##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 33-5203-D
(Commission File Number) BOUNDLESS MOTOR SPORTS RACING, INC.  Colorado
(State or other jurisdiction of
Incorporation)
    
    84-0953839
(IRS Employer Identification No.)
 2500 McGee Drive, Suite 147
Norman, Oklahoma 73072  Issuer telephone number, including area code: (405) 360-5047 Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.   þ  Yes     oNo Transitional Small Business Disclosure Format:   o  Yes     þ  No As of August 13, 2004, 17,432,168 of the Issuers $.0001 par value common stock
were outstanding and 4,797.37 shares of the Issuers $.01 par value Series A
Convertible Preferred Stock.




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TABLE OF CONTENTS PAGEPART I  FINANCIAL INFORMATIONITEM 1. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Balance Sheets as of June 30, 2004 (Unaudited) and September 30, 2003 (Audited)
    
    
    3Consolidated Statement of Operations for the Three Months Ended June 30, 2004 (Unaudited)
    
    
    4Consolidated Statement of Operations for the Nine Months Ended June 30, 2004 (Unaudited)
    
    
    5Consolidated Statement of Shareholders Equity (Deficit) for the Nine Months Ended June 30, 2004 (Unaudited)
    
    
    6Consolidated Statement of Cash Flows for the Nine Months Ended June 30, 2004 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3. CONTROLS AND PROCEDURES
    
    
    21PART II  OTHER INFORMATIONITEM 1.LEGAL PROCEEDING
    
    
    22ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
    
    
    22SIGNATURES
    
    
    24
 2




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Boundless Motor Sports Racing, Inc.
Consolidated Balance Sheets
As of June 30, 2004 and September 30, 2003 (Unaudited)
    
    (Audited)June 30, 2004
    
    September 30, 2003AssetsCurrent AssetsCash
    
    $
    25,108
    
    
    $
    615Inventory
    
    
    79,791
    
    
    
    Notes receivable
    
    
    
    
    
    
    612,047Prepaid expense
    
    
    60,590
    
    
    
    9,047Other current assets
    
    
    306,205
    
    
    
    Total Current Assets
    
    
    471,694
    
    
    
    621,709Deposits
    
    
    4,933,141
    
    
    
    Property and equipment, net
    
    
    2,099,606
    
    
    
    55,135Goodwill
    
    
    5,119,014
    
    
    
    23,429Other assets
    
    
    
    
    
    
    6,109Total Assets
    
    $
    12,623,455
    
    
    $
    706,382LiabilitiesCurrent LiabilitiesAccounts payable trade
    
    $
    637,008
    
    
    $
    305,651Accrued liabilities
    
    
    815,377
    
    
    
    46,113Deferred revenue
    
    
    417,382
    
    
    
    Notes payable
    
    
    6,099,196
    
    
    
    656,659Total Current Liabilities
    
    
    7,968,963
    
    
    
    1,008,423Notes payable  long term
    
    
    2,000,000
    
    
    
    Shareholders Equity (Deficit)Preferred
Stock: $0.01 par value;
10,000,000 shares authorized, none
issued and outstanding
    
    
    
    
    
    
    Common
Stock: $0.0001 par value;
100,000,000 shares authorized,
17,432,168 and 15,740,500 issued and outstanding
on March 31, 2004 and September 30,
2003, respectively
    
    
    1,743
    
    
    
    1,574Additional paid in capital
    
    
    5,206,337
    
    
    
    171,002Accumulated Deficit
    
    
    (2,553,588
    )
    
    
    (474,617
    )Total Shareholders Equity (Deficit)
    
    
    2,654,492
    
    
    
    (302,041
    )Total Liabilities and Shareholders
Equity (Deficit)
    
    $
    12,623,455
    
    
    $
    706,382
 The accompanying notes are an integral part of these consolidated financial statements. 3




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Boundless Motor Sports Racing, Inc.
Consolidated Statement of Operations
For the Three Months Ended June 30, 2004
(Unaudited) RevenueSanction and entry fees
    
    $
    699,852Sponsorship and advertising
    
    
    28,634Merchandise sales
    
    
    228,631Other
    
    
    22,814Total revenues
    
    
    979,661Operating expensesCost of merchandise
    
    
    103,015Appearance fees
    
    
    714,451Salaries, wages and benefits
    
    
    462,514General and administrative
    
    
    535,599Depreciation and amortization
    
    
    20,467Total operating expenses
    
    
    1,836,045Operating loss
    
    
    (856,384
    )Other (expense) incomeInterest income
    
    
    Interest expense
    
    
    (155,547
    )Total other expense
    
    
    (155,547
    )Net loss
    
    $
    (1,011,931
    )Net loss per share
    
    $
    (0.06
    )Weighted average of number of
shares outstanding
    
    
    17,403,047
 The accompanying notes are an integral part of these consolidated financial statements. 4




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Boundless Motor Sports Racing, Inc.
Consolidated Statement of Operations
For the Nine Months Ended June 30, 2004
(Unaudited) RevenueSanction and entry fees
    
    $
    890,433Sponsorship and advertising
    
    
    48,818Merchandise sales
    
    
    321,008Other
    
    
    32,264Total revenues
    
    
    1,292,523Operating
expensesCost of merchandise
    
    
    146,793Appearance fees
    
    
    958,056Salaries, wages and benefits
    
    
    885,363General and administrative
    
    
    1,116,445Depreciation and amortization
    
    
    39,237Total operating expenses
    
    
    3,145,894Operating loss
    
    
    (1,853,370
    )Other
(expenses) incomeInterest income
    
    
    9,768Interest expense
    
    
    (235,369
    )Total other expense
    
    
    (225,601
    )Net loss
    
    $
    (2,078,971
    )Net loss per share
    
    $
    (0.12
    )Weighted average of number of
shares outstanding
    
    
    17,277,697
 The accompanying notes are an integral part of these consolidated financial statements. 5




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Boundless Motor Sports Racing, Inc.
Consolidated Statements of Shareholders Equity (Deficit)
For the Nine Months Ended June 30, 2004
(Unaudited) Additional
    
    
    
    
    
    TotalCommon Stock
    
    
    
    
    
    Paid-In
    
    Accumulated
    
    Shareholders'Shares
    
    Amount
    
    Capital
    
    Deficit
    
    Equity (Deficit)Balance, September 30, 2003
    
    
    15,740,500
    
    
    $
    1,574
    
    
    $
    171,002
    
    
    $
    (474,617
    )
    
