##### Table of Contents



UNITES 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
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2006
 0-18045
(Commission file number)
 Dirt Motor Sports, Inc. d/b/a World Racing Group, Inc.
  Delaware
    
    90-0284113(State or other jurisdiction of
    
    (IRS EmployerIncorporation or organization)
    
    Identification No.)
 7575 West Winds Blvd. Suite D, Concord North Carolina 28027
  Securities registered pursuant to Section 12(b) of the Act:
   Securities registered pursuant to Section 12(g) of the Act:
  þ o
 þ o
 þ o
 o þ
  
  o þ




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##### 



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
    
    24Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    24Item 8A.
    
    Evaluation of Internal and Disclosure Controls
    
    24Item 8B.
    
    Other Information
    
    24PART IIIItem 9.
    

Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
    
    24Item 10.
    
    Executive Compensation
    
    26Item 11.
    

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    30Item 12.
    
    Certain Relationships and Related Transactions
    
    30Item 13.
    
    Exhibits and Reports on Form 8-K
    
    31Item 14.
    
    Principal Accountant Fees and Services
    
    32SIGNATURESIndependent Auditors Report
    
    35Consolidated Balance Sheet
    
    36Consolidated Statements of Operations
    
    37Consolidated Statements of Shareholders Equity (Deficit)
    
    38Consolidated Statements of Cash Flows
    
    40Notes to Consolidated Financial Statements
    
    41Consent of Independent AuditorsRule 13a-14(a)/15d-14(a) Certification of Tom DeeryRule 13a-14(a)/15d-14(a) Certification of Brian M. CarterSection 1350 CertificationConsent of Independent AuditorsRule 13a-14(a)/15d-14(a) Certification of Tom W. DeeryRule 13a-14(a)/15d-14(a) Certification of Brian M. CarterSection 1350 Certification of Tom W. Deery and Brian M. Carter
  2




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##### Table of Contents



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




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##### Table of Contents



Motor Sports Industry
     Dirt-Track Racing
   General Business Plan
  Sanctioning and Event Fees
  Sponsorships
  4




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##### Table of Contents



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




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##### Table of Contents



Competition
        Certain Risks
  We need additional capital to continue as a going concern and successfully execute 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.
  Impairment of goodwill
  Our success depends upon sponsorship and advertising sales for 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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##### Table of Contents



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
  Corporate Office
  UMP Office
 9




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##### Table of Contents



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
  Quarterly Common Stock Price Ranges2007
    
    2006
    
    2005Quarter
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low1st
    
    $
    2.57
    
    
    $
    1.62
    
    
    $
    5.90
    
    
    $
    3.30
    
    
    $
    5.60
    
    
    $
    4.252nd
    
    
    n/a
    
    
    
    n/a
    
    
    
    4.20
    
    
    
    3.00
    
    
    
    5.60
    
    
    
    4.003rd
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.78
    
    
    
    2.35
    
    
    
    6.00
    
    
    
    3.804th
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.07
    
    
    
    2.10
    
    
    
    6.30
    
    
    
    3.65
  Recent Sales of Unregistered Securities
  Finger Lake International
    10




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##### Table of Contents



Cayuga Race Track
    United Midwestern Promoters
  Debt
  Preferred Stock
 Series A
   Series B
    11




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##### Table of Contents



Series C
  Series D
    th th provided however
   Financial Advisors
  12




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




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
    
    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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##### 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
    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
  SponsorshipYear
    
    Commitment2005
    
    $
    750,0002006
    
    
    950,000Total
    
    $
    1,700,000
  15




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Lernerville Speedway
           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
  16




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##### Table of Contents



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 Results
    Results of Operations  Comparison of Year Ended December 31, 2006 (2006) and December 31, 2005
(2005)
 Revenues
    17




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Operating expenses
       2006
    
    
    2005UMP
    
    $
    812,715
    
    
    $
    2,218,171Lernerville
    
    
    547,725
    
    
    
    MARS
    
    
    148,000
    
    
    
    World of Outlaws
    
    
    
    
    
    
    2,027,248Dirt Motorsports, Inc.
    
    
    
    
    
    
    1,611,700World of Outlaws trademark
    
    
    
    
    
    
    142,452Total impairment charges
    
    $
    1,508,440
    
    
    $
    5,999,571
   Liquidity and Capital Resources
  18




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##### Table of Contents



Payment Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year 5 andTotal
    
    
    1 Year
    
    
    Year 2
    
    
    Year 3
    
    
    Year 4
    
    
    ThereafterContractual obligationsOperating leases
    
    $
    949,106
    
    
    $
    213,205
    
    
    $
    257,616
    
    
    $
    139,931
    
    
    $
    142,285
    
    
    $
    196,069Employment agreements
    
    
    1,501,851
    
    
    
    732,750
    
    
    
    769,101
    
    
    
    
    
    
    
    
    
    
    
    Notes and mortgages, principal and
interest
    
    
    5,423,530
    
    
    
    1,031,856
    
    
    
    2,808,048
    
    
    
    317,898
    
    
    
    1,262,983
    
    
    
    2,745
  The Companys significant accounting policies include:
 Reclassifications
  Use of Estimates
  Principles of Consolidation
  Revenue Recognition and Deferred Revenue
 19




