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


                                   FORM 10-QSB


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

                  For the quarterly period ended June 30, 1996



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



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

       (State or other jurisdiction of             (IRS Employer Identification)
        incorporation or organization)



                        2401 W. 1st St., Tempe, AZ 85281
- --------------------------------------------------------------------------------


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




Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

Yes  xx     No
    ----       ----


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity: 12,592,522 shares of common stock (as of August 9, 1996).
<PAGE>
PART I, ITEM 1.  FINANCIAL STATEMENTS

                       ACTION PERFORMANCE COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEET

                   As of June 30, 1996 and September 30, 1995

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                           June 30,     September 30,
                                                             1996          1995
                                                         -----------     -----------
<S>                                                      <C>             <C>        
CURRENT ASSETS:                                          (Unaudited)

 Cash..................................................  $ 5,148,274     $ 6,759,984
 Accounts receivable, net of allowance
    for doubtful accounts of $207,761 and
    $142,746, respectively.............................    5,984,828       4,057,124
 Inventories...........................................    4,763,049       2,691,035
 Deferred income taxes.................................      967,283         910,126
 Income tax refund receivable..........................       84,210          84,210
 Prepaid royalties.....................................    2,071,799       1,109,647
 Prepaid expenses and other assets.....................      699,655         482,593
                                                         -----------     -----------

    Total current assets...............................   19,719,098      16,094,719

PROPERTY AND EQUIPMENT, at cost less accumulated
  depreciation of $2,840,681 and $1,671,102,
  respectively.........................................    7,715,511       5,768,215

NOTES RECEIVABLE, net of current portion...............      941,031         947,092

DEPOSITS AND OTHER ASSETS..............................      406,200         540,700
                                                         -----------     -----------
                                                         $28,781,840     $23,350,726
                                                         ===========     ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:

  Accounts payable...................................... $ 1,854,784     $ 1,623,219
  Accrued royalties.....................................   1,198,630         860,069
  Income taxes payable..................................   1,027,836       1,317,343
  Accrued expenses and other............................     351,202         371,953
                                                         -----------     -----------

    Total current liabilities...........................   4,432,452       4,172,584

CAPITAL LEASE OBLIGATION................................     394,972         287,852

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

  Preferred  stock,  no  par  value,   5,000,000  shares
    authorized;   Class  A Convertible Preferred 
    stock, $.01 stated value, -0- shares and 500 shares
    issued and outstanding, respectively................        -                  5
  Common stock, $.01 par value, 25,000,000 shares
    authorized; 12,592,022 shares and 5,610,704,
    shares issued and outstanding, respectively.........     125,920          56,107
  Additional paid-in capital............................  18,165,811      16,908,415

  Retained earnings.....................................   5,662,685       1,925,763
                                                         -----------     -----------

    Total shareholders' equity..........................  23,954,416      18,890,290
                                                         -----------     -----------
                                                         $28,781,840     $23,350,726
                                                         ===========     ===========
</TABLE>
              The accompanying notes are an integral part of these
                          consolidated balance sheets.
                                        2
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

        For the Nine and Three Month Periods Ended June 30, 1996 and 1995

                                   (Unaudited)
<TABLE>
<CAPTION>
                                      Nine Months Ended            Three Months Ended
                                           June 30,                     June 30,
                                 --------------------------   ---------------------------
                                    1996            1995          1996            1995
                                 -----------    -----------   ------------    -----------
<S>                              <C>            <C>            <C>            <C>        
Collectible sales............... $28,644,790    $13,778,978    $11,597,886    $ 8,037,455
Consumer product sales..........   1,410,069        993,044        684,741        431,970
Promotional sales...............        -         1,492,020           -            20,171
                                 -----------    -----------    -----------    -----------

      Net sales.................  30,054,859     16,264,042     12,282,627    $ 8,489,596

Cost of sales...................  17,442,007     10,114,293      6,858,245      5,086,183
                                 -----------    -----------    -----------    -----------
Gross profit....................  12,612,852      6,149,749      5,424,382      3,403,413

