |  | $    | 62,951   |      |  | $                     | 46,378  |   |  |            |  | 
|                                    |  |      |          |      |  |                       |         |   |  |            |  | 

Cost of sales includes tooling depreciation totalling $17.2 million, $14.8
million and $15.8 million in 2003, 2002 and 2001.

GOODWILL AND OTHER INTANGIBLES

Goodwill and trademarks with indefinite lives ceased amortizing effective
October 1, 2001, with the adoption of SFAS 142. Intangibles with definite
lives consist principally of licenses and other intangibles and will continue
amortizing under SFAS 142. Goodwill amortization was $4.1 million or $2.8
million, net of tax, for 2001. Excluding the impact of goodwill amortization,
net income for 2001, would have been the following (in thousands, except per
share data):

|                           |          |   |        |      | 
|-------------------------- | -------- | - | ------ | ---- | 
|                           |          |   | 2001  
|                           |          |   |       
|Net income                 |          | $ | 34,700 |     
|Earnings per common share: |          |   |        |     
|                           | Basic-   |   | $      | 2.12 | 
|                           | Diluted- |   | $      | 2.06 | 

The estimated aggregate intangibles amortization expense expected as of
September 30, 2003, follows (in thousands):

|           |       |   |       |        | 
|---------- | ----- | - | ----- | ------ | 
|Year       |       |   |       |       
|2004       |       | $ | 3,737 |       
|2005       |       |   | 3,451 |       
|2006       |       |   | 3,217 |       
|2007       |       |   | 2,617 |       
|2008       |       |   | 1,086 |       
|Thereafter |       |   | 2,741 |       
|           |       |   |       |       
|           | Total |   | $     | 16,849 | 
|           |       |   |       |       

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Goodwill and other intangibles consists of the following at September 30 (in
thousands):

|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  |  |  | 
|---------------------------------- | ------------------------ | ---------------------- | ------- | ------- | ------- | --------- |  | ------------ | ------ | ------ | ------- | --------- | - | ------------ |  |  |  | 
|                                   |                          |                        |         |         |         |           |  | Weighted     |        |        |         |           |   | Weighted    
|                                   |                          |                        |         |         |         |           |  | Average      |        |        |         |           |   | Average     
|                                   |                          |                        |         |         |         |           |  | Amortization |        |        |         |           |   | Amortization
|                                   |                          |                        |         | 2003    |         | Period    |  | 2002         |        | Period
|                                   |                          |                        |         |         |         |           |  |              |        |       
|Intangibles with Indefinite Lives: |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   | Carrying amount-         |                        |         |         |         |           |  |              |        |        |         |           |   |              |  |  | 
|                                   |                          | Goodwill               |         | $       | 104,580 |           |  | NA           |        | $      | 101,212 |           |   | NA          
|                                   |                          | Trademarks             |         |         | 27,597  |           |  | NA           |        |        | 6,451   |           |   | NA          
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   |                          |                        | 132,177 |         |         |           |  |              |        |        | 107,663 |           |   |              |  | 
|                                   | Accumulated amortization |                        |         | (17,152 | )       |           |  |              |        |        |         | (16,719   | ) |              |  |  | 
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   |                          |                        | 115,025 |         |         |           |  |              |        |        | 90,944  |           |   |              |  | 
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|Intangibles with Definite Lives:   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   | Carrying amount          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  |  | 
|                                   |                          | Licenses               |         |         | 23,590  |           |  | 9.2 years    |        |        | 23,470  |           |   | 9.1 years   
|                                   |                          | Customer relationships |         |         | 2,359   |           |  | 4.5 years    |        |        | 2,239   |           |   | 4.6 years   
|                                   |                          | Non-compete agreement  |         |         | 1,635   |           |  | 3.4 years    |        |        | 360     |           |   | 5.0 years   
|                                   |                          | Patent                 |         |         | 68      |           |  | 4.0 years    |        |        | 68      |           |   | 4.0 years   
|                                   |                          | Backlog                |         |         |        |           |  | NA           |        |        | 539     |           |   | 0.3 years   
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   |                          |                        | 27,652  |         |         | 8.4 years |  |              | 26,676 |        |         | 8.5 years
|                                   | Accumulated amortization |                        |         | (10,803 | )       |           |  |              |        |        |         | (9,106    | ) |              |  |  | 
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   |                          |                        | 16,849  |         |         |           |  |              |        |        | 17,570  |           |   |              |  | 
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 
|                                   |                          | $                      | 131,874 |         |         |           |  |              |        | $      | 108,514 |           |   |              |  | 
|                                   |                          |                        |         |         |         |           |  |              |        |        |         |           |   |              |  | 

Increases to goodwill as a result of acquisitions aggregated $0 in 2003 and
$6.5 million in 2002.

DEBT AND FINANCING

The 43⁄4% convertible subordinated 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 generally unsecured obligations of the Company. The indenture governing
the Notes does not limit or prohibit additional indebtedness, including senior
indebtedness. We may, at our option, redeem the Notes in whole or in part at
any time, at redemption prices set forth in the indenture. The Notes mature
April 1, 2005. Upon the occurrence of a change in control or a termination
of trading, as defined in the indenture, each holder of the Notes will have
the right to require us to repurchase notes, in whole or in part, at face value
plus accrued and unpaid interest. The related offering expenses and initial
purchase discount of 3% are included in other long-term assets and are being
amortized into interest expense using the effective interest rate method.

During 2003 and 2002, we repurchased Notes with a face value of $9.0 million
and $16.0 million, respectively. In 2003, the notes were repurchased using
$8.9 million in cash. In 2002, the notes were repurchased using $5.7 million
in cash, 145 thousand shares from treasury and 95 thousand newly issued shares
with a market value of $11.4 million. The difference between the treasury
shares $1.3 million cost and $6.9 million market value increased additional
paid in capital.

