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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 0-18045  (Commission file number)
 Dirt Motor Sports, Inc.
  Delaware
    
    84-0953839(State or other jurisdiction of
Incorporation or organization)
    
    (IRS Employer
Identification No.)
 2500 S. McGee, Suite 147, Norman, Oklahoma 73072
  Securities registered pursuant to Section 12(b) of the Act:
   Securities registered pursuant to Section 12(g) of the Act:
  þ o
 þ o
 o þ
 o þ
    o þ
 o þ




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##### Table of Contents



TABLE OF CONTENTS
  
 PART IItem 1. Business
    
    
    3Item 2. Property
    
    
    9Item 3. Legal Proceedings
    
    
    10Item 4. Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5. Market for Common Equity and Related Stockholder Matters
    
    
    10Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7. Financial Statements and Supplementary Data
    
    
    22Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    23Item 8A. Evaluation of Internal and Disclosure Controls
    
    
    23Item 8B. Other Information
    
    
    23PART IIIItem 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
    
    
    23Item 10. Executive Compensation
    
    
    25Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    26Item 12. Certain Relationships and Related Transactions
    
    
    26Item 13. Exhibits and Reports on Form 8-K
    
    
    27Item 14. Principal Accountant Fees and Services
    
    
    29SIGNATURESIndependent Auditors Report
    
    
    32Consolidated Balance Sheet
    
    
    33Consolidated Statements of Operations
    
    
    34Consolidated Statements of Shareholders Equity (Deficit)
    
    
    35Consolidated Statements of Cash Flows
    
    
    37Notes to Consolidated Financial Statements
    
    
    38Consent of Independent AuditorsRule 13a-14(a)/15d-14(a) Certification of Paul A. KrugerRule 13a-14(a)/15d-14(a) Certification of Brian M. CarterSection 1350 Certification
 2




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##### Table of Contents



DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
  
 PART I
 
 Item 1. Business
           Motor Sports Industry
  3




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DIRT-Track Racing
   General Business Plan
  Sanctioning Fees
  Merchandise Sales and Licensing Fees
  Sponsorships
  4




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Television and Electronic Media Distribution Rights
  Membership Fees
  Event Ticket Sales
  Current Activities
  DIRT Motorsports New York
   World of Outlaws, Inc.
    5




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Competition
        Certain Risks
  We may not have sufficient capital to successfully affect our business strategy.
  We have a limited operating history. As a result, evaluating our current business model and
prospects may be difficult.
  Speculative nature of our proposed operations.
  6




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Our failure to achieve or maintain profitability could force us to cease our operations.
  Possible impairment of goodwill
  Our success depends in part upon sales of our racing series and racing events.
    Our executive officers, directors and principal stockholders have substantial influence over us.
   Our quarterly operating results may fluctuate significantly
   Acquisitions of companies or joint venture investments may disrupt our business or dilute
shareholder value.
  7




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Dependence on qualified and key personnel.
  Illiquidity of our common stock.
  Our common stock price has been volatile, which could result in substantial losses for
stockholders
  Our stock price may decline if additional shares are sold in the market.
  Our articles and bylaws may delay or prevent a potential takeover of us.
  No Dividends.
   8




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##### Table of Contents



Item 2. Property
  Approximatenumber ofgrandstand
    
    Approximate
    
    TrackTrack Name
    
    Location
    
    seats
    
    acreage
    
    lengthCayuga County Fairgrounds
    
    Weedsport, New York
    
    
    3,000
    
    
    
    80
    
    
    3/8 mileRolling Wheels Raceway
    
    Elbridge, New York
    
    
    5,500
    
    
    
    90
    
    
    5/8 mileLernerville Speedway
    
    Sarver, Pennsylvania
    
    
    8,000
    
    
    
    112
    
    
    1/2 mileVolusia County Speedway
    
    Barberville, Florida
    
    
    6,500
    
    
    
    90
    
    
    1/2 mile
 Cayuga County Fairgrounds
    Rolling Wheels Race Track
  Lernerville Speedway
  Volusia County Speedway
  Norman, Oklahoma Corporate Office
  UMP Office
  9




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##### Table of Contents



MARS Office
  Leased Racing Facilities
    
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
   
   
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  10




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Quarterly Common Stock Price Rangesfor the Year Ended September 30,2005
    
    2004Quarter
    
    High
    
    Low
    
    High
    
    Low1st
    
    
    5.50
    
    
    
    3.50
    
    
    
    5.00
    
    
    
    2.252nd
    
    
    5.60
    
    
    
    4.25
    
    
    
    4.00
    
    
    
    2.753rd
    
    
    5.60
    
    
    
    4.00
    
    
    
    2.90
    
    
    
    1.204th
    
    
    6.00
    
    
    
    3.80
    
    
    
    4.50
    
    
    
    1.50
  Recent Sales of Unregistered Securities
  Boundless Merger
   GPX Partners, L.L.C.
   Finger Lake International
     Cayuga Race Track
   11




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United Midwestern Promoters
  Debt
  Stock Grants
  Preferred Stock
 Series A
   Series B
    Series C
  12




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Financial Advisors
      
 Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
   Quantitative and Qualitative Disclosures About Market Risk
   13




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World of Outlaws, Inc.
  
    
    Cash and acquisition costs of $2,419,319
    
    Forgiveness of $1,450,000 plus accrued interest of $21,815 promissory note payable to the Company
    
    Assumptions of obligations for $612,500 in deposits World of Outlaws had received for
sanctioning of future sprint car racing events
    
    Assumption of $777,677 of other obligations of World of Outlaws
  Transportation equipment
    
    $
    184,926Other equipment
    
    
    8,875Trade-marks and Trade-names
    
    
    142,452Goodwill
    
    
    4,945,058Total assets acquired
    
    
    5,281,311Advances from promoters
    
    
    612,500Other current obligations
    
    
    777,677Total liabilities assumed
    
    
    1,390,177Net consideration paid in cash and debt forgiveness
    
    $
    3,891,134
  Dirt Motorsports, Inc.
     14




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DIRT
    
    
    Rolling Wheels
    
    
    Cayuga CountyCurrent Assets
    
    $
    459,217
    
    
    $
    
    
    
    $
    Property and Equipment
    
    
    249,635
    
    
    
    1,088,777
    
    
    
    2,293,333Goodwill
    
    
    2,536,700
    
    
    
    
    
    
    
    Total assets acquired
    
    
    3,245,552
    
    
    
    1,088,777
    
    
    
    2,293,333Current Liabilities
    
    
    1,130,910
    
    
    
    
    
    
    
    Net assets acquired
    
    $
    2,114,642
    
    
    $
    1,088,777
    
    
    $
    2,293,333
 United Midwestern Promoters Motorsports, LLC
    Cash paid for acquisition
    
