SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2005

Commission file number 0-21630

ACTION PERFORMANCE COMPANIES, INC.

1480 South Hohokam Drive
Tempe, AZ 85281

(602) 337-3700

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 þ No o

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

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

Table of Contents

PART I- FINANCIAL INFORMATION

ITEM 1. Financial Statements

2

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
March 31, 2005 and September 30, 2004
(in thousands, except per share data)

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

3

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
Three and Six Months Ended March 31, 2005 and 2004
(in thousands, except per share data)

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

4

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 2005 and 2004
(in thousands)

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

5

ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005

INTERIM FINANCIAL REPORTING

The accompanying interim condensed consolidated financial statements for Action Performance Companies, Inc. and subsidiaries have been prepared by management without audit by an independent registered public accounting firm pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, all normal and recurring adjustments necessary for a fair statement of financial position and results of operations for the interim periods included herein have been made. Certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from these statements pursuant to such rules and regulations. Accordingly, these financial statements should be read in conjunction with our Form 10-K for the fiscal year ended September 30, 2004. The results of operations for the interim periods are not necessarily indicative of the operating results that may be expected for the fiscal year ending September 30, 2005.

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

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) revises FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123) and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. We will adopt SFAS 123(R) effective October 1, 2005. We have selected the modified prospective method of adoption, under which unvested awards as of October 1, 2005 will be charged to expense over the remaining vesting period of the awards. We are currently evaluating the impact of SFAS 123(R) on our financial position, results of operations, and cash flows.

The American Jobs Creation Act of 2004 (the Act) creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad. Beginning in May 2002, U.S. federal income taxes have been provided on undistributed earnings of our German subsidiaries. Accordingly, the Act has no impact on our financial statements.

STOCK-BASED COMPENSATION

We currently account for stock-based compensation plans under APB No. 25, Accounting for Stock Issued to Employees and related interpretations, 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. Pursuant to SFAS 123, we estimated the fair value of each option grant as of the date of grant using the Black-Scholes option pricing method using the following assumptions for the periods ended March 31:

Options granted to employees generally vest ratably over three years or after one and a half years. Options granted to independent directors generally vest immediately upon grant. 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 (loss) and per share amounts would have been the following pro forma amounts for the periods ended March 31 (in thousands, except per share data):

6

In the six months ended March 31, 2005, we issued options to purchase 432 thousand shares of common stock, at an average price of $12.45.

DEBT AND FINANCING

In May 2005, we refinanced the $9.3 million outstanding balance of the term loans with the revolving credit facility and amended the agreement to consist of only the $63.3 million revolving credit facility. Consequently we have reflected the balance of the term loans at March 31, 2005, as current line-of-credit borrowings in the accompanying balance sheet.

We did not meet the agreement’s required minimum fixed charge coverage ratio of 0.80 for the three months ended March 31, 2005, however, the bank waived non-compliance. We amended the agreement in May 2005. Under the amended agreement, we will be required to meet a minimum fixed charge coverage ratio of 0.81 to 1.0 for the six months ended June 30, 2005, and 1.35 to 1.0 for the nine months ended September 30, 2005, and 1.0 to 1.0 for each quarter thereafter. Based on current projections, we expect to be in compliance with our covenants through March 31, 2006, however, we expect our actual fixed charge coverage ratio to be close to the requirement throughout that period and we are close to the minimum tangible net worth that we must maintain. If we do not maintain compliance with these covenants, our business or profitability deteriorates or we incur unexpected expenses or asset impairments, it could have a material adverse effect on our liquidity and financial resources, including an inability to utilize our revolving credit facility and an acceleration of the indebtedness outstanding thereunder. If we are unable to utilize our revolving credit facility, we may be required to refinance all or part of our existing debt, sell assets, borrow more money, or obtain other additional financing.

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-merchant retail distribution center in Atlanta, Georgia and warehouse and distribution facilities in Charlotte, North Carolina and Baraboo, Wisconsin. Trackside operations are included in the domestic apparel and memorabilia segment. The foreign die-cast operation is based in Aachen, Germany.

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

7

guarantees advanced and unearned are allocated as an expense of the domestic segments. Financial information for the reportable segments follows (in thousands):

8

EARNINGS PER COMMON SHARE (EPS)

Reconciliations of the numerators and denominators in the EPS computations for net income (loss) for the periods ended March 31 follows (in thousands):