During 2001, we also paid $4.0 million in cash to settle a long-term
obligation, extending through 2007, and valued at $4.8 million. The resulting
$0.8 million pre-tax gain is included in gain (loss) on extinguishment of debt.
The settlement also eliminated future contingent royalty payments for
trademark usage through 2007. Other long-term debt of $0.5 million was also
extinguished early, at no gain or loss in 2001.

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Other long-term debt consists of the following at September 30 (in thousands):

|                                                               |  |      |       |      |  |   |       |  
|-------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                                               |  | 2003 |       | 2002
|                                                               |  |      |       |     
|Notes payable, secured by property and equipment, 6.0% to 8.4% |  |      | 5,057 |      |  | $ | 1,848 |  
|Less current portion                                           |  |      | (567  | )    |  |   | (423  | )
|                                                               |  |      |       |      |  |   |       |  
|                                                               |  | $    | 4,490 |      |  | $ | 1,425 |  
|                                                               |  |      |       |      |  |   |       |  

The aggregate future maturities of the
43⁄4% convertible subordinated notes
(the Notes) and other long-term debt at September 30, 2003, follows (in
thousands):

|           |       |       |        |           |  |   |             |       | 
|---------- | ----- | ----- | ------ | --------- |  | - | ----------- | ----- | 
|           |       |       |        |           |  |   | Other Long-
|Year       |       | Notes |        | Term Debt
|           |       |       |        |          
|2004       |       | $     |       |           |  | $ | 567         |      
|2005       |       |       | 29,935 |           |  |   | 316         |      
|2006       |       |       |       |           |  |   | 338         |      
|2007       |       |       |       |           |  |   | 361         |      
|2008       |       |       |       |           |  |   | 385         |      
|Thereafter |       |       |       |           |  |   | 3,090       |      
|           |       |       |        |           |  |   |             |      
|           | Total |       | $      | 29,935    |  |   | $           | 5,057 | 
|           |       |       |        |           |  |   |             |      

At September 30, 2003, the carrying value of the Notes approximated the Notes
fair value, based on current market prices, and the carrying amounts of other
long-term debt approximated the fair value of those instruments, based on
current market prices for similar debt instruments.

During 2003, as a result of acquisitions, we entered into amendments to the
loan and security agreement with Bank One that increased the revolving credit
facility, modified certain covenants, and extended the term of the agreement
through March 31, 2005. The amended agreement provides for a revolving credit
facility of $35 million. The agreement provides for borrowings of up to $20
million to support letters of credit, to the extent not utilized for
borrowings. Prior to the amendments, the revolving credit facility was $20
million. Outstanding letters of credit totaled $11.0 million at September 30,
2003.

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

Under the agreement, as amended, we are required to meet certain financial
tests principally related to ratios of debt coverage, total liabilities to
tangible net worth, and funded indebtedness to EBIDA (earnings before interest,
depreciation, and amortization). We were in compliance with those covenants at
September 30, 2003. We have never borrowed under the agreement, originally
dated September 2000.

CREDIT RISK AND FINANCIAL INSTRUMENTS

Sales to our top five customers accounted for 22.5%, 24.8% and 16.0% of sales
in 2003, 2002 and 2001, respectively. Sales to our largest customer, Wal-Mart
Stores, Inc. (Wal-Mart), were approximately 11.1% of revenue in 2003. Accounts
receivable from Wal-Mart at September 30, 2003, including $2.2 million of
receivables acquired in the Funline acquisition, totaled $11.0 million. Sales
to our third largest customer, Kmart Corporation, and its divisions (Kmart),
were approximately 3.6% of revenue in 2003. Accounts receivable from Kmart at
September 30, 2003, including $0.4 million of receivables acquired in the
Funline acquisition, totaled $2.4 million, and $0.5 million of those
receivables were supported by letters of credit issued by K-mart divisions not
included in its bankruptcy filing. Other assets, long-term, at September 30,
2003, included $0.3 million representing the estimated value of the
distribution receivable from the Kmart Corporation bankruptcy.

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Cash equivalents consists of $29.7 million of investments in overnight reverse
repurchase agreements and $10.3 million invested in money market funds at
September 30, 2003. Repurchase agreements are collateralized at 102% of
securities provided as collateral by the counterparty bank. The bank provides
securities with a market value at least equal to the funds held by the bank
under the underlying repurchase agreement.

We currently use a derivative as part of our risk management strategy related
to a portion of our exposure to currency fluctuations on intercompany advances
to our German subsidiary, denominated in dollars, for which the euro exchange
rate gain or loss is included in operations. These advances totaled $18.4
million at September 30, 2003. In June 2003, we entered into a foreign
currency forward contract designed to partially offset the effect changes in
the euro exchange rate have on earnings related to these advances. This
forward contract does not qualify for hedge accounting and is recorded on the
balance sheet at fair value. Changes in fair value are recorded each period in
other income (expense). At September 30, 2003, this forward with a notional
value of 5.0 million euros ($5.8 million as of September 30, 2003), remained
unsettled. The notional amount does not quantify risk or represent our
liability, but is used in calculation of cash settlements under the contract.
During 2003, $129 thousand of net unrealized losses on the contract were
recorded in other income (expense). We realized a $47 thousand loss on the
contract upon settlement at maturity in November 2003.

In November 2003, we entered into another forward with a notional value of 5.0
million euros, and a six-month maturity. We are exposed to credit risk on this
contract in the event of non-performance by the counterparty. However, the
counterparty to this transaction is a major financial institution we deem
credit worthy. We do not anticipate non-performance.