    $
    1,800,000Value of stock issued
    
    
    600,000Value of warrants issued
    
    
    132,187Accrued points fund
    
    
    443,200Accounts payable assumed
    
    
    355,000Accrued closing costs
    
    
    125,443$
    3,455,830Allocation to goodwill
    
    $
    3,056,330Allocation to land, buildings and equipment
    
    
    99,500Allocation to trademarks
    
    
    100,000Allocation to contract rights
    
    
    200,000$
    3,455,830
 15




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SponsorshipYear
    
    Commitment2005
    
    $
    750,0002006
    
    
    950,000Total
    
    $
    1,700,000
    Lernerville Speedway
   (a)
    
    $500,000 was paid at the closing of the transactions under the Lernerville Agreement;(b)
    
    $110,000 was paid on May 30, 2005;(c)
    
    $110,000 was paid on October 30, 2005;(d)
    
    $110,000 will be payable on or prior to May 30, 2006;(e)
    
    $110,000 will be payable on or prior to May 30, 2007; and
    Consideration:Cash paid at closing
    
    $
    500,000Notes payable issued
    
    
    2,300,000Mortgage notes payable issued
    
    
    440,000Direct transaction costs
    
    
    138,249Total purchase price
    
    $
    3,378,249Land
    
    
    (1,124,800
    )Building & improvements
    
    
    (1,590,000
    )Vehicles and other operating assets
    
    
    (104,000
    )Excess of cost over fair value of net identifiable assets (goodwill)
    
    $
    559,449
 16




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##### Table of Contents



Mid America Racing Series (MARS)
   Vehicles
    
    $
    1,500Communications equipment
    
    
    500Excess of cost over fair value of identifiable assets (goodwill)
    
    
    148,000Total purchase price
    
    $
    150,000
 Volusia Speedway
   Consideration:Cash paid at closing
    
    $
    1,600,000Notes payable issued
    
    
    2,000,000Direct transaction costs
    
    
    26,393Total purchase price
    
    $
    3,626,393Land
    
    
    (2,700,000
    )Buildings & equipment
    
    
    (926,393
    )
 Results of Operations  Impact of Seasonality and Weather on Quarterly Results
    Results of Operations  Comparison of Years Ended September 30, 2005 (2005) and 2004 (2004)
  17




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Revenues
  Operating expenses
       Liquidity and Capital Resources
    18




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Payment Due by PeriodLess than
    
    2 to 3
    
    4 to 5
    
    After 5Total
    
    1 Year
    
    Years
    
    Years
    
    YearsContractual obligationsOperating leases
    
    $
    40,700
    
    
    $
    34,177
    
    
    $
    6,523
    
    
    $
    
    
    
    $
    Employment agreements
    
    $
    1,085,000
    
    
    $
    510,000
    
    
    $
    575,000
    
    
    $
    
    
    
    $
    Notes payable and accrued interest
    
    $
    14,644,216
    
    
    $
    8,523,941
    
    
    $
    2,034,015
    
    
    $
    4,078,995
    
    
    $
    7,265Total
    
    $
    15,769,916
    
    
    $
    9,068,118
    
    
    $
    2,615,538
    
    
    $
    4,078,995
    
    
    $
    7,265
  The Companys significant accounting policies include:
 Reclassifications
  Use of Estimates
  Principles of Consolidation
  Revenue Recognition and Deferred Revenue
   19




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Accounting for Advertising Barter Transactions
 Expense Recognition and Deferral
   Net loss Per Share
  2005

    
    
    2004Net (Loss)
    
    $
    (19,693,237
    )
    
    $
    (7,707,179
    )Dividends on preferred stock:Beneficial conversion, Series A
    
    
    
    
    
    
    (11,560,151
    )Warrants and beneficial conversions, Series B
    
    
    (5,000,000
    )
    
    
    Beneficial conversion, Series C
    
    
    (800,000
    )
    
    
    Exchange of Series A for Series B Preferred Stock
    
    
    (1,667,801
    )
    
    
    Exchange of warrants for Series C Preferred Stock
    
    
    (5,450,000
    )
    
    
    Cumulative preferred stock dividend
    
    
    
    
    
    
    (80,000
    )Net loss applicable to common stock
    
    $
    (32,611,038
    )
    
    $
    (19,347,330
    )Net loss applicable to common stock
per common share Basic and diluted
    
    $
    (2.40
    )
    
    $
    (1.11
    )Weighted
average common shares outstanding Basic and diluted
    
    
    13,576,804
    
    
    
    17,437,515
   Weighted AverageWeighted Average
    
    Contractual LifeShares
    
    Exercise Price
    
    (years)Series A warrants
    
    
    4,172,925
    
    
    $
    3.00
    
    
    
    5.8Series B warrants
    
    
    933,334
    
    
    $
    4.00
    
    
    
    6.4Series C warrants
    
    
    2,200,000
    
    
    $
    5.00
    
    
    
    6.4Placement agent warrants
    
    
    1,186,266
    
    
    $
    3.07
    
    
    
    6.0
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Weighted AverageWeighted Average
    
    Contractual LifeShares
    
    Exercise Price
    
    (years)UMP acquisition warrants
    
    
    40,000
    
    
    $
    3.65
    
    
    
    2.2Warrants issued in
exchange for the
surrender of common stock
    
    
    750,000
    
    
    $
    5.00
    
    
    
    6.8Employee stock options
    
    
    650,000
    
    
    $
    3.63
    
    
    
    4.3Total warrants and stock options outstanding
    
    
    9,932,525
    
    
    $
    3.74
    
    
    
    6.0
 Cash and Cash Equivalents
  Inventories
  Property and Equipment
   Purchase Accounting
  Intangible Assets
   Income Taxes
  21




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Concentration of Credit Risk
  New Accounting Pronouncements
         
 Item 7. Financial Statements and Supplementary Data
  22




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Item 8. Changes in and Disagreements on Accounting and Financial Disclosure
  
 Item 8A. Evaluation of Internal and Disclosure Controls
   
 Item 8B. Other Information
  
 PART III
 
 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
  Name
    
    Age
    
    PositionPaul A. Kruger
    
    
    51
    
    
    Chairman of the Board, Chief Executive Officer and PresidentBrian M. Carter
    
    
    36
    
    
    Vice President and Chief Financial OfficerJoseph G. Dickey
    
    
    36
    
    
    Vice President and Chief Administrative OfficerDaniel W. Rumsey
    
    
    44
    
    
    DirectorLyle W. Miller
    
    
    61
    
    
    Director
 Paul A. Kruger
 Brian M. Carter
 Joseph G. Dickey
 23




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Daniel W. Rumsey
 Lyle W. Miller
 Board Composition and Committees
   Director Compensation
  Indebtedness of Directors and Executive Officers
  Family Relationships
  Compliance with Section 16 (a) of the Exchange Act
  24




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Code of Ethics
    
 Item 10. Executive Compensation
  SUMMARY COMPENSATION TABLE OF EXECUTIVES
 Long Term CompensationAnnual Compensation
    
    AwardsRestricted
    
    SecuritiesName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Stock
    
    UnderlyingPrincipal
    
    Fiscal
    
    Salary
    
    Bonus
    
    Compensation
    
    Awards
    
    Options/Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    SARS (#)Paul A. Kruger
    