    $
    (302,041
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,078,971
    )
    
    
    (2,078,971
    )Stock issued in connection
with DIRT acquisition
    
    
    1,608,334
    
    
    
    161
    
    
    
    4,785,341
    
    
    
    
    
    
    
    4,675,002Sale of common stock
    
    
    83,334
    
    
    
    8
    
    
    
    249,994
    
    
    
    
    
    
    
    250,002Balance, March 31, 2004
    
    
    17,432,168
    
    
    $
    1,743
    
    
    $
    5,206,337
    
    
    $
    (2,553,588
    )
    
    $
    2,654,492
 The accompanying notes are an integral part of these consolidated financial statements. 6




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Boundless Motor Sports Racing, Inc.
Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 2004
(Unaudited) Cash flows from operating activities:Net loss
    
    $
    (2,078,971
    )Adjustment to reconcile net loss to
net cash used in operating activities:Depreciation and amortization
    
    
    39,237Accrued interest income
    
    
    2,278Increase (decrease) in cash from changes in (excluding purchased assets):Accounts payable trade
    
    
    331,358Accrued liabilities
    
    
    779,032Deferred revenue
    
    
    (107,618
    )Inventory
    
    
    (79,791
    )Prepaid expenses
    
    
    (51,543
    )Other current assets
    
    
    (314,344
    )Other long term assets
    
    
    6,109Cash used in operating activities
    
    
    (1,474,253
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,973,208
    )Increase in intangibles associated with acquisition
    
    
    (967,400
    )Advances on acquisition
    
    
    (250,000
    )Cash used in investing activities
    
    
    (3,190,608
    )Cash flows from financing activities:Issuance of common stock
    
    
    250,002Payments on notes payable
    
    
    (600,000
    )Issuance of notes payable
    
    
    5,039,352Cash provided by financing activities
    
    
    4,689,354Net cash provided
    
    
    24,493Cash at beginning of period
    
    
    615Cash at ending of period
    
    $
    25,108Supplemental non cash disclosures:Issuance of common stock in connection with deposit for DIRT acquisition
    
    $
    4,785,502Payment of note receivable through acquisition
    
    $
    612,047Assumption of sanction deposits through acquisition
    
    $
    525,000Purchase price of acquisition funded through note payable
    
    $
    3,003,185
 The accompanying notes are an integral part of these consolidated financial statements. 7




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Boundless Motor Sports Racing, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited) NOTE 1  THE COMPANY Nature of Business Moonstone, Inc., (Moonstone) was incorporated July 7, 1983 under the laws of
Colorado for the primary purpose of seeking acquisitions of business or
properties, without limitation as to geographic location or type of business.
The Articles of Incorporation and Bylaws were amended when Moonstone, a
publicly traded shell, merged with The Entity, Inc. Moonstone, the surviving
entity, soon thereafter changed its name to The Entity, Inc. On July 31, 2003, The Entity, Inc. acquired Boundless Motor Sports Racing,
Inc., a Nevada corporation (Boundless), and GPX Partners, L.L.C., a Texas
limited liability company (GPX). The acquisition was accounted for as a
reverse acquisition and reflected in the financial statements as a
recapitalization of Boundless. The pre-merger financial statements of
Boundless have become the historical financial statements of the combined
companies, and accordingly, the assets and liabilities of Boundless have been
brought forward at their book value, no goodwill has been recognized, the
accumulated deficit of Boundless has been brought forward, and common stock and
additional paid-in capital of the combined companies have been retroactively
restated to give effect to the exchange ratio as set forth in the merger
agreement. Boundless was incorporated in May 2003 for the purpose of creating
a racing and sports entertainment company primarily through the acquisition of
existing motor sports sanctioning bodies and venues. The pre-merger financial
statements of Boundless brought forward accordingly reflect a development stage
enterprise with an inception date of May 12, 2003. In accordance with the
merger agreement, The Entity, Inc. issued an aggregate of 14,926,400 shares of
The Entity, Inc.s common stock to the former shareholders of Boundless and
members of GPX. These shares were issued on a post-split basis. On July 31, 2003, in connection with the acquisition of Boundless and GPX, The
Entity, Inc. changed its name to Boundless Motor Sports Racing, Inc (the
Company). This name change was effected on August 12, 2003. Boundless Merger On July 31, 2003 the Company entered into an Agreement and Plan of Merger (the
Boundless Merger Agreement), by and among the Company, Boundless, the
shareholders of Boundless and TEI Acquisition, Inc., a wholly-owned subsidiary
of the Company (TEI), pursuant to which, TEI merged with and into Boundless and
Boundless emerged from the merger as the surviving corporation and a
wholly-owned subsidiary of the Company. Pursuant to the terms of the Boundless Merger Agreement, (i) each outstanding
share of the capital stock of Boundless held in its treasury was canceled and
retired, (ii) the remaining 13,461,200 outstanding shares of capital stock of
Boundless were converted into the right to receive an aggregate of 13,461,200
shares of the Companys common stock, on a post-split basis. The structure of
the Boundless Merger Agreement was determined through negotiations between the
parties thereto. No material relationship existed between the Company and
Boundless, or any affiliate, director, or officer of the Company, or any
associate of any such director or officer. The shares issued to the former shareholders of Boundless were issued without
registration in reliance upon Section 4(2) of the Securities Act of 1933, as
amended. GPX Partners, L.L.C. On July 31, 2003, the Company entered into an Agreement and Plan of Merger (the
GPX Merger Agreement), by and among the Company, GPX, the members of GPX and
GPX Acquisition, Inc., a wholly-owned subsidiary of the 8