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##### Table of Contents



Accounting for Advertising Barter Transactions
 Expense Recognition and Deferral
   Net loss Per Share
   
    
    Series D warrants to purchase 2,520,178 shares of common stock at an exercise price of $4.50
    
    Other warrants to purchase 542,738 shares of common stock at an exercise price of $0.001
    
    Placement Agent Warrants to purchase 1,186,266 shares of common stock at exercise prices ranging from $2.70 to $5.00
    
    Warrants to purchase 890,059 shares of common stock at an exercise price of $3.00
    
    Other warrants to purchase 40,000 shares of common stock issued at an exercise price of $3.65
    
    Employee stock options to purchase 375,000 shares at an exercise price of $2.49 to $2.50 per share
    
    Employee stock options to purchase 300,000 shares at an exercise price of $3.65 per share
    
    Employee stock options to purchase 600,000 shares at an exercise price of $3.75 per share
    
    Director stock options to purchase 375,000 shares at exercise prices ranging from $3.00 to $4.75 per share
    
    Other stock options totaling 390,000 shares at exercise prices ranging from $3.00 to $4.50 per share
  Cash and Cash Equivalents
  20




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Inventories
  Property and Equipment
   Purchase Accounting
  Intangible Assets
   Income Taxes
  Concentration of Credit Risk
  New Accounting Pronouncements
 Share-Based Payment
  21




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Accounting for Certain Hybrid Financial
Instruments
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 Fair Value Measurements
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
   22




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Stock-Based Compensation
  Share-Based Payment
 Accounting for Stock Issued to Employees,
     December31, 2006Expected volatility
    
    
    58
    %Expected life in years
    
    
    4.0Weighted average risk free interest rate
    
    
    4.66
    %
   23




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##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise Price
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    per Share
    
    
    Term
    
    
    ValueOptions outstanding at December 31, 2005
    
    
    800,000
    
    
    $
    3.85
    
    
    
    3.2
    
    
    $
    1,600,000Granted
    
    
    1,640,000
    
    
    
    3.43Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (400,000
    )
    
    
    3.68Options outstanding at December 31, 2006
    
    
    2,040,000
    
    
    $
    3.65
    
    
    
    4.2
    
    
    $
    Options exercisable at December 31, 2006
    
    
    480,000
    
    
    $
    3.54
    
    
    
    3.7
    
    
    $
    
  
 Item 7. Financial Statements and Supplementary Data
  
 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
    
    PositionTom W. Deery
    
    
    52
    
    
    President and Interim Chief Executive Officer and PresidentBrian M. Carter
    
    
    37
    
    
    Executive Vice President and Chief Financial OfficerRobert L. Butcher
    
    
    34
    
    
    Executive Vice President and Chief Marketing OfficerBenjaman L. Geisler
    
    
    30
    
    
    Executive Vice President of OperationsHarvey W. Schiller
    
    
    67
    
    
    Director and Chairman of the Board of DirectorsCary J. Agajanian
    
    
    65
    
    
    DirectorDaniel W. Rumsey
    
    
    45
    
    
    DirectorRobert F. Hussey
    
    
    57
    
    
    Director
 Tom W. Deery
 24




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##### Table of Contents



Brian M. Carter
 Robert L. Butcher
 Benjamin L. Geisler
 Harvey W. Schiller, Ph.D .
 Cary J. Agajanian
 Daniel W. Rumsey.
 Robert F. Hussey.
 Board Composition and Committees
  25




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Indebtedness of Directors and Executive Officers
  Family Relationships
  Compliance with Section 16 (a) of the Exchange Act
  Code of Ethics
    
 Item 10. Executive Compensation
  SUMMARY COMPENSATION TABLE
 26




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##### Table of Contents



Stock
    
    Option
    
    All OtherAwards
    
    Awards
    
    Compensation
    
    TotalName and Principal Position
    
    Year
    
    Salary ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Paul A. Kruger
    
    
    2005
    
    
    $
    180,000
    
    
    $
    175,000
    
    
    $
    191,872
    
    
    
    
    
    
    $
    546,872Former President and CEO(1)
    
    
    2006
    
    
    $
    67,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67,500Tom W. Deery(2)
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President and Acting CEO
    
    
    2006
    
    
    $
    156,462
    
    
    $
    373,500
    (2)
    
    $
    300,398
    (2)
    
    
    
    
    
    $
    830,360Brian M. Carter
    
    
    2005
    
    
    $
    165,000
    
    
    
    
    
    
    $
    1,151,233
    (3)
    
    $
    7,700
    
    
    $
    1,323,933Chief Financial Officer
    
    
    2006
    
    
    $
    180,000
    
    
    $
    1,134,000
    (3)
    
    
    
    
    
    $
    8,400
    
    
    $
    1,322,400Robert L. Butcher
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Marketing Officer
    
    
    2006
    
    
    $
    154,846
    
    
    $
    615,000
    (4)
    
    $
    615,719
    (4)
    
    $
    15,000
    
    
    $
    1,400,565Benjaman L. Geisler
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President  Operations
    
    
    2006
    
    
    $
    154,846
    
    
    $
    615,000
    (5)
    
    $
    615,719
    (5)
    
    
    
    
    