    
    2004
    
    
    
    180,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Chairman/CEO/President
    
    
    2005
    
    
    
    180,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    50,000Brian M. Carter
    
    
    2004
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0CFO
    
    
    2005
    
    
    
    120,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    300,000Joseph G. Dickey
    
    
    2004
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0CAO
    
    
    2005
    
    
    
    100,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    300,000
  Employment Contracts
    25




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OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
 Number of SecuritiesUnderlying
    
    % of Total Options/SARsOptions/SARs
    
    Granted to Employees in
    
    Exercise or Base
    
    ExpirationName
    
    Granted (#)
    
    Fiscal Year
    
    Price ($/Sh)
    
    DatePaul A. Kruger
    
    
    50,000
    
    
    
    8
    %
    
    
    3.50
    
    
    
    10/08/2009Brian M. Carter
    
    
    300,000
    
    
    
    46
    %
    
    
    3.65
    
    
    
    02/01/2010Joseph G. Dickey
    
    
    300,000
    
    
    
    46
    %
    
    
    3.65
    
    
    
    02/01/2010
   
 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
 Item 12. Certain Relationships and Related Transactions
   26




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Item 13. Exhibits
  2.1
    
    Asset Purchase Agreement, dated as of February 4, 2004, by and among World Of Outlaws, Inc.
a Texas corporation, Ted Johnson, Boundless Motor Sports Racing, Inc., a Colorado corporation,
and WOWI Acquisition, Inc., a Texas corporation (Incorporated by reference to Exhibit 2.1 of
the Companys Current Report on Form 8-K filed with the Commission on February 10, 2004).2.2
    
    Stock Purchase Agreement, dated as of August 12, 2003, by and among World of Outlaws, Inc., a
Texas corporation (WoO), Ted Johnson, the holder of all outstanding capital of WoO, and the
Company. (Incorporated by reference to Exhibit 2.9 of the Companys Annual Report on Form
10-KSB filed for the year ended September 30, 2003).2.3
    
    Amendment No. 1 to Stock Purchase Agreement dated as of November 28, 2003, by and among World
of Outlaws, Inc., a Texas corporation (WoO), Ted Johnson, the holder of all outstanding
capital of WoO, and the Company. (Incorporated by reference to Exhibit 2.10 of the Companys
Annual Report on Form 10-KSB filed for the year ended September 30, 2003).2.4
    
    Stock Purchase Agreement, dated as of August 13, 2003, by and among DIRT Motorsports, Inc., a
New York corporation (DIRT), Glenn Donnelly, the holder of all outstanding capital of DIRT,
the Company, and Boundless Track Operations, Inc. a Nevada corporation (Incorporated by
reference to Exhibit 2.3 of the Companys Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2003).2.5
    
    Amendment No. 1 to Stock Purchase Agreement, dated as of October 2, 2003, by and among DIRT
Motorsports, Inc., a New York corporation (DIRT), Glenn Donnelly, the holder of all
outstanding capital of DIRT, the Company, and Boundless Track Operations, Inc. a Nevada
corporation (Incorporated by reference to Exhibit 2.4 of the Companys Annual Report on Form
10-KSB for the fiscal year ended September 30, 2003).2.6
    
    Contract of Sale dated as of August 13, 2003, by and among Mr. Glenn Donnelly, the Company,
and Boundless Track Operations, Inc. a Nevada corporation (Incorporated by reference to
Exhibit 2.7 of the Companys Annual Report on Form 10-KSB for the fiscal year ended September
30, 2003).2.7
    
    Amendment No. 1 to Contract of Sale dated as of October 3, 2003, by and among Mr. Glenn
Donnelly, the Company, and Boundless Track Operations, Inc. a Nevada corporation (Incorporated
by reference to Exhibit 2.8 of the Companys Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2003).2.8
    
    Extension Agreement dated as of May 21, 2004, by and among DIRT Motorsports, Inc., Glenn
Donnelly, Bruno M. DiMatteo, Paul Vitale, the Company, Boundless Track Operations, Inc.,
Boundless Racing, Inc., and Finger Lakes International, Inc. (Incorporated by reference to
Exhibit 10.13 of the Companys Quarterly Report on Form 10-QSB for the fiscal year ended March
31, 2004).2.9
    
    Asset Purchase Agreement dated as of May 24, 2004, by and among Finger Lake International,
Inc., a New York corporation, Glenn Donnelly, Bruno M. DiMatteo and Paul Vitale, Boundless
Motor Sports Racing, Inc., and Boundless Racing, Inc. (Incorporated by reference to Exhibit
2.1 of the Companys Current Report on Form 8-K, filed with the Commission on June 2, 2004).2.10
    
    Subsequent Extension Agreement dated as of May 25, 2004, by and among DIRT Motorsports, Inc.,
Glenn Donnelly, Boundless Motor Sports Racing, Inc. and Boundless Racing, Inc. (Incorporated
by reference to Exhibit 2.6 of the Companys Current Report on Form 8-K filed with the
Commission on August 12, 2004).2.11
    
    Amendment to Agreements dated as of July 30, 2004, by and among DIRT Motorsports, Inc., Glenn
Donnelly, Boundless Motor Sports Racing, Inc. and Boundless Racing, Inc. (Incorporated by
reference to Exhibit 2.7 of the Companys Current Report on Form 8-K filed with the Commission
on August 12, 2004).2.12
    
    Membership Interests Purchase Agreement, dated as of November 30, 2004, by and among United
Midwestern Promoters Motorsports, LLC, National Speedways of Iowa, Inc., Track Enterprises,
Inc., Ken Schrader Racing, Inc., Lebanon Valley Auto Racing Corp., and Boundless Motor Sports
Racing, Inc. (Incorporated by reference to Exhibit 2.1 of the Companys Current Report on Form
8-K filed with the Commission on December 6, 2004).4.1
    
    Series A Convertible Preferred Stock Purchase Agreement, dated as of July 30, 2004, by and
among Boundless Motor Sports Racing, Inc., a Colorado corporation, and the purchasers set
forth therein. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on
Form 8-K filed with the Commission on August 4, 2004).4.2
    
    Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock. (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on
Form 8-K filed with the Commission on August 4, 2004).4.3
    
    Form of Series A Warrant. (Incorporated by reference to Exhibit 4.3 of the Companys Current
Report on Form 8-K filed with the Commission on August 4, 2004).
 27




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##### Table of Contents



4.4
    
    Form of Exchange Warrant. (Incorporated by reference to Exhibit 4.4 of the Companys Current
Report on Form 8-K filed with the Commission on August 4, 2004).4.5
    
    Registration Rights Agreement dated as of July 30, 2004, by and among Boundless Motor Sports
Racing, Inc., a Colorado corporation, and the purchasers set forth therein. (Incorporated by
reference to Exhibit 4.5 of the Companys Current Report on Form 8-K filed with the Commission
on August 4, 2004).4.6
    