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Company (GAI), pursuant to which, GAI merged with and into GPX and GPX emerged
from the merger as the surviving corporation and a wholly-owned subsidiary of
the Company. Pursuant to the terms of the GPX Merger Agreement, the outstanding membership
interests of GPX were converted into the right to receive an aggregate of
1,465,200 shares of the Companys common stock, on a post-split basis, and GPX
became a wholly owned subsidiary of the Company. The structure of the GPX
Merger Agreement was determined through negotiations between the parties
thereto. No material relationship existed between the Company and GPX, or any
affiliate, director, or officer of the Company, or any associate of any such
director or officer. The shares issued to the former members of GPX were issued without registration
in reliance upon Section 4(2) of the Securities Act of 1933, as amended. On February 4, 2004, as described in footnote 4, the Company finalized the
acquisition of substantially all the assets of the World of Outlaws. Prior to
this event, the Company was devoting substantially all of its efforts to
establishing the business and was therefore in the development stage until
February 4, 2004. As a Development Stage Company, no ongoing operations were
conducted and no revenues were generated prior to the acquisition. Operating
expenses incurred during this period and for the periods up through February 4,
2004, were general and administrative expenses associated with maintaining the
Company while the aforementioned acquisitions were pursued. Accounts payable
at September 30, 2003 reflect amounts owed for these general and administrative
expenses incurred such as postage and shipping, legal and accounting fees,
travel expenses, and office utilities. As an accounting reporting entity, the Company had no activities during the
three and nine months ended June 30, 2003, therefore, no prior year comparisons
were provided. NOTE 2  GOING CONCERN The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America, which contemplates continuation of the Company as a going concern.
As shown in the consolidated financial statements, the Company incurred a net
loss of $2,027,542 for the nine month period ended June 30, 2004 and has an
accumulated deficit of $2,502,159 as of June 30, 2004, which raises substantial
doubt about the Companys ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The future success of the Company is dependent on its ability to attain
profitable operations or upon its ability to obtain additional capital. There
can be no assurance that the Company will attain positive cash flows from
operations or be successful in obtaining such financing. (See Subsequent
Footnote 15) NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash. Income Taxes The Company accounts for income taxes under Financial Accounting Standards
Number 109 (SFAS 109), Accounting for Income Taxes. Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be reversed. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. 9




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Revenue Recognition and Deferred Revenue The Company recognizes sanction fees upon the successful completion of a
scheduled sanctioned race. Upon execution of a sanction agreement with race
promoters and race track owners, the Company receives a sanction fee deposit in
advance. Advance sanction deposits are deferred and recognized when earned
upon the occurrence of the scheduled race event. In addition to the deposits
received in connection with the execution of sanction agreements, the Company
receives sanction advances from time to time that are also included in deferred
revenue and recognized when earned. The Company recognizes revenue from
sponsorship agreements when earned in the applicable racing season as set forth
in the sponsorship agreement. Revenue from merchandise sales are recognized at
the time of sale less any estimated returns and allowances, if any. Other
revenues from royalties are recognized when earned. Net Loss Per Share Net loss per share has been computed by dividing net loss by the weighted
average number of common shares and equivalents outstanding. The Company has
not issued any stock equivalents, thus there is no diluted earnings per share
or stock-based compensation disclosure. Inventories Inventories of retail merchandise are stated at the lower of cost or market.
Shipping, handling and freight costs related to merchandise inventories are
charged to cost of merchandise. Property and Equipment Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the estimated
useful lives of the related assets ranging from 3 to 30 years. Expenditures for
maintenance, repairs and minor renewals are expensed as incurred; major
renewals and betterments are capitalized. At the time depreciable assets are
retired or otherwise disposed of, the cost and the accumulated depreciation of
the assets are eliminated from the accounts and any profit or loss is
recognized. The carrying values of property and equipment are evaluated for impairment
based upon expected future undiscounted cash flows. If events or circumstances
indicate that the carrying value of an asset may not be recoverable, an
impairment loss would be recognized equal to the difference between the
carrying value of the asset and its fair value. As of June 30, 2004, the
Company believes there is no impairment of property and equipment. Principles of Consolidation The accompanying consolidated financial statements include the accounts of
Boundless Motor Sports Racing, Inc. and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation. Purchase Accounting The Company accounted for its acquisition of the assets in accordance with
Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business
Combinations and Statement of Financial Accounting Standards No. 142, Goodwill
and Intangible Assets (SFAS No. 142). SFAS no. 141 requires that all
business combinations entered into subsequent to June 30, 2001 be accounted for
under the purchase method of accounting and that certain acquired intangible
assets in a business combination be recognized and reported as assets apart
from goodwill. Intangible Assets Upon its inception, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. Under SFAS
No. 142 goodwill and intangible assets with indefinite lives are not to be
amortized but are tested for impairment at least annually. Intangible assets
with definite useful lives will continue to be amortized over the respective
estimated useful lives. As of June 30, 2004, the Company believes that there is
no impairment of intangible assets. 10




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New Accounting Pronouncements In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). The interpretation requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee and expands
the disclosures required. Initial recognition and measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 had no effect on our financial
position, results of operations, or cash flows. In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, (SFAS 148). SFAS 148 amends Statement
123, Stock-Based Compensation, with respect to Statement 123s transition
provisions and required disclosures. The adoption of SFAS 148 had no impact on
our financial position, results of operations or cash flows. In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51 (FIN 46). FIN 46
clarifies the consolidation requirements of variable interest entities. The
adoption of FIN 46 had no effect on our financial position, results of
operations, or cash flows. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities  (SFAS 149). SFAS 149 amends
and clarifies certain derivative instruments embedded in other contracts, and
for hedging activities under SFAS 133. SFAS 149 is effective for certain
contracts entered into or modified by the Company after June 30, 2003. The
adoption of SFAS 149 had no impact on our financial position, results of
operations, or cash flows. In May 2003, the FASB issued SFAS No. 150, Accounting for Instruments with
Characteristics of Both Debt and Equity (SFAS 150). Statement 150 requires
liability classification for three types of instruments: 1) Mandatory
redeemable shares that obligate the company to deliver cash or other assets to
shareholders on fixed or determinable dates; 2) Freestanding written put
options and forward purchase contracts on a companys own shares that obligate
the company to deliver cash or other assets, and 3) Contracts that obligate a
company to issue its own shares in amounts that are unrelated to, or inversely
related to, the value of the shares. The adoption of SFAS 150 had no impact on
our financial position, results of operations, or cash flows. NOTE 4  ACQUISITIONS On February 4, 2004, the Company, through its wholly owned subsidiary WOWI
Acquisition, Inc. (WOWI), finalized the acquisition of substantially all the
assets of World of Outlaws, Inc. (WoO). In exchange for the assets acquired,
the Company paid to WoO $5,000,000, which amount was offset by $1,450,000 in
pre-acquisition cash advances, plus interest of $21,815 provided by the Company
to WoO in connection with the Purchase Agreement and $525,000 in deposits WoO
had received for sanctioning of future sprint car racing events. The net
purchase price of $3,003,185, was paid by a twelve month promissory note
bearing interest at the rate of seven percent (7%) per annum, with principal
payments on the note due in the following increments: (a) $100,000 on March 1,
2004, (b) $400,000 on May 1, 2004, and (c) $500,000 on September 1, 2004, with
the remaining principal balance due on maturity; and accrued interest due and
payable quarterly. The promissory note is secured by the assets that were
acquired from WoO, plus all future assets acquired by WOWI. The promissory
note is also guaranteed by Mr. Paul A. Kruger, the Companys Chief Executive
Officer and significant shareholder. The purchase was accounted for under the purchase method of accounting and
accordingly the purchase price of $5,000,000, including estimated costs of
acquisition of $220,000 was allocated as follows: Transportation equipment
    