Selling, general and
 administrative expenses........   6,453,132      4,369,386      2,486,432      1,662,599
                                 -----------    -----------    -----------    -----------

Income from operations..........   6,159,720      1,780,363      2,937,950      1,740,814

Other income (expense):
  Interest income and other, net     231,344        401,803         42,920         58,981
  Interest expense..............     (67,124)      (171,664)       (19,717)       (33,683)
                                 -----------    -----------    -----------    -----------
    Total other income               164,220        230,139         23,203         25,298
                                 -----------    -----------    -----------    -----------

Income before provision for
  income taxes..................   6,323,940      2,010,502      2,961,153      1,766,112
                                 -----------    -----------    -----------    -----------

Provision for income taxes...... $(2,529,576)   $  (673,518)   $(1,184,461)   $  (585,538)
                                 -----------    -----------    -----------    -----------

NET INCOME...................... $ 3,794,364    $ 1,336,984    $ 1,776,692    $ 1,180,574
                                 ===========    ===========    ===========    ===========

NET INCOME PER COMMON SHARE:
 Primary........................ $      0.29    $      0.14    $      0.14    $      0.11
                                 ===========    ===========    ===========    ===========
 Fully Diluted(a)............... $      0.29    $      0.13    $      0.14    $      0.10
                                 ===========    ===========    ===========    ===========

WEIGHTED AVERAGE SHARES OUTSTANDING:
 Primary........................  12,980,905      9,391,998     13,147,254     11,085,928
                                 ===========    ===========    ===========    ===========
 Fully Diluted(a)...............  13,053,925     10,810,092     13,150,125     11,729,334
                                 ===========    ===========    ===========    ===========
</TABLE>


(a)      Includes adjustments for interest expense and equivalent shares related
         to the  10%  Convertible  Subordinated  Debentures,  if  dilutive.  See
         Exhibit 11.2

                   The accompanying notes are an integral part
                  of these consolidated financial statements.
                                        3
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                     For the Nine Months Ended June 30, 1996
<TABLE>
<CAPTION>
                                                         Convertible
                                    Common Stock       Preferred Stock   Additional
                                    ------------       ---------------   ----------
                                 Shares                Shares             Paid-In      Retained
                                 Issued       Amount   Issued   Amount    Capital      Earnings       Total
                                 ------       ------   ------   ------    --------     --------       -----
<S>                              <C>        <C>          <C>    <C>      <C>          <C>           <C>        
BALANCE, September 30, 1995      5,610,704  $ 56,107     500    $  5     $16,908,415  $ 1,925,763   $18,890,290
                                ----------  --------    -----   ------   -----------  -----------   -----------


Common stock issued upon
 exercise of warrants.........     106,332     1,063      -        -         510,265         -          511,328

Common stock issued upon
 exercise of employee options.     130,750     1,308      -        -         757,126         -          758,434

Common stock issued upon
 conversion of Class A
 convertible preferred stock..   1,000,000    10,000    (500)     (5)         (9,995)        -             -

Two-for-one split of common
 stock effected as a stock
 dividend.....................   5,744,236    57,442      -        -            -         (57,442)         -

Net Income....................        -         -         -        -            -       3,794,364     3,794,364
                                ----------  --------    -----   ------   -----------  -----------   -----------

BALANCE, June 30, 1996          12,592,022  $125,920      -     $  -     $18,165,811  $ 5,662,685   $23,954,416
                                ==========  ========    =====   ======   ===========  ===========   ===========
</TABLE>

                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                        4
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                For the Nine Months Ended June 30, 1996 and 1995

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                             1996              1995
                                                         -----------       ----------
<S>                                                     <C>               <C>        
Cash Flows from Operating Activities:

Net income...........................................   $ 3,794,364       $ 1,336,984
  Adjustments to reconcile net income to net
  cash used in operating activities:
   Depreciation and amortization.....................     1,169,579           640,753
   Gain on sale of assets............................          -             (290,877)
   Change in assets and  liabilities,  net of effect 
   of disposal of mini vehicle assets:
      Accounts receivable............................    (1,927,704)       (1,347,044)
      Inventories....................................    (2,072,014)         (308,370)
      Deferred income taxes..........................       (57,157)          224,037
      Prepaid royalties..............................      (962,152)         (232,460)
      Prepaid expenses and other assets..............      (101,202)          163,176
      Accounts payable...............................       231,565          (381,630)
      Income taxes payable...........................      (289,507)          415,021
      Accrued royalties..............................       338,561          (129,909)
      Accrued expenses and other.....................       (70,819)         (100,872)
                                                        -----------       -----------
   Net cash provided by (used in) operating
     activities......................................        53,514           (11,191)

Cash Flows from Investing Activities:
  Acquisition of property and equipment..............    (2,883,845)       (1,805,883)
  Proceeds from the sale of property and equipment...          -              237,567
                                                        -----------       -----------
        Net cash used in investing activities........    (2,883,845)       (1,568,316)

Cash Flows from Financing Activities:
  Borrowings on line of credit.......................     5,221,898         2,494,436
  Payments on line of credit.........................    (5,221,898)       (2,494,436)
  Proceeds from issuance of common stock.............     1,269,762         1,140,131
  Payments for redemption of warrants................          -             (403,683)
  Issuance of Class A preferred stock................          -            2,000,000
  Payments for notes receivable......................        (1,200)          (24,781)
  Collections on notes receivable....................        25,901           154,351
  Proceeds from issuance of notes payable............          -               70,155
  Payments on notes payable..........................          -             (239,810)
  Principal payments on capital lease obligation.....       (75,842)             -
                                                        -----------       -----------
        Net cash provided by financing activities....     1,218,621         2,696,363
                                                        -----------       -----------

Increase (Decrease) in Cash..........................    (1,611,710)        1,116,856
Cash, Beginning of Period............................     6,759,984         1,134,163
                                                        -----------       -----------
Cash, End of Period..................................   $ 5,148,274       $ 2,251,019
                                                        ===========       ===========
</TABLE>

                   The accompanying notes are an integral part
                  of these consolidated financial statements.
                                        5
<PAGE>
                       ACTION PERFORMANCE COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1996

(1)   INTERIM FINANCIAL REPORTING

The accompanying  unaudited Consolidated Financial Statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial information and the instructions to Form 10-QSB. Accordingly,  they do
not include all the  information  and footnotes  required by generally  accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all adjustments  (which include only normal recurring  adjustments)
necessary to present  fairly the financial  position,  results of operations and
cash flows for the periods  presented  have been made. The results of operations
for  the  three-month  and  nine-month  periods  ended  June  30,  1996  are not
necessarily  indicative  of the  operating  results that may be expected for the
entire year ending September 30, 1996. These financial statements should be read
in conjunction with the Company's Form 10-KSB, as amended by Form 10-KSB/A,  for
the fiscal year ended September 30, 1995.

(2)   INVENTORIES

Inventories are stated at lower of cost (first-in,  first-out  method) or market
and consist of the following at June 30, 1996:

      Raw materials.......................................  $   400,049
      Finished goods......................................    4,363,000
                                                            -----------
                                                            $ 4,763,049
                                                            ===========

(3)   PROPERTY AND EQUIPMENT

Property  and  equipment  are  recorded  at  cost  and  depreciated   using  the
straight-line  method over the estimated useful lives of the respective  assets,
which range from three to ten years.

Property and equipment consist of the following at June 30, 1996:

      Tooling and molds...................................  $ 7,370,443
      Furniture, fixtures and equipment...................    2,330,524
      Autos and trucks....................................      342,142
      Leasehold improvements..............................      513,083
                                                            -----------
                                                             10,556,192
      Less - accumulated depreciation.....................   (2,840,681)
                                                            -----------
                                                            $ 7,715,511
                                                            ===========

(4)   SHAREHOLDERS' EQUITY

The Company effected a two-for-one  stock split in the form of a stock dividend,
distributed on May 28, 1996. As a result,  non-cash financing activities for the
three  months ended June 30, 1996 include an increase to common stock of $57,442
and a  corresponding  decrease  to retained  earnings  for the amount of the par
value of the shares issued.