    Promissory Note dated July 30, 2004. (Incorporated by reference to Exhibit 4.6 of the
Companys Current Report on Form 8-K filed with the Commission on August 4, 2004).4.8
    
    Series B Convertible Preferred Stock Purchase Agreement, dated as of February 25, 2005, by
and among Boundless Motor Sports Racing, Inc., a Colorado corporation, and the purchasers set
forth therein. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on
Form 8-K filed with the Commission on March 2, 2005).4.9
    
    Certificate of Designation of the Relative Rights and Preferences of the Series B Convertible
Preferred Stock. (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on
Form 8-K filed with the Commission on March 2, 2005).4.10
    
    Form of Series B Warrant. (Incorporated by reference to Exhibit 4.3 of the Companys Current
Report on Form 8-K filed with the Commission on March 2, 2005).4.11
    
    Registration Rights Agreement dated as of February 25, 2005, by and among Boundless Motor
Sports Racing, Inc., a Colorado corporation, and the purchasers set forth therein.
(Incorporated by reference to Exhibit 4.4 of the Companys Current Report on Form 8-K filed
with the Commission on March 2, 2005).4.12
    
    Series C Convertible Preferred Stock Purchase Agreement, dated as of February 25, 2005, by
and among Boundless Motor Sports Racing, Inc., a Colorado corporation, and the purchasers set
forth therein. (Incorporated by reference to Exhibit 4.5 of the Companys Current Report on
Form 8-K filed with the Commission on March 2, 2005).4.13
    
    Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible
Preferred Stock. (Incorporated by reference to Exhibit 4.6 of the Companys Current Report on
Form 8-K filed with the Commission on March 2, 2005).4.14
    
    Form of Series C Warrant. (Incorporated by reference to Exhibit 4.7 of the Companys Current
Report on Form 8-K filed with the Commission on March 2, 2005).4.15
    
    Registration Rights Agreement dated as of February 25, 2005, by and among Boundless Motor
Sports Racing, Inc., a Colorado corporation, and the purchasers set forth therein.
(Incorporated by reference to Exhibit 4.8 of the Companys Current Report on Form 8-K filed
with the Commission on March 2, 2005).4.16
    
    Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock (filed as Exhibit 4.2 to the Companys Current Report on Form 8-K filed with
the Commission on August 4, 2004).4.17
    
    Form of Series A Warrant (filed as Exhibit 4.3 to the Companys Current Report on Form 8-K
filed with the Commission on August 4, 2004).10.1
    
    Promissory Note dated as of February 4, 2004. (Incorporated by reference to Exhibit 10.1 of
the Companys Current Report on Form 8-K filed with the Commission on February 10, 2004).10.2
    
    Security Agreement dated as of February 4, 2004, by and between WOWI Acquisition, Inc., a
Texas corporation, and World of Outlaws, Inc. (Incorporated by reference to Exhibit 10.2 of
the Companys Current Report on Form 8-K filed with the Commission on February 10, 2004).10.3
    
    Amendment No. 1 to Promissory Note dated as of October 30, 2003, by and between World of
Outlaws, Inc., a Texas corporation, and the Company (Incorporated by reference to Exhibit 10.4
of the Companys Annual Report on Form 10-KSB filed for the year ended September 30, 2003).10.4
    
    Amendment No. 2 to Promissory Note dated as of November 28, 2003, by and between World of
Outlaws, Inc., a Texas corporation, and the Company (Incorporated by reference to Exhibit 10.5 of the Companys Annual Report on Form
10-KSB filed for the year ended September 30, 2003).10.5
    
    Pledge Agreement dated as of June 26, 2003 by and between the Company and Ted Johnson.
(Incorporated by reference to Exhibit 10.6 of the Companys Annual Report on Form 10-KSB filed
for the year ended September 30, 2003).10.6
    
    Promissory Note dated January 23, 2004 by and between the Company and SXJE, LLC (Incorporated
by reference to Exhibit 10.7 of the Companys Annual Report on Form 10-KSB filed for the year
ended September 30, 2003).10.7
    
    Guaranty dated January 23, 2004 by Paul Kruger in favor of SXJE, LLC. (Incorporated by
reference to Exhibit 10.8 of the Companys Annual Report on Form 10-KSB filed for the year
ended September 30, 2003).
 28




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##### Table of Contents



10.8
    
    Amendment to Promissory Notes and Loans dated as of April 15, 2004 by and between Mr. Paul Kruger and the Company.10.9
    
    Credit Agreement dated as of April 15, 2004, by and between the Company and Mr. Paul A. Kruger.10.10
    
    Promissory Note dated as of April 15, 2004 issued by the Company as maker to Mr. Paul Kruger as Payee.10.11
    
    Security Agreement dated as of April 15, 2004, by and between the Company and Mr. Paul A. Kruger.10.12
    
    Promissory Note dated May 19, 2004, by and between the Company and Boundless Investments, LLC.10.13
    
    Form of Promissory Note dated January 13, 2005, issued by Boundless Motor Sports Racing,
Inc. (Incorporated by reference to exhibit 10.1 of the Companys current report on 8-K filed
with the Commission on January 19, 2005).10.14
    
    Asset Purchase Agreement, dated as of June 7, 2005, by and among Volusia Operations, LLC,
Volusia Speedway, Inc. and Richard F. Murphy. (Incorporated by reference to exhibit 10.1 if
the Companys current report on 8-K filed with the Commission on July 7, 2005).10.15
    
    Form of Promissory Note dated June 30, 2005, issued by Boundless Motor Sports Racing, Inc.
(Incorporated by reference to exhibit 10.2 of the Companys current report on 8-K filed with
the Commission on July 7, 2005).10.16
    
    Form of Mortgage dated June 30, 2005, issued by Boundless Motor Sports Racing, Inc.
(Incorporated by reference to exhibit 10.3 of the Companys current report on 8-K filed with
the Commission on July 7, 2005).10.17
    
    Form of Security Agreement dated June 30, 2005, by and between Volusia Operations, LLC and
Richard F. Murphy. (Incorporated by reference to exhibit 10.4 of the Companys current report
on 8-K filed with the Commission on July 7, 2005).10.18
    
    Form of Guaranty dated June 30, 2005, issued by Boundless Motor Sports Racing, Inc. for the
benefit of Richard F. Murphy. (Incorporated by reference to exhibit 10.5 of the Companys
current report on 8-K filed with the Commission on July 7, 2005).10.19
    
    Form of Promissory Note dated June 30, 2005, issued by Boundless Motor Sports Racing, Inc.
(Incorporated by reference to exhibit 10.1 of the Companys current report on 8-K filed with
the Commission on July 8, 2005).10.20
    
    Form of Warrant dated June 30, 2005, issued by Boundless Motor Sports Racing, Inc.
(Incorporated by reference to exhibit 10.2 of the Companys current report on 8-K filed with
the Commission on July 8, 2005).10.21
    