    $
    184,926Other equipment
    
    
    8,875Goodwill
    
    
    5,026,199$
    5,220,000
 The allocation of the purchase price to transportation and other equipment was
based upon estimated fair market values determined at the acquisition date.
The Company recorded $5,026,199 in goodwill in connection with the acquisition. 11




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The following pro forma financial information presents a summary of the results
of operations as if the acquisition had occurred on October 1, 2003: Nine months endedJune 30, 2004Revenues
    
    $
    1,621,683Expenses
    
    
    3,978,654Net loss
    
    $
    (2,356,970
    )Net loss per share
    
    $
    (0.14
    )Weighted average of number of
shares outstanding
    
    
    17,277,697
 On May 24, 2004, the Companys wholly owned subsidiary, Boundless Racing Inc.
acquired the Rolling Wheels dirt race track located in Elbridge, New York for
$1,800,000. As the track was part of the Dirt acquisition, $750,000 of the
cash amount placed on deposit with the sellers of Dirt was applied toward the
purchase price. The net purchase price of $1,050,000 was paid with a cash
payment of $1,000,000 and the delivery of 50,000 shares of the Companys $.001
par value common stock. (See Deposits Footnote 6). NOTE 5  NOTES RECEIVABLE In June 2003, the Company executed a promissory note with WoO in the amount of
$600,000. The note was unsecured, and bore interest at 8% annually. In
October 2003 the promissory note was amended to include an additional advance
of $600,000 by the Company and the interest rate was changed to 4.25%. During
January 2004 an additional $250,000 was advanced. As described in Footnote 4,
the total amount advanced, $1,450,000 plus accrued interest of $21,815 was
applied towards the purchase by the Company of substantially all the assets of
the WoO. NOTE 6  DEPOSITS The Company paid a deposit of $1,000,000 and issued 1,558,334 shares of common
stock valued at $3.00 per share to the sellers of Dirt Motorsports, Inc. and
its affiliates to be applied toward the purchase price upon consummation of the
expected closing of the acquisition of Dirt Motorsports, Inc. by the Company.
On May 24, 2004 the Company applied $750,000 of the cash portion of the deposit
towards the acquisition of a dirt race track located in New York. (See
Acquisitions Footnote 4. and Subsequent Events Footnote 15.) NOTE 7- PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30, 2004: Real Property and buildings
    
    $
    1,889,277Transportation equipment
    
    
    184,926Computers
    
    
    37,458Office furniture
    
    
    9,524Office equipment
    
    
    10,261Other
    
    
    9,5052,140,951Less accumulated depreciation
    
    
    (41,345
    )Property and equipment, net
    
    $
    2,099,606
 Depreciation expense for the three months and nine months
ended June 30, 2004 was $20,467and $39,237, respectively. 12




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NOTE 8  INTANGIBLE ASSETS At June 30, 2004, intangible assets are composed of (1) $5,026,199 representing
the excess of cost over the fair value of the net assets acquired in connection
with the acquisition of substantially all of the assets of WoO, and (2) $23,429
representing the actual costs incurred for the creation of blueprints, plans
and drawings for documenting a conceptual raceway venue that the Company is
contemplating constructing in the future for addition to its portfolio of motor
sports entertainment assets and operations. As of June 30, 2004, the Company
believes that there is no impairment of intangible assets. NOTE 9  NOTES PAYABLE Notes payable at June 30, 2004 consisted of the following:  $2,703,185, 7% note payable to WoO, due February 3, 2005 after
principal payments of $400,000 on May 1, 2004 and $500,000 on
September 1, 2004. Secured by the assets of WOWI and the
guarantee of Paul Kruger Chairman and CEO and a significant
shareholder of the Company. Interest is payable quarterly. See
Footnote 4 regarding the acquisition of WoO. (See Subsequent
Foot Note 15)$2,286,011, 10% notes payable to Paul Kruger, Chairman and CEO
and a significant shareholder of the Company. The note was
amended on April 15, 2004 to accrue interest at a rate of 10%
from 4%. The entire principal balance and accrued interest
thereon are payable in full on July 1, 2004; provided, however,
the principal balance and accrued but unpaid interest on these
notes shall be due and payable upon the closing of any public or
private offering by the Company in which the gross proceeds from
such offering are at least $3 million. See related party
Footnote 11 (See Subsequent Foot Note 15)$1,000,000, note payable dated January 23, 2004 due to SXJE,
LLC. The note bears interest at an initial rate of 6% per
annum, increasing to 12% per annum on May 23, 2004. The note
matures on January 23, 2005, but provides for prepayment
following the closing of an offering of at least $4,000,000.
The note is secured by certain assets of the Company and its
subsidiaries, and is guaranteed by Mr. Kruger. Interest is
payable quarterly in cash or stock at the option of the Company
beginning April 23, 2004. (See Subsequent Foot Note 15)$2,000,000 note payable dated May 24, 2004 due to Boundless
Investments LLC. This loan bears interest at a rate of twelve
percent (12%) per annum. The loan matures on May 21, 2007, but
provides for prepayment following the closing of an offering of
at least $4,000,000 during the first 12 months following the
date of the note. From the 13th month following the date of the
note until the maturity date, at the option of the holder, the
outstanding principal amount plus accrued and unpaid interest
shall convert into such number of shares of Common Stock of the
Company equal to 110% of the principal and interest amounts
being converted at $4.00 per share. The loan is to be secured
by certain assets of the Company and its subsidiaries, and is
guaranteed by Mr. Kruger.$110,000, 6% note payable to an individual, dated February 4,
2004, due February 4, 2005. Principal and interest payable
monthly. NOTE 10  SHAREHOLDERS EQUITY (DEFICIT) On December 2, 2003 in exchange for cash, the Company sold 83,334
shares of unregistered common stock at a price of $3.00 per share,
which equaled the quoted market price for the Companys common stock
on December 1, 2003. On October 15, 2003 the Company issued 1,558,334 shares of
unregistered common stock in connection with the pending acquisition
of DIRT Motorsports, Inc. (DIRT) (See Deposits Footnote 6 ). The
stock was issued at a price of $3.00 per share as negotiated and
agreed upon between the Company and the seller of DIRT. The quoted
market price for the Companys common stock on October 15, 2003 was
$3.50 per share. 13