    $
    1,385,565
 
 (1)
    
    Mr. Kruger resigned as the Companys Chief Executive Officer effective May 16, 2006.(2)
    
    In connection with entering into the employment agreement described below, Mr. Deery
was granted options to purchase 300,000 of common stock on the market price of the date of
grant 75,000 immediately exercisable and the remainder becoming exercisable in three
installments of 75,000 shares on the anniversary of grant date in 2007, 2008 and 2009.
Additionally, Mr. Deery was granted 150,000 shares of common stock. Such shares are
restricted in their sale or transfer until January 1, 2009.(3)
    
    In connection with entering into the employment agreement described below, Mr. Carter
was granted options to purchase 300,000 of common stock on the market price of the date of
grant 75,000 immediately exercisable and the remainder becoming exercisable in three
installments of 75,000 shares on the anniversary of grant date in 2006, 2007 and 2008.
Additionally, in July 2006, Mr. Carter was granted 300,000 shares of common stock. Such
shares are restricted in their sale or transfer until February 1, 2009.(4)
    
    In connection with entering into the employment agreement described below, Mr. Butcher
was granted options to purchase 300,000 of common stock on the market price of the date of
grant 75,000 immediately exercisable and the remainder becoming exercisable in three
installments of 75,000 shares on the anniversary of grant date in 2007, 2008 and 2009.
Additionally, Mr. Butcher was granted 150,000 shares of common stock. Such shares are
restricted in their sale or transfer until January 1, 2009.(5)
    
    In connection with entering into the employment agreement described below, Mr. Butcher
was granted options to purchase 300,000 of common stock on the market price of the date of
grant 75,000 immediately exercisable and the remainder becoming exercisable in three
installments of 75,000 shares on the anniversary of grant date in 2007, 2008 and 2009.
Additionally, Mr. Butcher was granted 150,000 shares of common stock. Such shares are
restricted in their sale or transfer until January 1, 2009.
 27




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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
  Option Awards
    
    Stock AwardsEquityIncentivePlan Awards:Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    MarketNumber of
    
    Number of
    
    Securities
    
    
    
    
    
    
    
    
    
    Number of
    
    Value ofSecurities
    
    Securities
    
    Underlying
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares orUnderlying
    
    Underlying
    
    Unexercised
    
    Option
    
    
    
    
    
    Units of
    
    Units ofUnexercised
    
    Unexercised
    
    Unearned
    
    Exercise
    
    Option
    
    Stock That
    
    Stock ThatOptions
    
    Options
    
    Options
    
    Price
    
    Expiration
    
    Have Not
    
    Have Not(#)
    
    (#)
    
    (#)
    
    ($)
    
    Date
    
    Vested (#)
    
    Vested ($)Tom W. Deery
    
    
    75,000
    
    
    
    225,000
    (1)
    
    
    
    
    
    $
    2.49
    
    
    
    06/30/2011
    
    
    
    150,000
    
    
    $
    367,500Paul Kruger(2)Brian M. Carter
    
    
    150,000
    
    
    
    150,000
    (3)
    
    
    
    
    
    $
    3.65
    
    
    
    02/01/2010
    
    
    
    300,000
    
    
    
    735,000Robert L. Butcher
    
    
    75,000
    
    
    
    225,000
    (4)
    
    
    
    
    
    $
    3.75
    
    
    
    02/25/2011
    
    
    
    150,000
    
    
    
    367,000Benjaman L. Geisler
    
    
    75,000
    
    
    
    225,000
    (4)
    
    
    
    
    
    $
    3.75
    
    
    
    02/25/2011
    
    
    
    150,000
    
    
    
    367,000
 
 (1)
    
    Mr. Deerys unexercisable options vest in 3 installments of 75,000 shares annually on
August 20, 2007, 2008 and 2009, and his unvested shares vest on January 1, 2009.(2)
    
    Mr. Kruger resigned as the Companys Chief Executive Officer effective May 16, 2006.(3)
    
    Mr. Carters unexercisable options vest in 2 installments of 75,000 shares annually on
February 2007 and February 1, 2008, and his unvested shares vest on January 1, 2009.(4)
    
    Messrs. Butchers and Geislers options unexercisable options vest in 3 installments of
75,000 shares annually on March 1, 2007, 2008 and 2009, and their unvested shares vest on
January 1, 2009. DIRECTOR COMPENSATION
 Director Compensation
   28




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Fees Earned or
    
    All OtherPaid in Cash
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)Harvey Schiller
    
    $
    6,500
    
    
    
    
    
    
    $
    6,500Daniel W. Rumsey(1)
    
    $
    37,750
    
    
    $
    10,000
    
    
    $
    47,750Robert Hussey
    
    $
    18,000
    
    
    
    
    
    
    $
    18,000Cary Agajanian
    
    $
    6,000
    
    
    
    
    
    
    $
    6,000Lyle Miller(2)
    
    $
    46,000
    
    
    
    
    
    
    $
    46,000
 
 (1)
    
    Mr. Rumsey was paid $10,000 for certain service to the Company as Corporate Secretary during
the months of November and December 2006. As of December 31, 2006, Mr. Rumsey owned an option to
purchase 75,000 shares of Common Stock.(2)
    