    Securities Exchange Agreement dated July 26, 2005, by and between Mr. Paul A. Kruger and
Dirt Motor Sports, Inc. (Incorporated by reference to exhibit 10.1 of the Companys current
report on 8-K filed with the Commission on July 26, 2005).10.22
    
    Business Relationship Termination Agreement dated August 9, 2005, by and among Dirt Motor
Sports, Inc., a Delaware corporation, Bobby P. Hartslief, Renee Hartslief, Cale Henry
Hartslief, Tess Jordan Hartslief and Paul A. Kruger. (Incorporated by reference to exhibit
10.1 of the Companys current report on 8-K filed with the Commission on August 10, 2005).10.23
    
    Business Relationship Termination Agreement dated November 18, 2005, by and among Dirt Motor
Sports, Inc., a Delaware corporation, and Glenn Donnelly.16.1
    
    Letter from Michael Johnson and Co., LLC dated April 28, 2004 regarding change in Certifying
Accountant (incorporated by reference to Exhibit 16.1 of the Companys Current Report on Form
8-K reporting under Item 4 filed with the Commission on April 28, 2004).23.1
    
    Consent of Independent Auditors*31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Paul A. Kruger *31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Brian M. Carter *32
    
    Section 1350 Certification of Paul A. Kruger and Brian M. Carter *
 
 *
    
    Filed herewith 
 Item 14. Principal Accountant Fees and Services
 Audit Fees
  29




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##### Table of Contents



Audit Related Fees
  Tax Fees
  All Other Fees
  Compatibility of Certain Fees with Independent Accountants Independence
  Previous Independent Accountants
  Reports of the Audit Committee
  30




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##### Table of Contents



SIGNATURES
  Dirt Motor Sports, Inc.(Registrant)By:
    
    /s/
    
    Paul A. Kruger
    
    
    
    Date: December 29, 2005Paul A. Kruger, Chairman and Chief Executive OfficerBy:
    
    /s/
    
    Brian M. Carter
    
    
    
    Date: December 29, 2005Brian M. Carter, Chief Financial
Officer
  By:
    
    /s/
    
    Paul A. Kruger
    
    
    
    Date: December 29, 2005Paul A. Kruger, DirectorBy:
    
    /s/
    
    Daniel W. Rumsey
    
    
    
    Date: December 29, 2005Daniel W. Rumsey, DirectorBy:
    
    /s/
    
    Lyle W. Miller
    
    
    
    Date: December 29, 2005Lyle W. Miller, Director
 31




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     
 32




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30, 2005 and September 30, 2004
 September 30,
    
    
    September 30,2005
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    759,294
    
    
    $
    5,005,930Accounts receivable  trade
    
    
    353,859
    
    
    
    356,614Inventory
    
    
    327,592
    
    
    
    72,891Prepaid expenses and other current assets
    
    
    301,559
    
    
    
    93,979Total current assets
    
    
    1,742,304
    
    
    
    5,529,414Land, buildings and equipment, net
    
    
    10,848,201
    
    
    
    3,998,112Trademarks
    
    
    100,000
    
    
    
    142,452Goodwill, net of impairment of $8,812,097 in 2005 and $2,954,978 in 2004
    
    
    1,508,440
    
    
    
    4,431,466Other assets, net of amortization of $89,673 in 2005 and $22,418 in 2004
    
    
    231,638
    
    
    
    214,369Total assets
    
    $
    14,430,583
    
    
    $
    14,315,813LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilitiesAccounts payable
    
    $
    848,046
    
    
    $
    358,354Accrued liabilities
    
    
    3,447,164
    
    
    
    2,452,184Deferred revenues
    
    
    882,776
    
    
    
    1,259,028Notes payable
    
    
    5,727,788
    
    
    
    160,000Total current liabilities
    
    
    10,905,774
    
    
    
    4,229,566Notes
payable  long term , net of discount of $1,333,330 in 2004
    
    
    5,329,722
    
    
    
    666,667Total liabilities
    
    
    16,235,496
    
    
    
    4,896,233Stockholders
Equity (deficit)Series A Preferred stock, $0.01 par value; 7,500 shares authorized;
4,790 shares issued and outstanding at September 30, 2004
    
    
    
    
    
    
    12,933,988Series B Preferred stock, $0.01 par value; 8,000 shares authorized;
6,883 shares issued and outstanding at September 30, 2005
    
    
    20,648,456
    
    
    
    Series C Preferred stock, $0.01 par value; 2,500 shares authorized;
2,500 shares issued and outstanding at September 30, 2005
    
    
    6,250,000
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized; 11,720,555
and 14,225,168 shares issued and outstanding at September 30, 2005 and
September 30, 2004, respectively
    
    
    1,172
    
    
    
    1,422Additional paid-in capital
    
    
    5,420,492
    
    
    
    4,665,966Accumulated deficit
    
    
    (34,125,033
    )
    
    
    (8,181,796
    )Total
stockholders equity (deficit)
    
    
    (1,804,913
    )
    
    
    9,419,580Total
liabilities and stockholders equity (deficit)
    
    $
    14,430,583
    
    
    $
    14,315,813
  33




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004RevenuesRace sanctioning and event fees
    
    $
    6,759,167
    
    
    $
    1,929,394Admission fees and ticket sales
    
    
    2,828,576
    
    
    
    519,009Sponsorship and advertising revenue
    
    
    1,390,949
    
    
    
    326,756Merchandise sales
    
    
    1,138,781
    
    
    
    614,916Other revenue
    
    
    416,626
    
    
    
    211,272Total revenues
    
    $
    12,534,099
    
    
    $
    3,601,347Operating expensesTrack and event operations
    
    
    14,615,658
    
    
    
    3,330,871Sales and marketing
    
    
    1,278,043
    
    
    
    319,172Merchandise operations and cost of sales
    
    
    936,731
    
    
    
    354,883General and administrative
    
    
    3,532,452
    
    
    
    2,458,854Debt restructuring expense
    
    
    
    
    
    
    800,000Goodwill impairment
    
    
    5,999,571
    
    
    
    2,954,978Depreciation and amortization
    
    
    511,183
    
    
    
    91,304Total operating expenses
    
    
    26,873,638
    
    
    
    10,310,062Loss from operations
    
    
    (14,339,539
    )
    
    
    (6,708,715
    )Other (Expenses) IncomeInterest income
    
    
    23,203
    
    
    
    16,654Interest expense
    
    
    (5,360,661
    )
    
    
    (1,015,118
    )Other expense
    
    
    (16,240
    )
    
    
    Total Other (Expense) Income
    
    
    (5,353,698
    )
    
    
    (998,464
    )Net loss
before income taxes
    
    $
    (19,693,237
    )
    
    $
    (7,707,179
    )Income taxes
    


    
    

Net (Loss)
    
    $
    (19,693,237
    )
    
    $
    (7,707,179
    )Dividends on preferred stock:Beneficial conversion, Series A
    
    
    
    
    
    
    (11,560,151
    )Warrants and beneficial conversion, Series B
    
    
    (5,000,000
    )
    