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##### 



On May 24, 2004 the Company issued 50,000 shares of unregistered
common stock in connection with the acquisition of the Rolling Wheels
dirt race track (see Acquisitions Footnote 4). The stock was valued
at $2.21 per share for financial reporting purposes. The quoted
market price for the Companys common stock on May 24, 2004 $2.60 per
share. NOTE 11  RELATED PARTY TRANSACTIONS Notes Payable to Shareholder Paul Kruger, Chairman and CEO and a significant shareholder, as of the date of
this filing has provided approximately $2.5 million in funding for the Company,
of which, $2,286,011 is in the form of promissory notes from the Company. The amount lent by Mr. Kruger as of June 30, 2004, including accrued interest,
is $2,379,515. These notes accrue interest at a rate of 4% per annum prior to
April 15, 2004 and 10% thereafter. The entire principal balance, and accrued
interest on these notes, are payable in full on July 1, 2004; provided,
however, the principal balance and accrued but unpaid interest on these notes
shall be due and payable upon the closing of any public or private offering by
the Company in which the gross proceeds from such offering are at least $3
million. (See Subsequent Footnote 15) Other Related Party Transactions Mr. Kruger leases an aircraft to Business Jet, a company that the Company
utilizes for travel services, and owns a second aircraft that is also used on
occasion for Company purposes. During the nine months ended June 30, 2004
$156,555 of expenses associated with use of the aircraft was incurred. The Company rents office space in Norman, Oklahoma, on a month-to-month basis,
from an entity controlled by Mr. Kruger. During the nine months ended June 30,
2004, the Company incurred $34,270 of rent expense for use of the Norman
office. Contemporaneously with the closing of the WoO purchase, the Companys
subsidiary, WOWI, entered into a two year employment agreement with Mr. Ted
Johnson the sole shareholder of the WoO and a two year lease with WoO for the
lease of office and warehouse space in Allen, Texas. Monthly lease payments
are $7,420. (See Commitments Footnote 13) Richard F. Dahlson, formally a director of the Company, is a partner with
Jackson Walker L.L.P., a law firm that serves as outside legal counsel to the
Company. The Company incurred $185,720 in legal fees during the nine month
period ended June 30, 2004. NOTE 12  INCOME TAXES: The Company accounts for income taxes under Financial Accounting Standards
Number 109 (SFAS 109), Accounting for Income Taxes. Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be reversed. At June 30, 2004, the Company had net operating loss carry forwards of
approximately $2,500,000 for federal income tax purposes. Net operating loss
carry forwards generated prior to the merger, of approximately $120,000, of The
Entity, Inc. will be limited due to change in control regulations under the
Internal Revenue Code. The statutory income tax benefit calculated at 34% of income before tax
resulting from of the Companys net operating loss carry forwards has been
fully reserved. The valuation allowance has been provided due to the
uncertainty that the Company will generate future profitable operations to
utilize this net operating loss carry forward. 14




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NOTE 13  COMMITMENTS A wholly-owned subsidiary of the Company entered into a 72 month lease
beginning July 15, 2003 for approximately 5,200 square feet of office space at
1801 Gateway Blvd, Suite 105, Richardson, TX 75080. Contemporaneously with the acquisition of certain assets from the WoO, the
Company entered into a two year lease for approximately 15,000 square feet of
office and warehouse space at 15 Prestige Circle, Allen Texas 75002. Total scheduled future minimum lease payments, under these operating leases are
as follows: Year Ending2004
    
    
    40,5872005
    
    
    162,3482006
    
    
    110,4082007
    
    
    73,3082008
    
    
    73,308Thereafter
    
    
    42,763$
    502,722
 NOTE 14  LITIGATION AND CONTINGENCITES On March 19, 2004, Boundless Track Operations, Inc. one of the Companys
subsidiaries (BTO), was served a complaint filed by Greenway-University Centre
Partners, L.P. (GUCP), alleging that BTO breached a lease agreement with GUCP
and committed fraud in connection with entering into the lease agreement. BTO
has denied these allegations and intends to vigorously defend this litigation.
This litigation is still in its early stages and no discovery has been
conducted at this time. The Company did not accrue a loss contingency in
connection with the complaint at June 30, 2004. NOTE 15  SUBSEQUENT EVENTS Issuance of Preferred Stock and Debt Effective July 30, 2004, the Company issued and sold 4,382.96 shares of its
newly designated Series A Convertible Preferred Stock, par value $0.01 per
share (Series A Stock) and warrants to purchase 3,506,368 shares of its
common stock, $0.0001 par value per share (the Series A Warrants), for an
aggregate purchase price of $11,834,000. In connection with the sale of the
Series A Stock and Series A Warrants, SXJE, LLC, the holder of that certain
Promissory Note issued by the Company dated January 23, 2004, in the principal
amount of $1,000,000 (the SXJE Note), agreed to convert the principal and all
accrued interest under the SXJE Note into 407.41 shares of Series A Stock and
Series A Warrants to purchase 325,928 shares of common stock. In addition, Boundless Investments, LLC, the holder of that certain Promissory
Note issued by the Company dated May 19, 2004, in the principal amount of
$2,000,000 (the BI Note), agreed to exchange the BI Note for a new promissory
note in the principal amount of $2,000,000 bearing interest of eight percent
per annum with a maturity date of May 19, 2007. The Series A Stock (including those shares issued to SXJE, LLC) is convertible
into an aggregate of 4,790,370 shares of common stock, representing a
conversion price of $2.70 per share. Subject to an effective registration
statement covering the resale of the shares of common stock into which the
Series A Stock is convertible, the Series A Stock will automatically convert
into shares of common stock after January 26, 2005, if (a) the closing bid
price of our common stock is equal to or greater than $6.00 per share for ten
consecutive trading days, and (b) the dollar trading volume for each of the ten
trading days exceeds $500,000. The Series A Warrants (including those warrants issued to SXJE, LLC) have a
term of seven years at an exercise price of $3.00 per share. Subject to an
effective registration statement covering the resale of the shares of common
stock issuable upon exercise of the Series A Warrants, the Company may redeem
the Series A Warrants for $0.0001 per warrant at any time after July 29 2006,
if (a) the closing bid price of our common stock is equal to or greater than
$6.00 per share for ten consecutive trading days, and (b) the dollar trading
volume for each of the ten trading days exceeds $500,000. 15