    Mr. Miller resigned as a director effective October 31, 2006. Employment Contracts
     29




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##### Table of Contents



Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Amount andNature of
    
    PercentTitle of Class
    
    Name and Address of Beneficial Owner (1)
    
    Beneficial Owner
    
    of ClassCommon
    
    Tom W. Deery, Acting Chief Executive
Officer & President
    
    
    250,000
    (2)
    
    
    1.7
    %Common
    
    Harvey Schiller, Director and Chairman
    
    
    75,000
    (3)
    
    
    *Common
    
    Daniel W. Rumsey, Director
    
    
    75,000
    (4)
    
    
    *Common
    
    Cary J. Agajanian, Director
    
    
    75,000
    (3)
    
    
    *Common
    
    Robert F. Hussey, Director
    
    
    75,000
    (5)
    
    
    *Common
    
    Brian M. Carter, Vice President and
Chief Financial Officer
    
    
    525,000
    (6)
    
    
    3.6
    %Common
    
    Robert L. Butcher, Executive Vice
President and Chief Marketing Officer
    
    
    300,000
    (7)
    
    
    2.1
    %Common
    
    Benjamin L. Geisler, Executive Vice
President of Operations
    
    
    300,000
    (7)
    
    
    2.1
    %Common
    
    Directors and executive officers as a
group (8 persons)
    
    
    1,675,000
    
    
    
    10.9
    %
 
 (1)
    
    Unless otherwise indicated, the business address each of Messrs. is 7575 West Winds Blvd, Suite D, Concord NC 28027.(2)
    
    Includes 150,000 shares of restricted stock granted to Mr. Deery in connection his employment agreement and options to
purchase 100,000 shares of common stock at $2.49 which are currently exercisable.(3)
    
    Includes options to purchase 75,000 shares of common stock at an exercise price of $3.00 which are currently exercisable.(4)
    
    Includes options to purchase 75,000 shares of common stock at an exercise price of $4.75 which are currently exercisable.(5)
    
    Includes options to purchase 75,000 shares of common stock at an exercise price of $3.78 which are currently exercisable.(6)
    
    Includes options to purchase 225,000 shares of common stock at $3.65 which are currently exercisable and 300,000 shares
of restricted stock.(7)
    
    Includes 150,000 shares of restricted stock granted in connection with said officers employment agreement and options to
purchase 150,000 shares of common stock at $3.75 which are currently exercisable.*
    
    Less than 1.0%. 
 Item 12. Certain Relationships and Related Transactions
  30




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##### Table of Contents



Item 13. Exhibits
  2.1
    
    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 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 Firm 8-K filed with the Commission
on March 2, 2005)4.2
    
    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 Firm 8-K filed with the Commission on March 2,
2005)4.3
    
    Form of Series B Warrant. (Incorporated by reference to Exhibit
4.3 of the Companys Current Report on Firm 8-K filed with the
Commission on March 2, 2005)4.4
    
    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
Firm 8-K filed with the Commission on March 2, 2005)4.5
    
    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 Firm 8-K filed with the Commission
on March 2, 2005)4.6
    
    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 Firm 8-K filed with the Commission on March 2,
2005)4.7
    
    Form of Series C Warrant. (Incorporated by reference to Exhibit
4.7 of the Companys Current Report on Firm 8-K filed with the
Commission on March 2, 2005)4.8
    
    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
Firm 8-K filed with the Commission on March 2, 2005)4.9
    
    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).4.10
    
    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).
 31




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##### Table of Contents



4.11
    
    Form of Series D Convertible Preferred Stock Purchase Agreement,
dated as of May 16, 2006, by and among Dirt Motor Sports, Inc.,
a Delaware corporation, and the purchasers set forth therein.
(filed as Exhibit 4.1 to the Companys Current Report on Form
8-K filed with the Commission on May 23, 2006).4.12
    
    Certificate of Designation of the Relative Rights and
Preferences of the Series D Convertible Preferred Stock. (filed
as Exhibit 4.2 to the Companys Current Report on Form 8-K filed
with the Commission on May 23, 2006).4.13
    
    Form of Series D Warrant. (filed as Exhibit 4.3 to the Companys
Current Report on Form 8-K filed with the Commission on May 23,
2006).4.14
    
    Form of Series B Convertible Preferred Exchange Agreement, dated
as of May 16, 2006, by and among Dirt Motor Sports, Inc., a
Delaware corporation, and the holders set forth therein. (filed
as Exhibit 4.4 to the Companys Current Report on Form 8-K filed
with the Commission on May 23, 2006).4.15
    
    Form of Series C Convertible Preferred Exchange Agreement, dated
as of May 16, 2006, by and among Dirt Motor Sports, Inc., a
Delaware corporation, and the holders set forth therein. (filed
as Exhibit 4.5 to the Companys Current Report on Form 8-K filed
with the Commission on May 23, 2006).4.16
    
    Form of Warrant Exchange Agreement dated as of May 16, 2006, by
and among Dirt Motor Sports, Inc., a Delaware corporation, North
Sound Legacy Institutional Fund LLC, a Delaware limited
liability company, and North Sound Legacy International Fund
Ltd, a British Virgin Islands corporation. (filed as Exhibit 4.6
to the Companys Current Report on Form 8-K filed with the
Commission on May 23, 2006).4.17
    