    
    Beneficial conversion, Series C
    
    
    (800,000
    )
    
    
    Exchange of Series A for Series B Preferred Stock
    
    
    (1,667,801
    )
    
    
    Exchange of warrants for Series C Preferred Stock
    
    
    (5,450,000
    )
    
    
    Cumulative preferred stock dividend
    
    
    
    
    
    
    (80,000
    )Net loss applicable to common stock
    
    $
    (32,611,038
    )
    
    $
    (19,347,330
    )Net loss applicable to common stock
per common share Basic and diluted
    
    $
    (2.40
    )
    
    $
    (1.11
    )Weighted average common shares outstanding Basic and diluted
    
    
    13,576,804
    
    
    
    17,437,515
  34




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 For the Years Ended September 30, 2004 and 2005
 AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amounts
    
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBalance, September 30, 2003
    
    
    
    
    
    
    
    
    
    
    15,740,500
    
    
    $
    1,574
    
    
    $
    171,002
    
    
    $
    (474,617
    )
    
    $
    (302,041
    )Issuance of common shares
    
    
    
    
    
    
    
    
    
    
    3,189,670
    
    
    
    319
    
    
    
    869,948
    
    
    
    
    
    
    
    870,267Issuance of Series A preferred shares
    
    
    4,790
    
    
    
    12,933,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,933,988Offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,373,789
    )
    
    
    
    
    
    
    (1,373,789
    )Contribution by shareholders from cancellation
of shareholder loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,198,334
    
    
    
    
    
    
    
    2,198,334Payment of debt restructuring fees by
shareholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800,000
    
    
    
    
    
    
    
    800,000Value assigned to rights to receive warrants
in connection with note payable and
beneficial conversion rights of note payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000,000
    
    
    
    
    
    
    
    2,000,000Retirement of shares
    
    
    
    
    
    
    
    
    
    
    (4,700,000
    )
    
    
    (470
    )
    
    
    470
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,707,179
    )
    
    
    (7,707,179
    )Balance, September 30, 2004
    
    
    4,790
    
    
    $
    12,933,988
    
    
    
    14,230,170
    
    
    $
    1,423
    
    
    $
    4,665,965
    
    
    $
    (8,181,796
    )
    
    $
    9,419,580Common stock issued, acquisitions
    
    
    
    
    
    
    
    
    
    
    164,384
    
    
    
    16
    
    
    
    599,984
    
    
    
    
    
    
    
    600,000Common stock issued
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    5
    
    
    
    8,995
    
    
    
    
    
    
    
    9,000Partial conversion of note payable into Series A
preferred stock
    
    
    426
    
    
    
    1,149,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,149,622Value assigned to beneficial conversion feature and
warrants issued in connection with the
issuance of Series B preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000,000
    
    
    
    
    
    
    
    5,000,000Issuance of Series B preferred stock
    
    
    1,667
    
    
    
    5,000,000
    
    
    
    
    
    
    
    
    
    
    
    (5,000,000
    )
    
    
    
    
    
    
    Exchange of warrant for Series C preferred stock
    
    
    2,500
    
    
    
    6,250,000
    
    
    
    
    
    
    
    
    
    
    
    (800,000
    )
    
    
    (6,250,000
    )
    
    
    (800,000
    )Value assigned to beneficial conversion feature of
Series C preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800,000
    
    
    
    
    
    
    
    800,000Exchange of Series B preferred stock for Series A
preferred stock, increase in liquidation
preference
    
    
    
    
    
    
    1,564,846
    
    
    
    
    
    
    
    
    
    
    
    (1,564,846
    )
    
    
    
    
    
    
    Value assigned to warrants issued in connection
with acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,187
    
    
    
    
    
    
    
    132,187
 35




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##### Table of Contents



AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amounts
    
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalPlacement agent fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500,000
    )
    
    
    
    
    
    
    (500,000
    )Registration and other costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,000
    )
    
    
    
    
    
    
    (45,000
    )Value assigned to warrants issued in connection
with issuance of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,412,935
    
    
    
    
    
    
    
    3,412,935Cancellation of common stock in connection with
employee termination
    
    
    
    
    
    
    
    
    
    
    (450,000
    )
    
    
    (45
    )
    
    
    45
    
    
    
    
    
    
    
    Agreement to cancel 768,999 shares of common
stock in connection with a business relationship
Termination agreement
    
    
    
    
    
    
    
    
    
    
    (768,999
    )
    
    
    (77
    )
    
    
    (1,289,923
    )
    
    
    
    
    
    
    (1,290,000
    )Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (1,500,000
    )
    
    
    (150
    )
    
    
    150
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,693,237
    )
    
    
    (19,693,237
    )Balance, September 30, 2005
    
    
    9,383
    
    
    $
    26,898,456
    
    
    
    11,720,554
    
    
    $
    1,172
    
    
    $
    5,420,492
    
    
    $
    (34,125,033
    )
    
    $
    (1,804,913
    )
  36




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##### Table of Contents



DIRT
MOTOR SPORTS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2005 and 2004
 Year endedSeptember 30,:2005
    
    
    2004Cash flows from operating activities:Net (loss)
    
    $
    (19,693,237
    )
    
    $
    (7,707,179
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    511,183
    
    
    
    91,305Non-cash interest expense, notes payable
    
    
    5,071,612
    
    
    
    666,667Common stock issued for expenses
    
    
    9,000
    
    
    
    208,650Restructuring fees paid by shareholder
    
    
    
    
    
    
    800,000Impairment of goodwill
    
    
    5,999,571
    
    
    
    2,954,978Increase (decrease) in cash for changes in:Accounts receivable
    
    
    2,755
    
    
    
    (356,614
    )Inventory
    
    
    (254,701
    )
    
    
    (72,891
    )Prepaid expenses and other current assets
    
    
    (207,580
    )
    
    
    (84,932
    )Other non-current assets
    
    
    118,252
    
    
    
    Accounts payable
    
    
    134,692
    
    
    
    52,704Accrued liabilities
    
    
    166,404
    
    
    
    1,287,515Deferred revenue
    
    
    (780,876
    )
    
    
    1,259,028Net cash (used in) operating activities
    
    
    (8,922,925
    )
    
    
    (900,769
    )Cash flows from investing activities:Purchase of property, contract rights, trademarks and goodwill
    
    
    (8,753,285
    )
    
    
    (505,508
    )Advances on acquisition
    
    
    
    
    
    
    (9,068,757
    )Additions to other assets
    
    
    
    
    
    
    (207,249
    )Net cash (used in) investing activities
    
    
    (8,753,285
    )
    
    
    (9,781,514
    )Cash flows from financing activities:Issuance of common stock for cash
    
    
    
    
    
    
    260,000Issuance of preferred stock for cash
    
    
    5,000,000
    
    
    
    10,625,918Cost of stock issuance
    
    
    (545,000
    )
    
    
    (3,652,516
    )Payments on notes payable
    
    
    (1,385,417
    )
    