On May 29, 1996,  the Company issued  1,000,000  shares of its common stock upon
the conversion of all outstanding shares of Class A Convertible Preferred Stock.

(5)   NET INCOME PER COMMON SHARE

Net income per common share is computed based on the weighted  average number of
common shares and common share equivalents  outstanding using the treasury stock
method, except when common share equivalents have an antidilutive effect.

All  share  amounts  and per  share  data  have been  restated  to  reflect  the
two-for-one stock split effected as a stock dividend on May 28, 1996.
                                        6
<PAGE>
(6)   SUPPLEMENTAL CASH FLOW INFORMATION

Cash  payments  during the nine  months  ended June 30,  1996 and 1995  included
interest of $67,124 and $267,095,  respectively,  and income taxes of $2,872,000
and $39,000, respectively.

Non-cash  financing and investing  activities for the nine months ended June 30,
1996  included  approximately  $233,000 of assets  acquired  under capital lease
agreements.

The Company  effected a two-for-one  stock split in the form of a stock dividend
distributed on May 28, 1996. As a result,  non-cash financing activities for the
three  months ended June 30, 1996 include an increase to common stock of $57,442
and a  corresponding  decrease  to retained  earnings  for the amount of the par
value of the shares issued.

Non-cash  financing  activities for the nine months ended June 30, 1996, include
the  issuance  of  1,000,000  shares  of the  Company's  common  stock  upon the
conversion of all outstanding shares of Class A Convertible Preferred Stock.

Non-cash  financing  activities for the nine months ended June 30, 1995 included
the  conversion  of an  aggregate  of  $2,600,000  of  principal  amount  of 10%
Convertible  Subordinated Debentures into 742,838 shares of the Company's common
stock.

(7)  INCOME TAXES

Income  taxes for the three- and  nine-month  periods  ended June 30,  1996 were
calculated by applying the  estimated  effective tax rate for the fiscal year to
the income before income taxes.

(8)  LICENSE AGREEMENT

On June 20, 1996, the Company and Hasbro,  Inc. ("Hasbro") entered into a letter
of intent  pursuant  to which the Company and Hasbro have agreed to enter into a
license agreement. The Company and Hasbro currently are negotiating a definitive
license agreement, the terms of which may vary from the proposed terms set forth
in the letter of intent.

The  license   agreement   will  provide  Hasbro  with  the  rights  to  design,
manufacture,   and  sell  in  the  mass-merchandise  market  motorsports-related
products  utilizing  license rights that the Company  obtains with race drivers,
car  owners,  manufacturers,  and  sponsors.  Under the license  agreement,  the
Company will be responsible  for acquiring and  maintaining  the license rights,
and Hasbro will be responsible for all costs and other arrangements  relating to
tooling, manufacturing,  transportation,  marketing,  distribution, and sales of
licensed products.  Hasbro will pay the Company  royalties,  with minimum annual
royalty payments in each year during the term of the license  agreement.  Hasbro
also will be responsible for royalties,  including advances and guarantees, paid
to licensors for licensed  products.  The license  agreement will provide a five
year term, and an option for an additional  three years provided certain revenue
objectives are achieved.

(9)  COMMITMENTS AND CONTINGENCIES

The  Company is one of  approximately  30  defendants  in a lawsuit in which the
State of Arizona seeks recovery of certain cleanup costs under federal and state
environmental laws. See Part II, Item 1, "Legal  Proceedings." The imposition of
damages on the Company could have a material effect on its earnings.