    Form of Warrant Exchange Agreement dated as of May 16, 2006, by
and among Dirt Motor Sports, Inc., a Delaware corporation, and
Royal Bank of Canada. (filed as Exhibit 4.7 to the Companys
Current Report on Form 8-K filed with the Commission on May 23,
2006).4.18
    
    Form of Registration Rights Agreement dated as of May 16, 2006.
(filed as Exhibit 4.8 to the Companys Current Report on Form
8-K filed with the Commission on May 23, 2006).4.19
    
    Form of Mutual Release Agreement, dated as of May 19, 2006, by
and between Dirt Motor Sports, Inc., a Delaware corporation, and
Mr. Paul A. Kruger. (filed as Exhibit 4.9 to the Companys
Current Report on Form 8-K filed with the Commission on May 23,
2006).4.20
    
    Form of Lock-Up by between Dirt Motor Sports, Inc., a Delaware
corporation and Paul A. Kruger. (filed as Exhibit 4.10 to the
Companys Current Report on Form 8-K filed with the Commission
on May 23, 2006).10.1
    
    Employment Agreement, dated effective August 20, 2006, by and
between DIRT Motor Sports, Inc. and Thomas Deery. (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Commission on August 18, 2006).23.1
    
    Consent of Independent Auditors*31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Tom W. Deery *31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Brian M. Carter *32
    
    Section 1350 Certification of Tom W. Deery and Brian M. Carter *
 
 *
    
    Filed herewith 
 Item 14. Principal Accountant Fees and Services
 Audit Fees
  Audit Related Fees
 32




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##### Table of Contents



Tax Fees
  All Other Fees
  Compatibility of Certain Fees with Independent Accountants Independence
  Reports of the Audit Committee
  33




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##### Table of Contents



SIGNATURES
  Dirt Motor Sports, Inc.(Registrant)By:
    
    /s/ Tom W. Deery
    
    Date: March 30, 2007Tom W. Deery, President and Chief Executive OfficerBy:
    
    /s/ Brian M. Carter
    
    Date: March 30, 2007Brian M. Carter, Chief Financial Officer
  By:
    
    /s/ Harvey W. Schiller
    
    Date: March 30, 2007Harvey Schiller, DirectorBy:
    
    /s/ Cary J. Agajanian
    
    Date: March 30, 2007Cary Agajanian, DirectorBy:
    
    /s/ Daniel W. Rumsey
    
    Date: March 30, 2007Daniel W. Rumsey, DirectorBy:
    
    /s/ Robert F. Hussey
    
    Date: March 30, 2007Robert F. Hussey, Director
 34




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     
 35




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31, 2006 and December 31, 2005
 December 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    532,230
    
    
    $
    18,645Accounts receivable  trade
    
    
    223,065
    
    
    
    180,628Inventory
    
    
    110,077
    
    
    
    132,056Prepaid expenses and other current assets
    
    
    330,943
    
    
    
    476,303Total current assets
    
    
    1,196,315
    
    
    
    807,632Land, buildings and equipment, net
    
    
    10,447,633
    
    
    
    10,795,359Trademarks
    
    
    100,000
    
    
    
    100,000Goodwill, net of impairment of $10,320,537 and $8,812,097 in 2006 and 2005, respectively
    
    
    
    
    
    
    1,508,440Prepaid Expenses  long term
    
    
    166,667
    
    
    
    333,333Other assets, net of amortization of $55,331 in 2006 and $106,487 in 2005
    
    
    140,122
    
    
    
    230,562Total assets
    
    $
    12,050,737
    
    
    $
    13,775,326LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilitiesCash Overdraft
    
    $
    
    
    
    $
    253,232Accounts payable
    
    
    474,781
    
    
    
    1,189,171Accrued liabilities
    
    
    1,147,749
    
    
    
    916,345Deferred revenues
    
    
    129,424
    
    
    
    271,620Notes payable, net of discount of $3,622,406 in 2005
    
    
    713,008
    
    
    
    7,140,915Total current liabilities
    
    
    2,464,962
    
    
    
    9,771,283Notes payable
    
    
    4,001,711
    
    
    
    5,293,874Total liabilities
    
    
    6,466,673
    
    
    
    15,065,157Stockholders Equity (Deficit)Series B Preferred stock, $0.01 par value; 8,000 shares authorized;
6,883 shares issued and outstanding at December 31, 2005
    
    
    
    
    
    
    20,648,456Series C Preferred stock, $0.01 par value; 2,500 shares authorized;
2,500 shares issued and outstanding at December 31, 2005
    
    
    
    
    
    
    6,250,000Series D Preferred stock, $0.01 par value; 20,000 shares authorized;
17,875 shares issued and outstanding at December 31, 2006
    
    
    53,624,538
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized; 14,374,496
and 11,720,555 shares issued and outstanding at December 31, 2006 and
December 31, 2005, respectively
    
    
    1,438
    
    
    
    1,172Additional paid-in capital
    
    
    12,684,051
    
    
    
    9,727,830Accumulated deficit
    
    
    (60,725,963
    )
    
    
    (37,917,289
    )Total stockholders equity (deficit)
    
    
    5,584,064
    
    
    