SHAREHOLDERS EQUITY

As of September 30, 2003, options on 337,556 shares of common stock were
available for grant to key employees, consultants, independent contractors and
non-employee directors under the 1998 Non-Qualified Stock Option Plan and the
2000 Stock Option Plan, as approved by shareholders. The stock option plans
allow awards in the form of incentive stock options, non-statutory stock, stock
appreciation rights and shares of common stock. In October 2001, the board of
directors amended the 2000 Stock Option Plan and increased the number of shares
issuable under the plan from 7% of issued common shares not to exceed 2 million
shares, to 13% of issued common shares not to exceed 3 million shares. The
shareholders approved this amendment. The board also increased the number of
shares reserved for issuance under the 2000 Stock Option Plan, from 2.0 million
shares to 3.0 million shares. At September 30, 2003, the shares reserved for
issuance under the expired 1993 Stock Option Plan, the 1998 Non-Qualified Stock
Option Plan and the 2000 Stock Option Plan totaled 2.6 million shares.

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Stock option plan activity and data follows:

|                                                           |  |        |           |          |  |          |       |          |  |        |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|---------------------------------------------------------- |  | ------ | --------- | -------- |  | -------- | ----- | -------- |  | ------ | --------- | -------- |  | - | ----- |  |  | -------- | --------- | - |  | - | ----- | 
|                                                           |  | 2003   |           | 2002     |  | 2001    
|                                                           |  |        |           |          |  |         
|                                                           |  |        |           |          |  | Weighted |       |          |  |        |           | Weighted |  |   |       |  |  | Weighted
|                                                           |  | Number |           | Average  |  | Number   |       | Average  |  | Number |           | Average 
|                                                           |  | of     |           | Exercise |  | of       |       | Exercise |  | of     |           | Exercise
|                                                           |  | Shares |           | Price    |  | Shares   |       | Price    |  | Shares |           | Price   
|                                                           |  |        |           |          |  |          |       |          |  |        |           |         
|Outstanding at beginning

of year                          |  |        | 1,780,716 |          |  | $        | 20.58 |          |  |        | 1,764,029 |          |  | $ | 13.50 |  |  |          | 1,279,775 |   |  | $ | 16.27 | 
|Granted                                                    |  |        | 744,500   |          |  |          | 18.83 |          |  |        | 507,000   |          |  |   | 39.18 |  |  |          | 1,063,000 |   |  |   | 9.91  | 
|Exercised                                                  |  |        | (129,986  | )        |  |          | 5.78  |          |  |        | (437,641  | )        |  |   | 14.76 |  |  |          | (329,232  | ) |  |   | 9.07  | 
|Canceled                                                   |  |        | (172,557  | )        |  |          | 20.62 |          |  |        | (52,672   | )        |  |   | 10.87 |  |  |          | (249,514  | ) |  |   | 18.25 | 
|                                                           |  |        |           |          |  |          |       |          |  |        |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Outstanding at end of year                                 |  |        | 2,222,673 |          |  | $        | 20.86 |          |  |        | 1,780,716 |          |  | $ | 20.58 |  |  |          | 1,764,029 |   |  | $ | 13.50 | 
|                                                           |  |        |           |          |  |          |       |          |  |        |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Outstanding exercisable
at end of year                     |  |        | 1,004,808 |          |  | $        | 19.28 |          |  |        | 626,355   |          |  | $ | 18.18 |  |  |          | 519,016   |   |  | $ | 21.30 | 
|Options available for
grant at end of year                 |  |        | 337,556   |          |  |          |       |          |  |        | 913,189   |          |  |   |       |  |  |          | 258,487   |   |  |   |       | 
|Weighted average fair
value of options granted
in the year |  |        |           |          |  | $        | 6.81  |          |  |        |           |          |  | $ | 15.23 |  |  |          |           |   |  | $ | 5.38  | 

Options outstanding and exercisable by price range as of September 30, 2003,
are as follows:

|                    |  |                     |           |                     |  |           |     |             |  |          |       |  |  |          |           |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ------------------- |  | --------- | --- | ----------- |  | -------- | ----- |  |  | -------- | --------- |  |  | - | ----- | 
|                    |  | Options Outstanding |           | Options Exercisable
|                    |  |                     |           |                    
|                    |  |                     |           |                     |  | Weighted  |     |             |  |          |       |  |  |          |           |  |  |  
|                    |  |                     |           |                     |  | Average   |     | Weighted    |  |          |       |  |  | Weighted
|                    |  |                     |           |                     |  | Remaining |     | Average     |  |          |       |  |  | Average 
|Range of            |  | Options             |           | Contractual         |  | Exercise  |     | Options     |  | Exercise
|Exercise Prices     |  | Outstanding         |           | Life                |  | Price     |     | Exercisable |  | Price   
|                    |  |                     |           |                     |  |           |     |             |  |         
|$  2.38   
$  8.77 |  |                     | 482,443   |                     |  |           | 7.3 |             |  | $        | 4.93  |  |  |          | 311,602   |  |  | $ | 5.25  | 
|8.78        17.54  |  |                     | 97,227    |                     |  |           | 5.5 |             |  |          | 9.74  |  |  |          | 93,893    |  |  |   | 9.53  | 
|17.55      26.30   |  |                     | 944,503   |                     |  |           | 8.4 |             |  |          | 19.10 |  |  |          | 294,158   |  |  |   | 21.16 | 
|26.31      35.07   |  |                     | 221,500   |                     |  |           | 5.7 |             |  |          | 26.92 |  |  |          | 118,165   |  |  |   | 26.75 | 
|35.08      43.84   |  |                     | 477,000   |                     |  |           | 8.1 |             |  |          | 39.89 |  |  |          | 186,990   |  |  |   | 39.89 | 
|                    |  |                     |           |                     |  |           |     |             |  |          |       |  |  |          |           |  |  |   |       | 
|2.38      43.84    |  |                     | 2,222,673 |                     |  |           | 7.7 |             |  | $        | 20.86 |  |  |          | 1,004,808 |  |  | $ | 19.28 | 
|                    |  |                     |           |                     |  |           |     |             |  |          |       |  |  |          |           |  |  |   |       | 

In 2002, we issued warrants to purchase a total of 200 thousand shares of
common stock in connection with license agreements, at an average exercise
price of $28.06 per share. The warrants had a fair market value of $2.2
million as estimated by the Black-Scholes option pricing method (average
assumed volatility 48.51%, risk-free rate 3.99% and term of 5.0 years).
Issuance resulted in increases in additional paid-in-capital and intangible
assets.