In December  1995, a lawsuit was instituted  against the Company,  the Company's
Chief Executive  Officer,  and others  alleging that the Company,  the Company's
Chief Executive  Officer,  and others breached  contractual and other duties and
appropriated certain business  opportunities of a dissolved Arizona corporation.
The Company believes the complaint is without merit and is vigorously  defending
the lawsuit. See Part II, Item 1, "Legal Proceedings."
                                        7
<PAGE>
ITEM 2          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
                RESULTS OF OPERATIONS

Introduction

The Company  designs and markets  die-cast  and pewter  collectibles,  which are
miniature  replicas of  motorsports  vehicles and other  items,  and designs and
markets licensed motorsports consumer products, which include drink bottles, key
chains, and air fresheners.  The Company's motorsports  collectible and consumer
products are  manufactured by third parties,  generally  utilizing the Company's
tools and dies.

The Company was incorporated in Arizona in May 1992 and began marketing die-cast
collectibles in July 1992. In August 1994, the Company  acquired  certain assets
and  liabilities  of Fan  Fueler,  Inc.  and began  marketing  product  lines of
licensed  motorsports  consumer  products.  During fiscal 1994 and the first two
quarters of fiscal 1995, the Company designed and marketed pedal,  electric, and
gas-powered mini vehicles, primarily as specialty promotional items. The Company
sold the assets related to its mini vehicle operations in March 1995.

Results of  Operations  of the Company for the Three  Months Ended June 30, 1996
and 1995

The  Company  had  net  income  of  $1,777,000,  or  $0.14  per  share,  for the
three-month period ended June 30, 1996,  compared with net income of $1,181,000,
or $0.10 per share, for the three-month  period ended June 30, 1995. The Company
attributes  the  improvement  in net income for the third quarter of fiscal 1996
primarily to (i) growth in the motorsports collectible market and the capture of
additional market share, which enabled the Company to produce and sell increased
quantities of  collectibles;  (ii) increased  sales as a result of growth in the
Company's retail collector club, which provides higher gross margins;  and (iii)
increased  sales as a result of the successful  introduction  of several new and
exclusive  licensing programs for die-cast and pewter collectible  product lines
in fiscal 1996.

During the three months ended June 30, 1995 and 1996, net sales were  $8,490,000
and $12,283,000,  respectively.  The $3,793,000,  or 45%,  increase in net sales
resulted  from an increase of  $3,560,000 in  collectible  sales,  a decrease of
$20,000 in  promotional  sales,  and an  increase  of  $253,000  in  motorsports
consumer products sales.

The increase in  collectible  sales is primarily  attributable  to the continued
growth in the  motorsports  collectible  market  and the  Company's  ability  to
satisfy  consumer demand for  high-quality  die-cast  collectibles.  The Company
continues to realize sales  increases  from recently  introduced  product lines,
which include pewter replica  vehicles and NHRA drag racing  die-cast  replicas.
The decrease in promotional  sales is  attributable to the sale of the Company's
mini vehicle operations in the second quarter of fiscal 1995.

During the three  months ended June 30, 1995 and 1996,  cost of sales  increased
from $5,086,000 to $6,858,000,  representing 60% and 56%,  respectively,  of net
sales. The decrease in cost of sales as a percentage of sales resulted primarily
from (i) the effect of higher sales volume on fixed cost  components  of cost of
sales,   primarily   depreciation  charges  related  to  the  Company's  tooling
equipment,  and (ii) higher gross margins  associated  with the increased  sales
through the Company's retail collector club.

During the three  months  ended June 30,  1995 and 1996,  selling,  general  and
administrative  expenses  increased from $1,663,000 to $2,486,000,  in each case
representing  20% of net sales.  The  increase in such  expenses  resulted  from
increased   expenditures   in  sales  and  marketing,   particularly   increased
advertising expenses and higher sales commissions as a result of greater sales.
                                        8
<PAGE>
Interest expense decreased from $34,000 to $20,000 during the three months ended
June 30, 1995 and 1996, respectively.  The decrease in interest expense resulted
from the conversion of the 10% Convertible  Subordinated  Debentures into shares
of the Company's Common Stock prior to May 31, 1995.