    (1,289,831
    )Total liabilities and stockholders equity
    
    $
    12,050,737
    
    
    $
    13,775,326
  36




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31, 2006 and 2005
 2006
    
    
    2005RevenuesRace sanctioning and event fees
    
    $
    4,717,662
    
    
    $
    7,229,302Admission fees and ticket sales
    
    
    6,897,834
    
    
    
    2,477,548Sponsorship and advertising revenue
    
    
    2,500,313
    
    
    
    1,494,641Merchandise sales
    
    
    754,592
    
    
    
    1,134,841Other revenue
    
    
    273,739
    
    
    
    374,831Total revenues
    
    $
    15,144,140
    
    
    $
    12,711,163Operating expensesTrack and event operations
    
    
    19,301,329
    
    
    
    16,011,557Sales and marketing
    
    
    1,883,094
    
    
    
    1,486,495Merchandise operations and cost of sales
    
    
    823,560
    
    
    
    1,173,154General and administrative
    
    
    3,022,117
    
    
    
    2,913,172Non-cash stock compensation
    
    
    2,710,658
    
    
    
    Goodwill impairment
    
    
    1,508,440
    
    
    
    5,999,571Depreciation and amortization
    
    
    774,130
    
    
    
    708,027Total operating expenses
    
    
    30,023,328
    
    
    
    28,291,976Loss from operations
    
    
    (14,879,188
    )
    
    
    (15,580,813
    )Other (Expenses) IncomeInterest income
    
    
    92,119
    
    
    
    23,039Interest expense
    
    
    (8,021,605
    )
    
    
    (5,381,949
    )Total Other Expense
    
    
    (7,929,486
    )
    
    
    (5,358,910
    )Net (Loss)
    
    $
    (22,808,674
    )
    
    $
    (20,939,723
    )Dividends on preferred stock:Warrants issued and beneficial conversion feature, Series B
    
    
    
    
    
    
    (5,000,000
    )Beneficial conversion feature, Series C preferred stock
    
    
    
    
    
    
    (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
    )Exchange of warrants for Series C preferred stock
    
    
    (1,326,335
    )
    
    
    Exchange of warrants for Series C preferred stock
    
    
    (1,250,000
    )
    
    
    Net loss applicable to common stock
    
    $
    (25,385,009
    )
    
    $
    (33,857,524
    )Net loss applicable to common stock
per common share Basic and diluted
    
    $
    (1.92
    )
    
    $
    (2.53
    )Weighted average common shares outstanding Basic and diluted
    
    
    13,246,875
    
    
    
    13,394,571
  37




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 As of December 31, 2006
 AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amounts
    
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBalance, December 31, 2004
    
    
    4,790
    
    
    $
    12,933,988
    
    
    
    14,439,554
    
    
    $
    1,444
    
    
    $
    5,407,133
    
    
    $
    (10,727,566
    )
    
    $
    7,614,999Partial 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
    )
    
    
    
    
    
    
    Placement 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,720,271
    
    
    
    
    
    
    
    7,720,271Cancellation 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 relationshipTermination agreement
    
    
    
    
    
    
    
    
    
    
    (768,999
    )
    
    
    (77
    )
    
    
    (1,289,923
    )
    
    
    
    
    
    
    (1,290,000
    )Surrender of common stock warrants
    
    
    
    
    
    
    
    
    
    
    (1,500,000
    )
    
    
    (150
    )
    
    
    150
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,939,723
    )
    
    
    (20,939,723
    )Balance, December 31, 2005
    
    
    9,383
    
    
    $
    26,898,456
    
    
    
    11,720,555
    
    
    $
    1,172
    
    
    $
    9,727,830
    
    
    $
    (37,917,289
    )
    
    $
    (1,289,831
    )Value assigned to warrants issued in
connection with the issuance of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,715,113
    
    
    
    
    
    
    
    1,715,113Value assigned to stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,695,347
    
    
    
    
    
    
    
    1,695,347Exchange of Notes payable and accrued interest
into Series B preferred stock
    
    
    460
    
    
    
    1,381,356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,381,356
 38




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##### Table of Contents



AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amounts
    
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalExchange of Series B & C preferred stock for
Series D preferred stock:Retirement of Series B&C preferred stock
    
    
    (9,843
    )
    
    
    (28,279,812
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,279,812
    )Issuance of Series D preferred stock
    
    
    9,843
    
    
    
    28,279,812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,279,812Dividends on Series D Preferred Stock:Increase in liquidation preference upon
conversion
    
    
    
    
    
    
    1,250,000
    
    
    
    
    
    
    
    
    
    
    
    (1,250,000
    )
    
    
    
    
    
    
    Series D Preferred Stock Issuance Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,326,335
    )
    
    
    
    
    
    
    (1,326,335
    )Exchange of Notes payable and accrued interest
into Series D preferred stock
    
    
    4,401
    
    
    
    13,201,777
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,201,777Issuance of Series D preferred stock
    
    
    4,000
    
    
    
    12,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000,000Series D conversions to common stock
    
    
    (369
    )
    
    
    (1,107,051
    )
    
    
    369,017
    
    
    
    37
    
    
    
    1,107,014
    
    
    
    
    
    
    
    Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    825,000
    
    
    
    83
    
    
    