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A total of 1.8 million shares of our common stock are reserved for sale to
employees under the Action Performance Companies, Inc. 1999 Employee Stock
Purchase Plan. The plan allows eligible employees to purchase shares of common
stock at the lesser of 85% of the fair value of such shares at the beginning or
end of each semi-annual offering period. Purchases are limited to 15% of an
employees eligible compensation, subject to a maximum limitation. Share
purchases occur semi-annually and have been less than 25 thousand shares in
2003, 2002 and 2001.

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

In May 2002, at a special meeting of shareholders, the shareholders approved an
increase in the number of authorized common shares from 25.0 million shares to
62.5 million shares.

EMPLOYEE BENEFITS

Our defined contribution plan qualifies as a cash or deferred profit sharing
plan under Sections 401(a) and 401(k) of the Internal Revenue Code and is
available to substantially all domestic employees. Participating employees may
defer all or a portion of their pre-tax compensation, subject to certain
limitations. Effective October 1, 2003, the plan provides for employer
matching contributions, which fully match each dollar contributed by an
employee, up to a maximum of 3% of the employees defined compensation and 50%
of each dollar contributed by an employee between 3% and 5%, of the employees
defined compensation. In 2003, 2002 and 2001, the plan had provided for an
employer matching contribution of 50% of each dollar contributed by the
employee, up to a maximum of 2% of the employees defined compensation. The
plan also provides for an annual employer profit sharing contribution in such
amounts as the Board of Directors may determine. In 2003, 2002 and 2001,
employer-matching contributions expensed totaled $188 thousand, $158 thousand,
and $157 thousand.

EARNINGS PER COMMON SHARE

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

|                                                                                                        |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                                        |  | 2003 |        | 2002 |  | 2001
|                                                                                                        |  |      |        |      |  |     
|NUMERATOR:                                                                                              |  |      |        |      |  |      |        |  |  |   |        | 
|Basic  net income                                                                                      |  | $    | 24,227 |      |  | $    | 44,947 |  |  | $ | 31,936 | 
|Effect of dilutive 43⁄4% convertible subordinated
notes, tax affected interest                            |  |      |       |      |  |      | 1,497  |  |  |   |       | 
|                                                                                                        |  |      |        |      |  |      |        |  |  |   |        | 
|Diluted  adjusted net income before assumed conversions                                                |  | $    | 24,227 |      |  | $    | 46,444 |  |  | $ | 31,936 | 
|                                                                                                        |  |      |        |      |  |      |        |  |  |   |        | 
|DENOMINATOR:                                                                                            |  |      |        |      |  |      |        |  |  |   |        | 
|Basic  weighted average shares                                                                         |  |      | 17,856 |      |  |      | 17,565 |  |  |   | 16,373 | 
|Effect of dilutive stock options and warrants                                                           |  |      | 403    |      |  |      | 721    |  |  |   | 476    | 
|Effect of dilutive 43⁄4% convertible subordinated notes                                                   |  |      |       |      |  |      | 945    |  |  |   |       | 
|                                                                                                        |  |      |        |      |  |      |        |  |  |   |        | 
|Diluted  adjusted weighted average shares and assumed
conversion of 43⁄4% convertible subordinated notes |  |      | 18,259 |      |  |      | 19,231 |  |  |   | 16,849 | 
|                                                                                                        |  |      |        |      |  |      |        |  |  |   |        | 

The impact of certain options and warrants outstanding for the purchase of 1.3
million, 0.5 million and 0.9 million shares of common stock at average prices
of $30.45, $39.90 and $22.50 per share, were not included in the calculation of
diluted EPS for 2003, 2002 and 2001, because to do so would be antidilutive.
The options and warrants had exercise prices greater than the average market
price of the common stock in 2003, but could potentially dilute EPS in the
future. The impacts of outstanding 43⁄4% convertible subordinated notes were
not included in the calculation of diluted EPS for 2003 and 2001, because to do
so also would have been antidilutive. The notes could potentially dilute EPS
in the future.

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INCOME TAXES

We provide for income taxes under SFAS No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are recorded
based on the differences between the financial statement and tax bases of
assets and liabilities and the tax rates in effect when these differences are
expected to reverse.

A reconciliation of the federal income tax rate to the Companys effective rate
follows:

|                                    |  |      |    |      |  |      |    |   |  |  |    |  
|----------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                    |  | 2003 |    | 2002 |  | 2001
|                                    |  |      |    |      |  |     
|Statutory federal rate              |  |      | 35 | %    |  |      | 35 | % |  |  | 35 | %
|State taxes, net of federal benefit |  |      | 2  |      |  |      | 2  |   |  |  | 2  |  
|Foreign incremental rate            |  |      | 2  |      |  |      | 1  |   |  |  |   |  
|Valuation allowances and other      |  |      | (3 | )    |  |      |   |   |  |  |   |  
|US benefit of Goodsports closure    |  |      |   |      |  |      |   |   |  |  | (4 | )
|                                    |  |      |    |      |  |      |    |   |  |  |    |  
|                                    |  |      | 36 | %    |  |      | 38 | % |  |  | 33 | %
|                                    |  |      |    |      |  |      |    |   |  |  |    |  