Results of Operations of the Company for the Nine Months Ended June 30, 1996 and
1995

The Company had net income of $3,794,000, or $0.29 per share, for the nine-month
period ended June 30, 1996, compared with net income of $1,337,000, or $0.13 per
share, for the nine-month period ended June 30, 1995. The Company attributes the
improvement in net income primarily to (i) growth in the motorsports collectible
market and the capture of additional market share,  which enabled the Company to
produce and sell increased  quantities of  collectibles;  (ii) the completion of
the transition to the Company's new overseas manufacturer,  which began shipping
sufficient  quantities of high-quality  die-cast  collectibles  during the third
quarter of fiscal 1995 to meet the increased demand for the Company's  products;
(iii)  increased sales as a result of growth in the Company's  retail  collector
club, which provides higher gross margins;  and (iv) increased sales as a result
of the successful  introduction of several new and exclusive  licensing programs
for die-cast and pewter collectible product lines in fiscal 1996.

During the nine months ended June 30, 1995 and 1996, net sales were  $16,264,000
and $30,055,000,  respectively.  The $13,791,000,  or 85%, increase in net sales
resulted from an increase of  $14,866,000  in  collectible  sales, a decrease of
$1,492,000  in  promotional  sales,  and an increase of $417,000 in  motorsports
consumer products sales.

The increase in  collectible  sales is primarily  attributable  to the continued
growth in the  motorsports  collectible  market  and the  Company's  ability  to
satisfy  consumer demand for  high-quality  die-cast  collectibles.  The Company
continues to realize sales  increases  from recently  introduced  product lines,
which include pewter replica  vehicles and NHRA drag racing  die-cast  replicas.
The decrease in promotional  sales is  attributable to the sale of the Company's
mini vehicle operations in the second quarter of fiscal 1995.

During the nine  months  ended June 30, 1995 and 1996,  cost of sales  increased
from $10,114,000 to $17,442,000,  representing 62% and 58%, respectively, of net
sales.  The decrease in cost of sales as a percentage of sales resulted from (i)
the effect of higher  sales  volume on fixed cost  components  of cost of sales,
primarily  depreciation charges related to the Company's tooling equipment,  and
(ii) higher  gross  margins  associated  with the  increased  sales  through the
Company's retail collector club.

During  the nine  months  ended June 30,  1995 and 1996,  selling,  general  and
administrative  expenses  increased from $4,369,000 to $6,453,000,  representing
27% and 21%, respectively,  of net sales. The increase in such expenses resulted
from  increased  expenditures  in sales and  marketing,  particularly  increased
advertising expenses and higher sales commissions as a result of greater sales.

Interest expense decreased from $172,000 to $67,000 during the nine months ended
June 30, 1995 and 1996, respectively.  The decrease in interest expense resulted
from the conversion of the 10% Convertible  Subordinated  Debentures into shares
of the Company's Common Stock prior to May 31, 1995.

Seasonality

Sales of collectibles and motorsports related souvenirs are lowest in the fourth
calendar quarter, corresponding with the end of the racing season.

Liquidity and Capital Resources of the Company

The Company's working capital position increased to $15,287,000 at June 30, 1996
from $11,922,000 at September 30, 1995. The increase of $3,365,000 is primarily
                                        9
<PAGE>
attributable to results from operations and proceeds of approximately $1,270,000
from the exercise of certain stock options and warrants.

The Company  provided net cash of approximately  $54,000 from operations  during
the nine months  ended June 30, 1996.  The major  elements  contributing  to net
operating cash flow include  earnings from  operations and uses of cash from (i)
increases  in accounts  receivable  as a result of  increased  shipments  of the
Company's  die-cast  collectible  products  during the latter  part of the third
quarter of fiscal 1996;  (ii)  investments  in  inventory to meet peak  seasonal
requirements and inventory  purchases related to the Company's Corvette die-cast
program;  and (iii) royalty advances paid on new and existing multi-year license
agreements.