    1,015,228
    
    
    
    
    
    
    
    1,015,311Common Stock issued in warrant exchange
    
    
    
    
    
    
    
    
    
    
    1,459,924
    
    
    
    146
    
    
    
    (146
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,808,674
    )
    
    
    (22,808,674
    )Balance, December 31, 2006
    
    
    17,875
    
    
    $
    53,624,538
    
    
    
    14,374,496
    
    
    $
    1,438
    
    
    $
    12,684,051
    
    
    $
    (60,725,963
    )
    
    $
    5,584,064
  39




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##### Table of Contents



DIRT MOTOR SPORTS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31, 2006 and 2005
 2006
    
    
    2005Cash flows from operating activities:Net (loss)
    
    $
    (22,808,674
    )
    
    $
    (20,939,723
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    774,130
    
    
    
    708,027Non-cash interest expense, notes payable
    
    
    7,930,582
    
    
    
    4,756,540Non-cash stock compensation
    
    
    2,710,658
    
    
    
    Impairment of goodwill
    
    
    1,508,440
    
    
    
    5,999,571Increase (decrease) in cash for changes in:Accounts receivable
    
    
    (42,437
    )
    
    
    (154,467
    )Inventory
    
    
    21,979
    
    
    
    (60,879
    )Prepaid expenses and other current assets
    
    
    145,360
    
    
    
    (281,205
    )Other non-current assets and long term prepaid expenses
    
    
    271,171
    
    
    
    (251,319
    )Accounts payable
    
    
    (714,390
    )
    
    
    400,970Accrued liabilities
    
    
    661,042
    
    
    
    (1,078,588
    )Deferred revenue
    
    
    43,476
    
    
    
    (716,749
    )Net cash (used in) operating activities
    
    
    (9,498,663
    )
    
    
    (11,617,822
    )Cash flows from investing activities:Purchase of property, contract rights, trademarks and goodwill
    
    
    (440,469
    )
    
    
    (6,104,183
    )Net cash (used in) investing activities
    
    
    (440,469
    )
    
    
    (6,104,183
    )Cash flows from financing activities:Cash overdraft
    
    
    (253,232
    )
    
    
    253,232Issuance of Preferred stock for cash
    
    
    12,000,000
    
    
    
    5,000,000Cost of stock issuance
    
    
    (1,326,335
    )
    
    
    (545,000
    )Payments on notes payable
    
    
    (1,910,927
    )
    
    
    (1,472,294
    )Proceeds from issuance of notes payable
    
    
    1,943,211
    
    
    
    14,559,991Net cash provided by financing activities
    
    
    10,452,717
    
    
    
    17,795,929Net increase (decrease) in cash and cash equivalents
    
    
    513,585
    
    
    
    73,924Cash and cash equivalents, beginning of period
    
    
    18,645
    
    
    
    (55,279
    )Cash and cash equivalents, end of period
    
    $
    532,230
    
    
    $
    18,645Supplemental schedule of non-cash activities:Conversion of Convertible Preferred Stock: Series A to Series B
    
    $
    
    
    
    $
    15,648,456Conversion of Convertible Preferred Stock: Series B&C to Series D
    
    $
    28,279,812
    
    
    $
    Conversion of notes payable into Series D Preferred Stock
    
    $
    13,201,777
    
    
    $
    Cash payments for interest
    
    $
    428,855
    
    
    $
    91,328Notes issued in conjunction with the agreement to surrender stock
    
    $
    
    
    
    $
    1,323,000Issuance of warrants with promissory notes
    
    $
    1,715,113
    
    
    $
    4,307,338
  40




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##### Table of Contents



Dirt Motor Sports, Inc.
 
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 NOTE 1  THE COMPANY
 Nature of Business
         NOTE 2  GOING CONCERN
   NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Reclassifications
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##### Table of Contents



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
  December 312006
    
    
    2005Net (Loss)
    
    $
    (22,808,674
    )
    
    $
    (20,939,723
    )Net loss applicable to common stock
    
    $
    (25,385,009
    )
    
    $
    (33,857,524
    )Net loss applicable to common stock
per common share Basic and diluted
    
    $
    (1.92
    )
    
    $
    (2.53
    )Weighted average common shares outstanding Basic and diluted
    
    
    13,246,875
    
    
    
    13,394,571
  42




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##### Table of Contents



Weighted
    
    
    Weighted AverageAverage
    
    
    Contractual LifeShares
    
    
    Exercise Price
    
    
    (years)Series D warrants
    
    
    2,520,178
    
    
    $
    4.50
    
    
    
    4.5Placement agent warrants
    
    
    1,186,266
    
    
    $
    2.85
    
    
    
    4.8UMP acquisition warrants
    
    
    40,000
    
    
    $
    3.65
    
    
    
    1.0Warrants issued in exchange for the
surrender of common stock
    
    
    542,738
    
    
    $
    0.001
    
    
    
    4.5Other Warrants
    
    
    890,059
    
    
    $
    3.00
    
    
    
    4.5Stock options
    
    
    2,040,000
    
    
    $
    3.54
    
    
    
    4.2Total warrants and stock options outstanding
    
    
    7,219,241
    
    
    $
    3.45
    
    
    