    
    Proceeds from issuance of notes payable
    
    
    10,359,991
    
    
    
    8,454,196Net cash provided by financing activities
    
    
    13,429,574
    
    
    
    15,687,598Net increase (decrease) in cash and cash equivalents
    
    
    (4,246,636
    )
    
    
    5,005,315Cash and cash equivalents, beginning of period
    
    
    5,005,930
    
    
    
    615Cash and cash equivalents, end of period
    
    $
    759,294
    
    
    $
    5,005,930Supplemental schedule of non-cash activities:Conversion of Convertible Preferred Stock: Series A to Series B
    
    $
    15,648,456
    
    
    $
    Notes issued in conjunction with the agreement to surrender
common stock
    
    $
    1,323,000
    
    
    $
    Issuance of warrants, acquisitions
    
    $
    132,187
    
    
    $
    Cash payments for interest
    
    $
    113,940
    
    
    $
    257,436Issuance of common stock, acquisitions
    
    $
    600,000
    
    
    $
    311,667Payment of not receivable through acquisition
    
    $
    
    
    
    $
    612,047Assumption of sanction deposits through acquisition
    
    $
    
    
    
    $
    1,042,780Conversion of note payable and accrued interest to preferred stock
    
    $
    
    
    
    $
    1,100,007Cancellation of debt by shareholder
    
    $
    
    
    
    $
    2,198,334Non cash offering costs
    
    $
    
    
    
    $
    (165,726
    )
  37




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##### Table of Contents



Dirt Motor Sports, Inc.
 
 Notes to Consolidated Financial Statements
September 30, 2005 and 2004
 NOTE 1  THE COMPANY
 Nature of Business
         NOTE 2  GOING CONCERN
    38




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##### Table of Contents



NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Reclassifications
  Use of Estimates
  Principles of Consolidation
  Revenue Recognition and Deferred Revenue
  Accounting
for Advertising Barter Transactions
 Expense Recognition and Deferral
  Net Loss Per Share and Warrants Outstanding
  Net (Loss)
    
    $
    (19,693,237
    )
    
    $
    (7,707,179
    )Dividends on preferred stock:Beneficial conversion, Series A
    
    
    
    
    
    
    (11,560,151
    )Warrants and beneficial conversion, Series B
    
    
    (5,000,000
    )
    
    
    Beneficial conversion, Series C
    
    
    (800,000
    )
    
    
    Exchange of Series A for Series B Preferred Stock
    
    
    (1,667,801
    )
    
    
    Exchange of warrants for Series C Preferred Stock
    
    
    (5,450,000
    )
    
    
    Cumulative preferred stock dividend
    
    
    
    
    
    
    (80,000
    )Net loss applicable to common stock
    
    $
    (32,611,038
    )
    
    $
    (19,347,330
    )
 39




---



##### Table of Contents



Net loss applicable to common stock
per common share Basic and diluted
    
    $
    (2.40
    )
    
    $
    (1.11
    )Weighted average common shares outstanding Basic and diluted
    
    
    13,576,804
    
    
    
    17,437,515
   Weighted
    
    Weighted AverageAverage
    
    Contractual LifeShares
    
    Exercise Price
    
    (years)Series A warrants
    
    
    4,172,925
    
    
    
    $3.00
    
    
    
    5.8Series B warrants
    
    
    933,334
    
    
    
    $4.00
    
    
    
    6.4Series C warrants
    
    
    2,200,000
    
    
    
    $5.00
    
    
    
    6.4Placement agent warrants
    
    
    1,186,266
    
    
    
    $3.07
    
    
    
    6.0UMP acquisition warrants
    
    
    40,000
    
    
    
    $3.65
    
    
    
    2.2Employee
Stock Options
    
    
    650,000
    
    
    
    $3.63
    
    
    
    4.3Warrants issued in
exchange for the
surrender of common stock
    
    
    750,000
    
    
    
    $5.00
    
    
    
    6.8Total warrants outstanding
    
    
    9,932,525
    
    
    
    $3.74
    
    
    
    6.0
 Cash and Cash Equivalents
  Inventories
  Accounts Receivable
  Property and Equipment
   Purchase Accounting
  40




---



##### Table of Contents



Intangible Assets
   Income Taxes
  Stock Based Compensation
   2005Interest rates, (Zero-coupon U.S. Government Bonds
issued with remaining life equal to expected term of
options
    
    
    2.5
    %Dividend yields
    
    
    0
    %Volatility factors of the common stock
    
    
    146
    %Weighted average expected life
    
    2.0 yearsResulting weighted average grant date fair value
    
    $
    3.84Additional expense under fair value method
    
    $
    2,494,000
   2005Basic:Net loss applicable to common stock, as reported
    
    $
    (32,611,038
    )Stock-based compensation included in the determination of net loss under APB No. 25
    
    
    Stock-based compensation to be included the determination of net loss under SFAS No.
148
    
    
    (1,385,000
    )Pro-forma net loss
    
    $
    (33,996,038
    )Net loss applicable to common stock, per common share:As reported
    
    $
    (2.40
    )Pro-forma
    
    $
    (2.50
    )
 Concentration of Credit Risk
  New Accounting Pronouncements
      41




---



##### Table of Contents



NOTE 4  ACQUISITIONS
 World of Outlaws, Inc.
  
    
    Cash and acquisition costs of $2,419,319
    
    Forgiveness of $1,450,000 plus accrued interest of $21,815 promissory note payable to the Company
    
    Assumptions of obligations for $612,500 in deposits World of Outlaws had received for
sanctioning of future sprint car racing events
    
    Assumption of $777,677 of other obligations of World of Outlaws
  Transportation equipment
    
    $
    184,926Other equipment
    
    
    8,875Trade-marks and Trade-names
    
    
    142,452Goodwill
    
    
    4,945,058Total assets acquired
    
    
    5,281,311Advances from promoters
    
    
    612,500Other current obligations
    
    
    777,677Total liabilities assumed
    
    
    1,390,177Net consideration paid in cash and debt forgiveness
    
    $
    3,891,134
  Dirt Motorsports, Inc.
   42




---



##### Table of Contents



DIRT
    
    
    Rolling Wheels
    
    
    Cayuga CountyCurrent Assets
    
    $
    459,217
    
    
    $
    
    
    
    $
    Property and Equipment
    
    
    249,635
    
    
    
    1,088,777
    
    
    
    2,293,333Goodwill
    
    
    2,536,700
    
    
    
    
    
    
    
    Total assets acquired
    
    
    3,245,552
    
    
    
    1,088,777
    
    
    
    2,293,333Current Liabilities
    
    
    1,130,910
    
    
    
    
    
    
    
    Net assets acquired
    
    $
    2,114,642
    
    
    $
    1,088,777
    
    
    $
    2,293,333
 United Midwestern Promoters Motorsports, LLC
   43
    Table of Contents  Cash paid for acquisition
    