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##### 



The Company has agreed to file a registration statement covering the resale of
the shares of common stock to be issued upon conversion of the Series A Stock
and the exercise of the Series A Warrants. In the event this registration
statement is not declared effective on or before November 27, 2004, the Company
will be obligated to pay liquidated damages to the purchasers of the Series A
Stock (including SXJE, LLC) of approximately $260,000 for the first thirty day
period after November 27, 2004, and of approximately $200,000 for each thirty
day period thereafter, until the registration statement is declared effective. Also in connection with the sale of the Series A Stock and Series A Warrants,
Paul A. Kruger, the Companys Chief Executive Officer, (a) forgave
approximately $2,400,000 of debt owed to him by the Company under various
promissory notes, (b) surrendered to the Company 700,000 shares of its common
stock (the Surrendered Shares), (c) transferred to Boundless Investments, LLC
4,000,000 shares of the Companys common stock (the Transferred Shares), and
(d) sold to the purchasers of the Series A Stock and Series A Warrants an
additional 800,000 shares of Company common stock for an aggregate sales price
of $160,000 (the Sold Shares). The Transferred Shares were subsequently
surrendered to the Company in exchange for a warrant to purchase 4,000,000
shares of our common stock (the Exchange Warrant), at an exercise price of
$0.001 per share. The Exchange Warrant was subsequently sold to the
purchasers of the Series A Stock and Series A Warrants. The Surrendered Shares
and Transferred Shares were cancelled by the Company. Retirement of Debt Effective August 4, 2004, the Company paid $1,600,000 and assumed $791,325 of
obligations as satisfaction of all principle and accrued interest amounts due
under the 7% note payable due to the WoO. The Company was also released from
the lease of property located in Allen, Texas and the employment agreement with
Mr. Ted Johnson was cancelled. Acquisition Effective August 6, 2004, the Company, through its wholly owned subsidiary,
Boundless Racing, Inc., a Texas corporation (as the assignee of Boundless Track
Operations, Inc., a Nevada corporation and wholly-owned subsidiary of the
Company (BOTI)), consummated the acquisition of all of the outstanding shares
of capital stock of DIRT Motorsports, Inc., a New York corporation (DIRT),
pursuant to a Stock Purchase Agreement, dated August 13, 2003, as amended and
extended. In exchange for the outstanding capital stock of DIRT, the Company paid to Mr.
Glenn Donnelly, the sole shareholder of DIRT, (a) cash in an aggregate amount
of $1,775,000, of which $1,000,000 had been previously paid, and (b) 591,667
shares of the Companys common stock, (the Shares), all of which shares had
been previously paid to Mr. Donnelly in October 2003. Mr. Donnelly has been
retained by the Company in a consultative capacity to assist the Company with
its Super Dirt Week racing events. In addition to the payments made to Mr. Donnelly under the Stock Purchase
Agreement, the Company has also deposited an additional $1,225,000 with Mr.
Donnelly in connection with a Contract of Sale dated as of August 13, 2003, as
amended and extended between the Company (as assignee of BTOI) and Mr.
Donnelly, pursuant to which the Company intends to acquire a race track
facility located in New York. The deposit is refundable until such time as the
Company completes the acquisition. The Shares issued to Mr. Donnelly in connection with the acquisition of DIRT
were issued by the Company pursuant to an exemption (Section 4(2)) from the
registration requirements of the Securities Act of 1933, as amended and are
restricted shares. 16




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Operations Boundless Motor Sports Racing, Inc. was incorporated under the laws of the
State of Colorado and is focusing its efforts on developing a dirt track style
racing and sports entertainment company primarily through the acquisition and
operation of motor sports sanctioning bodies and racing venues. The Companys general business plan is to acquire and operate motor sports
sanctioning bodies and venues and seek to nationalize dirt-track style motor
racing. The Company believes that much of the current success of motor sport
racing is due to the efforts of NASCAR in consolidating, marketing and
promoting its stock car races, and the Companys current strategy is to utilize
this model for dirt-track style racing. Under this business model, the Company
anticipates revenues from the primary sources that typically generate revenue
for motors sport sanctioning bodies: (1) sanctioning fees; (2) merchandise
sales and licensing fees; (3) sponsorships; (4) television and electronic media
distribution rights; (5) membership fees; and (6) event ticket sales. The Company was a development stage company until February 2004, at which time
it emerged from development stage status upon the acquisition of WoO, and the
introduction and commencement of a new racing series for the 2004 season known
as the Late Model Dirt Racing Car Series (Late Model Series). The Late Model
Series held its first race in February 2004, and is independent of the of DIRT
and WoO operations mentioned below. Prior to the emergence from development
stage status, no ongoing operations were conducted and no revenues were
generated prior to the acquisition. Operating expenses incurred this period
and for the periods up through February 4, 2004, were general and
administrative expenses associated with maintaining the Company while the
aforementioned acquisitions were pursued. Accounts payable at September 30,
2003 reflect amounts owed for these general and administrative expenses
incurred such as postage and shipping, legal and accounting fees, travel
expenses, and office utilities. As an accounting reporting entity, the Company had no activity during the three
months and nine months ended June 30, 2003, therefore no prior year comparisons
are provided. During the quarter and nine months ended June 30, 2004, the
Company generated revenues of $979,661 and $1,292,523 respectively, and for the
quarter and nine months ended June 30, 2004 incurred $1,812,616 and $3,122,465,
respectively, in operating expenses. The Company had operating losses for the
quarter and nine months ended June 30, 2004 of $832,955 and $1,829,947,
respectively. For the quarter and nine months ended June 30, 2004 the Company
had net losses of $960,502, or $.06 per share, and $2,027,542, or $.12 per
share, respectively. In pursuing its business plan, the Company entered into a definitive agreement
to acquire DIRT Motorsports, Inc. and World of Outlaws, Inc. as discussed
below. Both DIRT and WoO are dirt-track style racing sanctioning bodies. In
addition to sanctioning races, DIRT also owns and operates two racing
facilities, and operates an additional three leased facilities, which are
included in the pending acquisition of DIRT. On February 4, 2004, the Company, through its wholly owned subsidiary WOWI
Acquisition, Inc. (WOWI), finalized the acquisition of substantially all the
assets of World of Outlaws, Inc. (WoO). In exchange for the assets acquired,
the Company paid to WoO $5,000,000, which amount was offset by $1,450,000 in
pre-acquisition cash advances, plus interest of $21,815 provided by the Company
to WoO in connection with the Purchase Agreement and $525,000 in deposits WoO
had received for sanctioning of future sprint car racing events. The net
purchase price of $3,003,185, was paid by a twelve month promissory note
bearing interest at the rate of seven percent (7%) per annum, with principal
payments on the note due in the following increments: (a) $100,000 on March 1,
2004, (b) $400,000 on May 1, 2004, and (c) $500,000 on September 1, 2004, with
the remaining principal balance due on maturity; and accrued interest due and
payable quarterly. The promissory note is secured by the assets that were
acquired from WoO, plus all future assets acquired by WOWI. The promissory
note is also guaranteed by Mr. Paul A. Kruger, the Companys Chief Executive
Officer and significant shareholder. Effective August 4, 2004, the Company
paid $1,600,000 and assumed $791,325 of obligations as satisfaction of all
principle and accrued interest amounts due under the 7% note payable due to the
WoO. The Company was also released from the lease of property located in
Allen, Texas and the employment agreement with Mr. Ted Johnson was cancelled. Effective as of May 24, 2004, the Companys wholly owned subsidiary, Boundless
Racing Inc., consummated part of the Dirt acquisition and acquired the Rolling
Wheels dirt race track located in Elbridge, New York. In exchange for the
assets acquired, the Company paid to the sellers $1,860,500, of which $750,000
of the amount previously placed on deposit with the sellers of Dirt was applied
towards the purchase price. The net purchase price of 17