    4.5
 Cash and Cash Equivalents
  Inventories
  Property and Equipment
   Purchase Accounting
  Intangible Assets
  43




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##### Table of Contents



Income Taxes
  Concentration of Credit Risk
  New Accounting Pronouncements
 Share-Based Payment
    Accounting for Certain Hybrid Financial
Instruments
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 44




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##### Table of Contents



Fair Value Measurements
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
   Stock-Based Compensation
  Share-Based Payment
 Accounting for Stock Issued to Employees,
   45




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##### Table of Contents



December31, 2006Expected volatility
    
    
    58
    %Expected life in years
    
    
    4.0Weighted average risk free interest rate
    
    
    4.66
    %
    WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise Price
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    per Share
    
    
    Term
    
    
    ValueOptions outstanding at December 31, 2005
    
    
    800,000
    
    
    $
    3.85
    
    
    
    3.2
    
    
    $
    1,600,000Granted
    
    
    1,640,000
    
    
    
    3.43Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (400,000
    )
    
    
    3.68Options outstanding at December 31, 2006
    
    
    2,040,000
    
    
    $
    3.65
    
    
    
    4.2
    
    
    $
    Options exercisable at December 31, 2006
    
    
    480,000
    
    
    $
    3.54
    
    
    
    3.7
    
    
    $
    
  NOTE 4  ACQUISITIONS
 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
  46




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##### Table of Contents



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/ABuildings and grandstands
    
    
    3,288,759
    
    
    7 - 40 yearsTransportation equipment
    
    
    1,491,179
    
    
    5 - 7 yearsOffice furniture and equipment
    
    
    467,819
    
    
    3 - 7 years12,164,095Less accumulated depreciation
    
    
    (1,716,462
    )Property and equipment, net
    
    $
    10,447,633
  NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSETS
  NOTE 7  ACCRUED LIABILITIES
  December 31,
    
    
    December 31,2006
    
    
    2005Points fund
    
    $
    453,150
    
    
    $
    Interest
    
    
    74,913
    
    
    
    491,914Salaries, wages and other compensation and benefits
    
    
    195,770
    
    
    
    199,059Sales taxes
    
    
    158,728
    
    
    
    Office closure and relocation
    
    
    114,611
    
    
    
    Acquisition liabilities
    
    
    42,532
    
    
    
    103,500Other accrued liabilities
    
    
    108,045
    
    
    
    121,872Total Accrued Liabilities
    
    $
    1,147,749
    
    
    $
    916,345
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##### Table of Contents



NOTE 8  DEFERRED REVENUE
  December 31,
    
    
    December 31,2006
    
    
    2005Sanction fee advances
    
    $
    12,958
    
    
    $
    48,958Season ticket sales, advance ticket sales
    
    
    107,816
    
    
    
    92,836Sponsorship prepayments
    
    
    8,650
    
    
    
    129,826$
    129,424
    
    
    $
    271,620
 NOTE 9  NOTES PAYABLE
          48




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##### Table of Contents



2007
    
    $
    713,0082008
    
    
    211,9422009
    
    
    2,566,8622010
    
    
    1,219,3792011
    
    
    3,528$
    4,714,719
           NOTE 10  STOCKHOLDERS EQUITY
  49




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Preferred Stock
     50




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##### Table of Contents



51




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##### Table of Contents



th th provided however
 NOTE 11  RELATED PARTY TRANSACTIONS
    NOTE 12  INCOME TAXES
     December 31,2006
    
    
    2005Deferred income tax assetsTax effect of impairment of goodwill in excess of amounts
amortized for income tax reporting purposes
    
    $
    3,512,000
    
    
    $
    3,175,000Tax effect of net operating loss carry forward
    
    
    13,432,000
    
    
    
    7,606,000Tax effect of stock based compensation
    
    
    1,044,000
    
    
    
    Deferred income tax liabilitiesTax effect of tax depreciation in excess of book depreciation
    
    
    (168,000
    )
    
    
    (68,000
    )$
    17,820,000
    
    
    $
    10,713,000Valuation allowance
    
    
    (17,820,000
    )
    
    
    (10,713,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
  52




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##### Table of Contents



December 31,2006
    
    
    2005Income tax benefit  Federal
    
    $
    7,755,000
    
    
    $
    7,120,000Income tax benefit  State
    
    
    1,026,000
    
    
    
    942,000Permanent differences, non-cash interest expense
    
    
    (3,203,000
    )Less valuation allowance
    
    
    (5,578,000
    )
    
    
    (8,062,000
    )Income tax provision
    
    $
    
    
    
    $
    
  Year of Expiration
    
    Amount2023
    
    $
    475,0002024
    
    
    5,025,0002025
    
    
    14,256,0002026
    
    
    15,132,000Total net operating loss carryforwards
    
    
    34,888,000
 NOTE 13  COMMITMENTS
        Total
    
    2007
    
    2008
    
    2009
    
    2010
    
    ThereafterOperating leases
    
    $
    949,105
    
    
    $
    213,205
    
    
    $
    257,616
    
    
    $
    139,931
    
    
    $
    142,285
    
    
    $
    196,069
   NOTE 14  LITIGATION AND CONTINGENCIES
  NOTE 15  SUBSEQUENT EVENTS
    53