Investment in inventories has increased in response to continued growth in sales
through  the  Company's  retail  collector  club and as a result  of lower  than
anticipated  sales of the  Corvette  die-cast  program  introduced  in the third
quarter of fiscal 1996. The Company has implemented  several new plans to market
the Corvette  product  line,  including  the  distribution  of such  products to
approximately 4,500 General Motors dealerships throughout the United States. The
Company  also has reduced  purchase  commitments  for future  production  of the
Corvette products until such time as it can determine the success of its current
marketing plans.

Capital  expenditures  for the  nine-month  period ended June 30, 1996  totalled
approximately $2,884,000, of which approximately $1,830,000 was utilized for the
Company's continued investment in tooling.

In May 1996,  the Company  entered  into a new credit  agreement  with a foreign
bank.  The  credit  agreement   provides  the  Company's  supplier  of  die-cast
collectible  products with security for the Company's  purchase orders,  up to a
limit of $5.0 million,  an increase of $1.5 million from the Company's  previous
agreement. The agreement also provides for an import cash line of credit of $1.0
million,  which allows the Company to finance its imports for up to 90 days from
the date of shipment.  As of June 30, 1996, there were no amounts outstanding on
the import cash line of credit.  Total  purchase  commitments  of  approximately
$506,000 at June 30, 1996, are secured by the assets of the Company.  The credit
facilities under the credit agreement will expire on January 31, 1997.

The  Company is one of  approximately  30  defendants  in a lawsuit in which the
State of Arizona is seeking recovery of certain clean-up costs under federal and
state  environmental  laws. The Company is vigorously  defending this lawsuit on
various bases,  including  that neither the Company nor any of its  predecessors
has  produced or arranged for the  transportation  of  hazardous  substances  as
alleged by the state.  The imposition of damages in the case against the Company
could have a material adverse effect on the Company's earnings and liquidity.

In December  1995, a lawsuit was instituted  against the Company,  the Company's
Chief Executive  Officer,  and others  alleging that the Company,  the Company's
Chief Executive  Officer,  and others breached  contractual and other duties and
appropriated certain business  opportunities of a dissolved Arizona corporation.
The Company believes the complaint is without merit and is vigorously  defending
the lawsuit.

The Company's  current cash resources,  letter of credit facility,  and expected
cash flow from  operations  are expected to be  sufficient to fund the Company's
capital  needs  during the next 12 months at its  current  level of  operations.
However,  the Company may be required to obtain  additional  capital to fund its
planned  growth after such 12 month period and beyond,  particularly  to provide
guarantees under licensing  arrangements or to obtain  international  letters of
credit in connection  with purchase  orders from its off-shore  manufacturer  of
die-cast  collectibles.  Potential  sources of any such  capital may include the
proceeds from the exercise of outstanding  options,  bank  financing,  strategic
alliances,  and additional offerings of the Company's equity or debt securities.
There can be no assurance  that such  capital  will be  available  from these or
other  potential  sources,  and the lack of such  capital  could have a material
adverse effect on the Company's business.
                                       10
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1.           Legal Proceedings