Income taxes, consists of the following (in thousands):

|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 
|----------------------------------------- | ------- | - | ------ | ----- | ---- | - | ------ | ------ | - | - | ------ | ----- | 
|                                          |         |   | 2003   |       | 2002 |   | 2001  
|                                          |         |   |        |       |      |   |       
|Current:                                  |         |   |        |       |      |   |        |        |   |   |        |      
|                                          | Federal |   | $      | 8,050 |      |   | $      | 24,440 |   |   | $      | 9,857 | 
|                                          | State   |   |        | 265   |      |   |        | 2,371  |   |   |        | 409   | 
|                                          | Foreign |   |        | 1,830 |      |   |        | 928    |   |   |        | 1,228 | 
|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 
|                                          |         |   | 10,145 |       |      |   | 27,739 |        |   |   | 11,494 |      
|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 
|Deferred:                                 |         |   |        |       |      |   |        |        |   |   |        |      
|                                          | Federal |   |        | 1,842 |      |   |        | (1,196 | ) |   |        | 6,970 | 
|                                          | State   |   |        | 256   |      |   |        | 14     |   |   |        | 194   | 
|                                          | Foreign |   |        | 1,256 |      |   |        | 1,049  |   |   |        | 1,396 | 
|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 
|                                          |         |   | 3,354  |       |      |   | (133   | )      |   |   | 8,560  |      
|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 
|Change in estimated income tax
receivable |         |   |       |       |      |   |       |        |   |   | (4,549 | )    
|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 
|Income taxes                              |         | $ | 13,499 |       |      | $ | 27,606 |        |   | $ | 15,505 |      
|                                          |         |   |        |       |      |   |        |        |   |   |        |       | 

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The components of deferred taxes at September 30 follow (in thousands):

|                             |           |                                 |         |      |        |      |         |   |        |  
|---------------------------- | --------- | ------------------------------- | ------- | ---- | ------ | ---- | ------- | - | ------ | -
|                             |           |                                 |         | 2003 |        | 2002
|                             |           |                                 |         |      |        |     
|Deferred Tax Assets:         |           |                                 |         |      |        |      |         |  
|                             | Domestic- |                                 |         |      |        |      |         |   |       
|                             |           | Inventory cost capitalization   |         | $    | 1,043  |      |         | $ | 1,451  |  
|                             |           | Reserves and accruals           |         |      | 6,815  |      |         |   | 5,773  |  
|                             |           | Deferred compensation           |         |      | 314    |      |         |   | 277    |  
|                             |           | Intangible asset capitalization |         |      | 704    |      |         |   | 881    |  
|                             |           | Capital loss carryforwards      |         |      | 745    |      |         |   | 754    |  
|                             |           | State net operating losses      |         |      | 1,172  |      |         |   | 1,362  |  
|                             |           | Unrealized loss on investments  |         |      | 21     |      |         |   |       |  
|                             |           | Valuation allowance             |         |      | (1,972 | )    |         |   | (2,013 | )
|                             | Foreign-  |                                 |         |      |        |      |         |   |       
|                             |           | Reserves and accruals           |         |      |       |      |         |   | 263    |  
|                             |           | Net operating losses            |         |      | 1,451  |      |         |   | 1,439  |  
|                             |           | Valuation allowance             |         |      | (1,401 | )    |         |   | (834   | )
|                             |           |                                 |         |      |        |      |         |   |        |  
|Net deferred tax assets      |           |                                 | 8,892   |      |        |      | 9,353   |  
|                             |           |                                 |         |      |        |      |         |   |        |  
|Deferred Tax Liabilities:    |           |                                 |         |      |        |      |         |  
|                             | Domestic- |                                 |         |      |        |      |         |   |       
|                             |           | Accelerated tax depreciation    |         |      | (755   | )    |         |   | (1,121 | )
|                             |           | Accelerated tax amortization    |         |      | (6,540 | )    |         |   | (5,317 | )
|                             |           | Reserves and accruals           |         |      | (1,824 | )    |         |   | (184   | )
|                             |           | Unrealized gain on investments  |         |      |       |      |         |   | (34    | )
|                             | Foreign-  |                                 |         |      |        |      |         |   |       
|                             |           | Accelerated tax depreciation    |         |      | (1,250 | )    |         |   | (1,071 | )
|                             |           | Accelerated tax amortization    |         |      | (4,046 | )    |         |   | (3,014 | )
|                             |           | Reserves and accruals           |         |      | (76    | )    |         |   | (11    | )
|                             |           |                                 |         |      |        |      |         |   |        |  
|Net deferred tax liabilities |           |                                 | (14,491 | )    |        |      | (10,752 | )
|                             |           |                                 |         |      |        |      |         |   |        |  
|Net deferred tax liabilities |           | $                               | (5,599  | )    |        | $    | (1,399  | )
|                             |           |                                 |         |      |        |      |         |   |        |  

SFAS 109 requires the reduction of deferred tax assets by a valuation allowance
if, based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax asset may not be realized. Valuation
allowances as of September 30, 2003, include $1.4 million to reserve foreign
tax assets for net operating losses generated by German subsidiaries, $1.2
million to fully reserve tax assets for state net operating losses expected to
expire before realized and $0.8 million to fully reserve capital loss
carryforwards. During 2002, we reduced valuation allowances by
$0.4 million because 2002 taxable income was sufficient to
realize state and foreign net operating loss tax assets. Valuation
allowances as of September 30, 2002, include $0.8 million
to fully reserve a foreign tax asset for net operating losses
generated by a German subsidiary, $1.2 million to fully reserve
tax assets for state net operating losses expected to expire before
realized and $0.8 million to fully reserve capital loss
carryforwards. Valuation allowances as of September 30, 2001, include
$1.2 million to fully reserve a foreign tax asset for net operating
losses generated by a German subsidiary, $1.3 million to fully
reserve tax assets for state net operating losses expected to expire
before realized and $0.8 million to fully reserve capital loss
carryforwards. Those capital loss carryforwards of $2.0 million expire $1.0
million in 2005 and $1.0 million in 2006.