    $
    1,800,000Value of stock issued
    
    
    600,000Value of warrants issued
    
    
    132,187Accrued points fund
    
    
    443,200Accounts payable assumed
    
    
    355,000Closing costs
    
    
    125,443$
    3,455,830Allocation to goodwill
    
    $
    3,056,330Allocation to land, buildings and equipment
    
    
    99,500Allocation to trademarks
    
    
    100,000Allocation to contract rights
    
    
    200,000$
    3,455,830
  SponsorshipYear
    
    
    
    
    
    Commitment2005
    
    
    
    
    
    $
    750,0002006
    
    
    
    
    
    
    950,000Total
    
    
    
    
    
    $
    1,700,000
    Lernerville Speedway
   (a)
    
    $500,000 was paid at the closing of the transactions under the Lernerville Agreement;(b)
    
    $110,000 was paid on May 30, 2005;(c)
    
    $110,000 was paid on October 30, 2005;(d)
    
    $110,000 will be payable on or prior to May 30, 2006;(e)
    
    $110,000 will be payable on or prior to May 30, 2007; and
    44
    Table of Contents  Consideration:Cash paid at closing
    
    $
    500,000Notes payable issued
    
    
    2,300,000Mortgage notes payable issued
    
    
    440,000Direct transaction costs
    
    
    138,249Total purchase price
    
    $
    3,378,249Land
    
    
    (1,124,800
    )Building & improvements
    
    
    (1,590,000
    )Vehicles and other operating assets
    
    
    (104,000
    )Excess of cost over fair value of net identifiable assets (goodwill)
    
    $
    559,449
 Mid America Racing Series (MARS)
   Vehicles
    
    $
    1,500Communications equipment
    
    
    500Excess of cost over fair value of identifiable assets (goodwill)
    
    
    148,000Total purchase price
    
    $
    150,000
 Volusia Speedway
   Consideration:Cash paid at closing
    
    $
    1,600,000Notes payable issued
    
    
    2,000,000Direct transaction costs
    
    
    26,393Total purchase price
    
    $
    3,626,393Land
    
    
    (2,700,000
    )Buildings & equipment
    
    
    (926,393
    )
 NOTE 5  PROPERTY AND EQUIPMENT
  Cost
    
    
    Depreciable LifeLand
    
    
    6,916,338
    
    
    N/ATransportation equipment
    
    
    1,370,503
    
    
    5 - 7 yearsBuildings and grandstands
    
    
    3,075,733
    
    
    7 - 15 yearsOffice furniture and equipment
    
    
    283,626
    
    
    3 - 7 years11,646,200Less accumulated depreciation
    
    
    (797,999
    )Property and equipment, net
    
    $
    10,848,201
 45
    Table of Contents  NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSETS
  Goodwill incurred in connection with World of Outlaws acquisition
    
    $
    4,982,226Goodwill incurred in connection with the DIRT acquisition
    
    
    1,611,700Goodwill incurred in connection with the UMP acquisition
    
    
    3,030,887Goodwill incurred in connection with the MARS acquisition
    
    
    148,000Goodwill incurred in connection with the Lernerville acquisition
    
    
    547,725Less
impairment of goodwill associated withWorld of Outlaws acquisition
    
    
    (4,982,226
    )DIRT acquisition
    
    
    (1,611,700
    )UMP acquisition
    
    
    (2,218,172
    )Net goodwill at September 30, 2005
    
    
    1,508,440Trademark
    
    
    242,452Less impairment of trademarks
    
    
    (142,452
    )Total net goodwill and intangibles
    
    $
    1,608,441
  NOTE 7  ACCRUED LIABILITIES
  September 30,
    
    
    September 30,2005
    
    
    2004Points fund
    
    $
    1,895,255
    
    
    $
    1,282,992Purchase price obligation
    
    
    
    
    
    
    925,000Business relationship termination agreement
    
    
    823,000
    
    
    
    Interest
    
    
    256,504
    
    
    
    86,435Salaries, wages
and other costs in connection with office closing
    
    
    234,560
    
    
    
    Acquisition
liabilities
    
    
    103,500
    
    
    
    Sanctioned track rebates
    
    
    97,500
    
    
    
    Other accrued liabilities
    
    
    36,845
    
    
    
    157,757Total Accrued Liabilities
    
    $
    3,447,164
    
    
    $
    2,452,184
 NOTE 8  DEFERRED REVENUE
  46
    Table of Contents  September 30,
    
    
    September 30,2005
    
    
    2004Sanction fee advances
    
    $
    180,878
    
    
    
    605,700Sponsorship prepayments
    
    
    111,563
    
    
    
    272,989Memberships
    
    
    20,485
    
    
    
    45,111Season Passes / Prepaid Tickets
    
    
    569,850
    
    
    
    335,228$
    882,776
    
    
    $
    1,259,028
 NOTE 9  NOTES PAYABLE
          47
    Table of Contents  2006
    
    
    5,727,7882007
    
    
    287,4982008
    
    
    1,189,8582009
    
    
    2,506,5802010
    
    
    249,3432011
    
    
    1,096,443$
    11,057,510
 NOTE 10  STOCKHOLDERS EQUITY
      48
    Table of Contents  Preferred Stock
      1 2
 49
    Table of Contents  1 2
    1 2
  50
    Table of Contents  NOTE
11  RELATED PARTY TRANSACTIONS
   NOTE 12  INCOME TAXES
     September 30,2005
    
    
    2004Deferred income tax assetsTax effect of impairment of goodwill in excess of amounts
amortized for income tax reporting purposes
    
    $  3,175,000

    
    
    $
    1,013,000Tax effect of net operating loss carry forward
    
    7,606,000

    
    
    
    2,137,000Deferred income tax liabilities
    
    
    
    
    
    
    Tax effect of tax depreciation in excess of book depreciation
    
    (68,000
    )
    
    
    (8,000
    )$  10,713,000
    
    
    $
    3,142,000Valuation allowance
    
    (10,713,000
    )
    
    
    (3,142,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
  September 30,2005
    
    
    2004Income tax benefit  Federal
    
    $ 6,696,000
    
    
    $
    2,620,000Income tax benefit  State
    
    875,000
    
    
    
    361,000Less valuation allowance
    
    (7,571,000
    )
    
    
    (2,981,000
    )Income tax provision
    
    $
    
    
    
    $
    
  Year of
Expiration


Amount2023

$      475,0002024

5,025,0002025

14,256,00019,756,000
 NOTE 13  COMMITMENTS
   51
    Table of Contents  Payment Due by PeriodLess than
    
    2 to 3
    
    4 to 5
    
    After 5Total
    
    1 Year
    
    Years
    
    Years
    
    YearsOperating leases
    
    $
    40,700
    
    
    $
    34,177
    
    
    $
    6,523
    
    
    $
    
    
    
    $
    
   NOTE 14  LITIGATION AND CONTINGENCIES
  NOTE 15  CONSOLIDATION OF OPERATIONS
  NOTE 16  SUBSEQUENT EVENTS
 th
   52