---



##### 



$1,050,000 was paid with a cash payment of $1,000,000 and the delivery of
50,000 shares of the Companys $.001 par value common stock. Effective August 6, 2004, the Company, through its wholly owned subsidiary,
Boundless Racing, Inc., (as the assignee of Boundless Track Operations, Inc., a
Nevada corporation and wholly-owned subsidiary of the Company), consummated the
acquisition of all of the outstanding shares of capital stock of DIRT
Motorsports, Inc. pursuant to a Stock Purchase Agreement, dated August 13,
2003, as amended and extended. In exchange for the outstanding capital stock
of DIRT, the Company paid to Mr. Glenn Donnelly, the sole shareholder of DIRT,
(a) cash in an aggregate amount of $1,775,000, of which $1,000,000 had been
previously paid, and (b) 591,667 shares of our common stock, all of which
shares had been previously paid to Mr. Donnelly in October 2003. Mr. Donnelly
has been retained by the Company in a consultative capacity to assist the
Company with its Super Dirt Week racing events. In addition to the payments made to Mr. Donnelly under the Stock Purchase
Agreement, the Company has also deposited an additional $1,225,000 with Mr.
Donnelly in connection with a Contract of Sale dated as of August 13, 2003, as
amended and extended between the Company (as assignee of BTOI) and Mr.
Donnelly, pursuant to which the Company intends to acquire a race track
facility located in New York. The deposit is refundable until such time as the
Company completes the acquisition. Liquidity and Capital Resources The Companys primary source of funding through June 30, 2004 has been from
Chairman and CEO, Paul A. Kruger, via a combination of an original equity
investment in the Company and subsequent promissory notes. As of the date of
this filing, Mr. Kruger has provided approximately $2.5 million in funding to
the Company, of which, approximately $2.3 million is in the form of promissory
notes as of June 30, 2004. These notes accrue interest at a rate of 4% per
annum prior to April 15,2004 and 10% thereafter. The entire principal balance,
and accrued interest on these notes were payable in full on July 1, 2004;
provided, however, that notwithstanding the above, the principal balance and
accrued but unpaid interest on these notes shall be due and payable upon the
closing of any public or private offering by the Company in which the gross
proceeds from such offering are at least $3 million. These notes are secured
by certain assets of the Company and its subsidiaries. On January 23, 2004, the Company borrowed $1,000,000 from SXJE, LLC. This loan
bears interest at an initial rate of 6% per annum, increasing to 12% per annum
on May 23, 2004. The loan matures on January 23, 2005, but provides for
prepayment following the closing of an offering of at least $4,000,000. The
loan is to be secured by certain assets of the Company and its subsidiaries,
and is guaranteed by Mr. Kruger. On May 21, 2004, the Company borrowed $2,000,000 from Boundless Investments,
LLC. This loan bears interest at a rate of twelve percent (12%) per annum.
The loan matures on May 20, 2007, but provides for prepayment following the
closing of an offering of at least $4,000,000 during the first 12 months
following the date of the note. From the 13th month following the date of the
note, at the option of the holder, the principal amount and accrued and unpaid
interest shall convert into such number of shares of Common Stock of the
Company equal to 110% of the principal and interest amounts being converted at
$4.00 per share. The loan is to be secured by certain assets of the Company
and its subsidiaries, and is guaranteed by Mr. Kruger. On July 30, 2004, the Company issued and sold 4,382.96 shares of its newly
designated Series A Convertible Preferred Stock, par value $0.01 per share
(Series A Stock) and warrants to purchase 3,506,368 shares of its common
stock, $0.0001 par value per share (the Series A Warrants), for an aggregate
purchase price of $11,834,000. In connection with the sale of the Series A
Stock and Series A Warrants, SXJE, LLC, agreed to convert the principal at a
10% premium under its promissory note into 407.41 shares of Series A Stock and
Series A Warrants to purchase 325,928 shares of common stock. In addition, Boundless Investments, LLC agreed to exchange its promissory note
for a new promissory note in the principal amount of $2,000,000 bearing
interest of eight percent per annum with a maturity date of May 19, 2007. The Series A Stock (including those shares issued to SXJE, LLC) is convertible
into an aggregate of 4,790,370 shares of common stock, representing a
conversion price of $2.70 per share. Subject to an effective registration
statement covering the resale of the shares of common stock into which the
Series A Stock is convertible, the Series A Stock will automatically convert
into shares of common stock after January 26, 2005, if (a) the closing bid
price of our common stock is equal to or greater than $6.00 per share for ten
consecutive trading days, and (b) the dollar trading volume for each of the ten
trading days exceeds $500,000. 18