Prior to May 2002, undistributed earnings were deemed permanently reinvested.
Beginning in May 2002, U.S. federal income taxes have been provided on
undistributed earnings of German subsidiaries.

The 2003 income tax provision includes credits of $1.4 million reflecting
adjustments of prior tax rates and the release of valuation allowances.

F-22



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##### Table of Contents



Our U.S. income tax returns for 1998 through 2000 have been examined by the
Internal Revenue Service. Certain adjustments, principally
related to timing differences as to when expenses are deductable, have been recorded in these financial
statements.

SUPPLEMENTAL CASH FLOW INFORMATION

The supplemental cash flow disclosures and non-cash transactions follow (in
thousands):

|                          |                                            |  |      |        |      |  |      |        |  |  |   |         |  
|------------------------- | ------------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | -
|                          |                                            |  | 2003 |        | 2002 |  | 2001
|                          |                                            |  |      |        |      |  |     
|Supplemental disclosures: |                                            |  |      |        |      |  |      |        |  |  |   |        
|                          | Interest paid                              |  | $    | 2,199  |      |  | $    | 2,705  |  |  | $ | 5,222   |  
|                          | Income taxes paid (refunded), net          |  |      | 11,420 |      |  |      | 27,815 |  |  |   | (17,032 | )
|Non-cash transactions:    |                                            |  |      |        |      |  |      |        |  |  |   |        
|                          | Common stock issued in acquisitions        |  |      | 9,268  |      |  |      | 2,343  |  |  |   | 175     |  
|                          | Warrants issued in acquisitions            |  |      |       |      |  |      |       |  |  |   | 241     |  
|                          | Warrants issued for licenses               |  |      |       |      |  |      | 2,903  |  |  |   | 1,399   |  
|                          | Licenses contributed for minority interest |  |      |       |      |  |      |       |  |  |   | 173     |  
|                          | Shares issued to repurchase debt           |  |      |       |      |  |      | 10,153 |  |  |   | 12,628  |  
|                          | Change in accrued dividends                |  |      | (381   | )    |  |      | 533    |  |  |   |        |  

COMMITMENTS AND CONTINGENCIES

Aggregate future minimum guaranteed royalty payments and personal service
agreement payments are as follows as of September 30, 2003 (in thousands):

|           |  |         |        |         |  |          |       | 
|---------- |  | ------- | ------ | ------- |  | -------- | ----- | 
|           |  |         |        |         |  | Personal
|Year       |  | Royalty |        | Service
|           |  |         |        |        
|2004       |  | $       | 20,327 |         |  | $        | 1,681 | 
|2005       |  |         | 20,589 |         |  |          | 1,383 | 
|2006       |  |         | 12,508 |         |  |          | 707   | 
|2007       |  |         | 7,103  |         |  |          | 244   | 
|2008       |  |         | 4,830  |         |  |          |      | 
|Thereafter |  |         | 24,950 |         |  |          |      | 
|           |  |         |        |         |  |          |       | 
|Total      |  | $       | 90,307 |         |  | $        | 4,015 | 
|           |  |         |        |         |  |          |       | 

Royalty expense under licenses, including guaranteed minimums, were $58.4
million, $69.7 million and $48.1 million for 2003, 2002 and 2001.

Our license agreements and distributor agreements generally contain provisions
under which we indemnify and hold harmless licensors and distributors of our
products from losses connected with the design, manufacture or promotion of
products. We carry no reserves for such claims and have not experienced any
losses related to the design, manufacture or promotion of our products in the
past three years. We are generally indemnified under our manufacturing
agreements for such losses connected with the manufacture of products. We also
maintain general liability and product liability insurance to cover such losses
and have had no related activity under those insurance contracts in the last
three years.

F-23



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##### Table of Contents



Aggregate future payments and receipts under noncancellable operating leases
and subleases are as follows as of September 30, 2003 (in thousands):

|           |  |          |        |          |  |   |       | 
|---------- |  | -------- | ------ | -------- |  | - | ----- | 
|           |  | Lease    |        | Sublease
|Year       |  | Payments |        | Receipts
|           |  |          |        |         
|2004       |  | $        | 4,811  |          |  | $ | 384   | 
|2005       |  |          | 4,423  |          |  |   | 384   | 
|2006       |  |          | 3,890  |          |  |   | 384   | 
|2007       |  |          | 3,423  |          |  |   | 352   | 
|2008       |  |          | 2,508  |          |  |   |      | 
|Thereafter |  |          | 11,937 |          |  |   |      | 
|           |  |          |        |          |  |   |       | 
|Total      |  | $        | 30,992 |          |  | $ | 1,504 | 
|           |  |          |        |          |  |   |       | 

Rent expense recognized for noncancellable operating leases, net of sublease
income, totaled $4.1 million, $2.1 million, and $2.7 million for 2003, 2002 and
2001.

One of our sublessees fell in arrears on lease payments during 2002. In fiscal
2002, we reserved $3.0 million, representing our then current estimate of the
total potential loss under the building sublease agreements. In August 2003,
we moved our corporate headquarters to this building from our previous
corporate headquarters, which is also a leased building. We currently estimate
that the $0.9 million reserve remaining at September 30, 2003, will be adequate
to cover lease payments on the previous headquarters building until sublet.

Commitments at September 30, 2003, were approximately $1 million for property
and equipment and $11 million of outstanding letters of credit.

We entered into a contractual agreement providing severance benefits to our
chairman in the event of a potential change of ownership or termination of
employment. Commitments under this arrangement totaled approximately $1.8
million at September 30, 2003.

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

RELATED PARTY TRANSACTIONS

In September 2002, we sold a building to an independent third party, which had
been originally purchased from our chairman in 1999 for $2.1 million. This
sale resulted in a $0.4 million loss.