                  On May 17, 1993, the State of Arizona (the "State") instituted
                  a lawsuit  against the Company and 29 other  defendants in the
                  United States District Court for the District of Arizona.  The
                  State seeks  recovery of certain  clean up costs under federal
                  and state  environmental laws.  Specifically,  the State seeks
                  recovery  of  expenses  that it has  incurred  to date  for an
                  environmental  investigation and clean up of property formerly
                  used as a site  for  recycling  hazardous  wastes.  The  State
                  alleges that the property has been contaminated with hazardous
                  substances.   In  addition,  the  State  seeks  a  declaratory
                  judgment that the Company and the other defendants are jointly
                  and  severally  liable for all future  costs  incurred  by the
                  State for investigative and remedial  activities,  and seeks a
                  mandatory  permanent   injunction  requiring  the  Company  to
                  undertake  appropriate  assessment and remedial  action at the
                  property.  The State has not specified the amounts it seeks to
                  collect from the Company.  The State alleges that F.W. Leisure
                  Industries,   Inc.   and/or  F.W.  &  Associates,   Inc.  were
                  predecessors of the Company that produced and arranged for the
                  transportation   of  hazardous   substances  to  the  property
                  involved in the lawsuit. The Company is defending this lawsuit
                  on various bases including that F.W. Leisure Industries,  Inc.
                  and/or F.W. & Associates,  Inc. were not  predecessors  of the
                  Company and that  neither the Company nor any  predecessor  of
                  the  Company  has  ever  produced  or  transported   hazardous
                  substances  as alleged by the State.  The State has  settled a
                  portion of its claims  with  respect to a large  number of the
                  other defendants to the lawsuit. The Company is not a party to
                  that  settlement.  On  February  1,  1995,  a  number  of  the
                  defendants  that agreed to the settlement  with the State were
                  granted leave to file, and subsequently did file a cross-claim
                  against the Company  seeking  indemnity from the Company based
                  on the  same  predecessor  liability  theory  asserted  by the
                  State.  The parties have filed and briefed motions for summary
                  judgment  limited to the issue of any defendant's  status as a
                  responsible  party and  regarding  the  Company's  status as a
                  successor corporation.  The court has scheduled oral arguments
                  on these  motions for  September 30, 1996. In the event that a
                  decision adverse to the Company is rendered,  and in the event
                  that the Company has no  insurance  coverage  with  respect to
                  these  claims,  the  resolution  of such  matter  could have a
                  material adverse effect on the Company.

                  In December  1995, a lawsuit,  purportedly on behalf of Action
                  Products,  Inc. ("API") a dissolved Arizona  corporation,  was
                  instituted against the Company,  the Company's Chief Executive
                  Officer,  and others in the United States  District  Court for
                  the  District of Arizona  (Case No. CIV 95-2926 PHX RCB).  The
                  Complaint  alleges  that  the  Company,  the  Company's  Chief
                  Executive Officer,  and others breached  contractual and other
                  duties to API and appropriated certain business  opportunities
                  of API. The complaint requests damages, including punitive and
                  treble damages,  in an unspecified  amount.  The complaint was
                  effectively  amended  subsequent to filing.  In June 1996, the
                  court granted the Company's  motion to dismiss with respect to
                  securities  law  claims,  but denied the  Company's  motion to
                  dismiss  with  respect to certain  federal  RICO  claims.  The
                  Company is vigorously defending the lawsuit.

ITEM 2.           Changes in Securities

                  Not applicable

ITEM 3.           Defaults Upon Securities

                  Not applicable
                                       11
<PAGE>
ITEM 4.           Submissions of Matters to a Vote of Security Holders

                  Not applicable

ITEM 5.           Other Information

                  Not applicable

ITEM 6.           Exhibits and Reports on Form 8-K

                  (a)      Exhibits

                             10.32  Credit  Agreement by and between the Company
                                    and Wells Fargo HSBC Trade Bank, N.A.
                             11.1   Computation of Primary Earnings Per Share
                             11.2   Computation  of Fully  Diluted  Earnings Per
                                    Share
                             27     Financial Data Schedule

                  (b)      Reports on Form 8-K

                           On June 24, 1996,  the Company filed a Current Report
                           on Form  8-K  dated  June  20,  1996,  reporting  the
                           execution  of a Letter of Intent with  Hasbro,  Inc.,
                           with  respect  to  a  license   agreement  and  other
                           agreements to be entered into between the Company and
                           Hasbro, Inc.
                                       12
<PAGE>
SIGNATURES


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

Signature:

ACTION PERFORMANCE COMPANIES, INC.



     /s/ Fred W. Wagenhals          Chairman of the Board,     August 13, 1996
- ----------------------------------  President, and Chief 
                                    Executive Officer    
                                    (Principal Executive 
                                     Officer)             
                                    



     /s/ Christopher S. Besing      Vice President and         August 13, 1996
- ----------------------------------  Chief Financial Officer 
                                    (Principal Financial and
                                     Accounting Officer)    
                                    
                                       13