SUBSEQUENT EVENTS

On October 30, 2003 a lawsuit was filed against us in the U.S. District Court
for the District of Delaware claiming we underpaid certain trackside expenses.
We intend to vigorously defend the claims assessed in the lawsuit. We do not
believe that the resolution of this matter will have a material adverse effect
on our consolidated financial position or results of operations.

F-24



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##### Table of Contents



Schedule II

ACTION PERFORMANCE COMPANIES, INC.

VALUATION AND QUALIFYING ACCOUNTS

Years Ended September 30, 2003, 2002 and 2001
(in thousands)

|                                                           |  |            |       |          |  |             |       |              |  |             |        |      |  |   |        |   |  |   |       | 
|---------------------------------------------------------- |  | ---------- | ----- | -------- |  | ----------- | ----- | ------------ |  | ----------- | ------ | ---- |  | - | ------ | - |  | - | ----- | 
|                                                           |  |            |       |          |  | Additions-  |       |              |  |             |        |      |  |   |        |   |  |  
|                                                           |  |            |       |          |  | Charged     |       | (Charged to) |  |             |        |      |  |   |        |  
|                                                           |  | Balance at |       | to costs |  | or credited |       |              |  |             |        |      |  |  
|                                                           |  | beginning  |       | and      |  | from other  |       | Deductions   |  | Balance at 
|Description                                                |  | of year    |       | expenses |  | accounts    |       | (A)          |  | end of year
|                                                           |  |            |       |          |  |             |       |              |  |            
|Allowance for
doubtful accounts:                           |  |            |       |          |  |             |       |              |  |             |        |      |  |   |        |   |  |   |       | 
|2003                                                       |  | $          | 2,127 |          |  | $           | 3,121 |              |  | $           | (1,009 | )(B) |  | $ | (605   | ) |  | $ | 3,634 | 
|2002                                                       |  |            | 2,141 |          |  |             | 1,589 |              |  |             | (548   | )(C) |  |   | (1,055 | ) |  |   | 2,127 | 
|2001                                                       |  |            | 3,392 |          |  |             | 768   |              |  |             | (144   | )(D) |  |   | (1,875 | ) |  |   | 2,141 | 
|Other Assets 
Allowance for
doubtful accounts,
long term: |  |            |       |          |  |             |       |              |  |             |        |      |  |   |        |   |  |   |       | 
|2003                                                       |  | $          | 1,030 |          |  | $           |      |              |  | $           | 896    | (E)  |  | $ |       |   |  | $ | 1,926 | 
|2002                                                       |  |            |      |          |  |             |      |              |  |             | 1,030  | (E)  |  |   |       |   |  |   | 1,030 | 
|2001                                                       |  |            |      |          |  |             |      |              |  |             |       |      |  |   |       |   |  |   |      | 



| | (A) |  | Amounts indicated as deductions are for amounts charged against
these reserves in the ordinary course of business.                                                                                                                                                    
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (B) |  | Amounts indicated as charged to other accounts represent a
reclassification of ($0.9) million to allowance for doubtful accounts,
long term (Other Assets), and ($0.1) million to other liabilities.                                                                  
|
| | (C) |  | Amounts indicated as charged to other accounts represent recoveries
of $0.4 million, a reclassification of $(1.0) million to allowance for
doubtful accounts, long term (Other Assets), and $0.1 million acquired
in the acquisition of Jeff Hamilton Collection, Inc.
|
| | (D) |  | Amounts indicated as charged to other accounts represent allowance
written off in connection with disposition of the investment in
Goodsports Holdings Pty Ltd.                                                                                                       
|
| | (E) |  | Amounts indicated as credited from other accounts represent
reclassifications of the allowance for doubtful accounts to allowance
for doubtful accounts, long-term (Other Assets).                                                                                    

F-25



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EXHIBIT INDEX

|        |        |         |                                                                                                                                                                                                                                                          
|------- | ------ | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |        
|Number  |        | Exhibit
|        |        |        
|        | 3.1    |         | First Amended and Restated Articles of Incorporation of Registrant,
as amended (12)                                                                                                                                                                      
|        |        |         |                                                                                                                                                                                                                                                          
|        | 3.2    |         | Amended and Restated Bylaws of Registrant (1)                                                                                                                                                                                                            
|        |        |         |                                                                                                                                                                                                                                                          
|        | 4.1    |         | Form of Certificate of Common Stock (2)                                                                                                                                                                                                                  
|        |        |         |                                                                                                                                                                                                                                                          
|        | 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 (3)                                                                                                 
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.4.2 |         | 1993 Stock Option Plan, as amended and restated through January 16, 1997
(6)                                                                                                                                                                             
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.8   |         | Form of Indemnification Agreement entered into with the Directors of the
Registrant (2)                                                                                                                                                                  
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.27  |         | Manufacturing Agreement between the Registrant and Early Light
International Co. Ltd. dated November 1, 2000 (5)                                                                                                                                         
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.52  |         | 1998 Non-qualified Stock Option Plan(3)                                                                                                                                                                                                                  
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.49  |         | Standard Form Industrial Lease dated April 8, 1997, between
Hewson/Breckner-Baseline, L.L.C. and Action Performance Companies, Inc.
(7)                                                                                                                  
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.50  |         | Lease Agreement dated July 9, 1997, by and between Performance Park
Partners, LLC and Sports Image, Inc. (7)                                                                                                                                             
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.52  |         | 1998 Non-qualified Stock Option Plan (3)                                                                                                                                                                                                                 
|        |        |         |                                                                                                                                                                                                                                                          
|        | 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. (3)                                  
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.56  |         | 1999 Employee Stock Purchase Plan (8)                                                                                                                                                                                                                    
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.57  |         | Standard Form Industrial Lease (Single Tenant) dated June 28, 1999,
between H-B Tempe, L.L.C. and Action Performance Companies, Inc. (9)                                                                                                                 
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.58  |         | Master Lease Agreement dated August 9, 1999 between General Electric
Capital Corporation and goracing.com, inc., together with Schedule No. 01,
Commitment Letter dated October 4, 1999, and Corporate Guaranty by Action
Performance Companies, Inc. (9)
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.59  |         | Distribution Agreement dated September 13, 2000 by and between the
Registrant and QVC, Inc. (5)                                                                                                                                                          
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.60  |         | Sublease dated March 28, 2000 by and between Action Performance
Companies, Inc., and Integrated Information Systems, Inc. (5)                                                                                                                            
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.61  |         | Equipment Sublease dated March 28, 2000 by and among goracing.com, inc.,
Action Performance Companies, Inc., and Integrated Information Systems,
Inc. (5)                                                                                                
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.62  |         | Equipment Sublease dated March 28, 2000 by and between Integrated
Information Systems, Inc. and goracing.com, inc. (5)                                                                                                                                   
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.63  |         | Loan and Security Agreement dated September 29, 2000 by and among Action
Performance Companies, Inc., certain subsidiaries and affiliates, as
guarantors, and American National Bank and Trust Company of Chicago. (5)                                   
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.64  |         | Pledge Agreement dated October 2, 2000 by and between Racing
Collectables Club of America, Inc., and American National Bank and Trust
Company of Chicago.(5)                                                                                             
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.65  |         | Pledge Agreement dated October 2, 2000 by and between Action Performance
Companies, Inc., and American National Bank and Trust Company of Chicago.
(5)                                                                                                   
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.66  |         | Pledge Agreement dated October 2, 2000 by and between goracing.com,
inc., and American National Bank and Trust Company of Chicago. (5)                                                                                                                   
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.67  |         | Second Amendment to Loan and Security Agreement, dated January 31, 2001,
by and among Action Performance Companies, Inc., and certain subsidiaries
and affiliates, as guarantors, and Bank One, NA. (10)                                                 
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.68  |         | First Amended and Restated 2000 Stock Option Plan (11)                                                                                                                                                                                                   
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.69  |         | Consent and Third Amendment to Loan and Security Agreement, dated
September 2002, by and among Action Performance Companies, Inc., and
certain subsidiaries and affiliates, as guarantors, and Bank One, NA. (12)                                        
|        |        |         |                                                                                                                                                                                                                                                          
|        | 10.70  |         | Fifth Amendment to Loan and Security Agreement, dated March 12, 2003, by
and among Action Performance Companies, Inc., and certain subsidiaries and
affiliates, as guarantors, and Bank One, NA. (13)                                                    





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##### Table of Contents



|        |       |         |                                                                                                                                                                                                     
|------- | ----- | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |        
|Number  |       | Exhibit
|        |       |        
|        | 10.71 |         | Sixth Amendment to Loan and Security Agreement, dated September 23,
2003, by and among Action Performance Companies, Inc., and certain
subsidiaries and affiliates, as guarantors, and Bank One, NA.
|        |       |         |                                                                                                                                                                                                     
|        | 21    |         | List of Subsidiaries of the Registrant                                                                                                                                                              
|        |       |         |                                                                                                                                                                                                     
|        | 23.1  |         | Consent of PricewaterhouseCoopers LLP                                                                                                                                                               
|        |       |         |                                                                                                                                                                                                     
|        | 23.2  |         | Statement regarding consent of Arthur Andersen LLP                                                                                                                                                  
|        |       |         |                                                                                                                                                                                                     
|        | 31.1  |         | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.                                          
|        |       |         |                                                                                                                                                                                                     
|        | 31.2  |         | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.                                          
|        |       |         |                                                                                                                                                                                                     
|        | 32.1  |         | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                  
|        |       |         |                                                                                                                                                                                                     
|        | 32.2  |         | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                  



---

|(1)  |  | Incorporated by reference to the Registrants Form 10-QSB for the quarter
ended March 31, 1996, as filed with the Securities and Exchange Commission
on May 2, 1996.       
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by reference to the Registrants Registration Statement on
Form SB-2 and amendments thereto (Registration No. 33-57414-LA).                                   
|    
|(3)  |  | Incorporated by reference to the Registrants Form 10-Q for the quarter
ended March 31, 1998, as filed with the Securities and Exchange Commission
on May 15, 1998.        
|    
|(4)  |  | Incorporated by reference to the Registrants Registration Statement on
Form S-8 (Registration No. 333-82879).                                                             
|    
|(5)  |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 2000, as filed with the Securities and Exchange
Commission on December 29, 2000.  
|    
|(6)  |  | Incorporated by reference to the Registrants Form 10-Q for the quarter
ended March 31, 1997, as filed with the Securities and Exchange Commission
on May 15, 1997.        
|    
|(7)  |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 1997, as filed with the Securities and Exchange
Commission on December 22, 1997.  
|    
|(8)  |  | Incorporated by reference to the Registrants Registration Statement on
Form S-8 (Registration No. 333-82879).                                                             
|    
|(9)  |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 1999, as filed with the Securities and Exchange
Commission on December 29, 1999.  
|    
|(10) |  | Incorporated by reference to the Registrants Form 10-Q for the quarter
ended December 31, 2001, as filed with the Securities and Exchange
Commission on February 13, 2002.
|    
|(11) |  | Incorporated by reference to the Registrants Registration Statement on
Form S-8 (Registration No. 333-88114).                                                             
|    
|(12) |  | Incorporated by reference to the Registrants Form 10-K for the year
ended September 30, 2002, as filed with the Securities and Exchange
Commission on December 20, 2002.  
|    
|(13) |  | Incorporated by reference to the Registrants Form 8-K dated March 12,
2003, as filed with the Securities and Exchange Commission on March 18,
2003.