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##### 



The Series A Warrants (including those warrants issued to SXJE, LLC) have a
term of seven years at an exercise price of $3.00 per share. Subject to an
effective registration statement covering the resale of the shares of common
stock issuable upon exercise of the Series A Warrants, the Company may redeem
the Series A Warrants for $0.0001 per warrant at any time after July 29 2006,
if (a) the closing bid price of our common stock is equal to or greater than
$6.00 per share for ten consecutive trading days, and (b) the dollar trading
volume for each of the ten trading days exceeds $500,000. The Company has agreed to file a registration statement covering the resale of
the shares of common stock to be issued upon conversion of the Series A Stock
and the exercise of the Series A Warrants. In the event this registration
statement is not declared effective on or before November 27, 2004, the Company
will be obligated to pay liquidated damages to the purchasers of the Series A
Stock (including SXJE, LLC) of approximately $260,000 for the first thirty day
period after November 27, 2004, and of approximately $200,000 for each thirty
day period thereafter, until the registration statement is declared effective. Also in connection with the sale of the Series A Stock and Series A Warrants,
Paul A. Kruger, the Companys Chief Executive Officer, (a) forgave
approximately $2,400,000 of debt owed to him by the Company under various
promissory notes, (b) surrendered to the Company 700,000 shares of its common
stock (the Surrendered Shares), (c) transferred to Boundless Investments, LLC
4,000,000 shares of the Companys common stock (the Transferred Shares), and
(d) sold to the purchasers of the Series A Stock and Series A Warrants an
additional 800,000 shares of Company common stock for an aggregate sales price
of $160,000 (the Sold Shares). The Transferred Shares were subsequently
surrendered to the Company in exchange for a warrant to purchase 4,000,000
shares of our common stock (the Exchange Warrant), at an exercise price of
$0.001 per share. The Exchange Warrant was subsequently sold to the
purchasers of the Series A Stock and Series A Warrants. The Surrendered Shares
and Transferred Shares were cancelled by the Company. Management believes as the result of the transactions described above, the
Company has the financial ability and resources to fund operations for the next
twelve months. The following table summarizes our contractual obligations as of June 30, 2004: Payment Due by PeriodLess than
    
    2 to 3
    
    4 to 5
    
    After 5Contractual obligations
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    YearsOperating leases
    
    $
    502,722
    
    
    $
    40,587
    
    
    $
    272,756
    
    
    $
    146,616
    
    
    $
    42,763Notes payable and accrued interest
    
    $
    8,273,341
    
    
    $
    6,273,341
    
    
    $
    2,000,000
    
    
    
    
    
    
    
    
 The Companys significant accounting policies include: Cash and Cash Equivalents For purpose of the statement of cash flows, the Company considers all highly
liquid investments with maturities of three months or less to be cash. Income Taxes The Company accounts for income taxes under Financial Accounting Standards
Number 109 (SFAS 109), Accounting for Income Taxes. Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be reversed. Deferred tax assets are reduced by a valuation
allowance when in the opinion of management it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amount of assets and 19




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##### 



liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Revenue Recognition and Deferred Revenue The Company recognizes sanction fees upon the successful completion of a
scheduled sanctioned race. Upon execution of a sanction agreement with race
promoters and race track owners, the Company receives a sanction fee deposit in
advance. Advance sanction deposits are deferred and recognized when earned
upon the occurrence of the scheduled race event. In addition to the deposits
received in connection with the execution of sanction agreements, the Company
receives sanction advances from time to time that are also included in deferred
revenue and recognized when earned. The Company recognizes revenue from
sponsorship agreements when earned in the applicable racing season as set forth
in the sponsorship agreement. Revenue from merchandise sales are recognized at
the time of sale less any estimated returns and allowances, if any. Other
revenues from royalties are recognized when earned. Net loss per share Net loss per share has been computed by dividing net loss by the weighted
average number of common shares and equivalents outstanding. The Company has
not issued any stock equivalents, thus there is no diluted earnings per share
or stock-based compensation disclosure. Inventories Inventories of retail merchandise are stated at the lower of cost or market.
Shipping, handling and freight costs related to merchandise inventories are
charged to cost of merchandise. Property and Equipment Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the estimated
useful lives of the related assets ranging from 3 to 7 years. Expenditures for
maintenance, repairs and minor renewals are expensed as incurred; major
renewals and betterments are capitalized. At the time depreciable assets are
retired or otherwise disposed of, the cost and the accumulated depreciation of
the assets are eliminated from the accounts and any profit or loss is
recognized. The carrying values of property and equipment are evaluated for impairment
based upon expected future undiscounted cash flows. If events or circumstances
indicate that the carrying value of an asset may not be recoverable, an
impairment loss would be recognized equal to the difference between the
carrying value of the asset and its fair value. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation. Purchase Accounting The Company accounted for its acquisition of the assets in accordance with
Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business
Combinations and Statement of Financial Accounting Standards No. 142, Goodwill
and Intangible Assets (SFAS No. 142). SFAS no. 141 requires that all
business combinations entered into subsequent to June 30, 2001 be accounted for
under the purchase method of accounting and that certain acquired intangible
assets in a business combination be recognized and reported as assets apart
from goodwill. Intangible Assets Upon its inception, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. Under SFAS
No. 142 goodwill and intangible assets with indefinite lives are not to be
amortized but are tested for impairment at least annually. Intangible assets
with definite useful lives will continue to be amortized over the respective
estimated useful lives. As of March 31, 2004, the Company believes that there
is no impairment of intangible assets. 20




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##### 



New Accounting Pronouncements In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). The interpretation requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee and expands
the disclosures required. Initial recognition and measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN No. 45 had no effect on our financial
position, results of operations, or cash flows. In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, (SFAS 148). SFAS 148 amends Statement
123, Stock-Based Compensation, with respect to Statement 123s transition
provisions and required disclosures. The adoption of SFAS had no impact on our
financial position, results of operations or cash flows. In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51 (FIN 46). FIN 46
clarifies the consolidation requirements of variable interest entities. The
adoption of FIN 46 had no effect on our financial position, results of
operations, or cash flows. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and
clarifies certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS 133. SFAS 149 is effective for certain contracts
entered into or modified by the Company after June 30, 2003. The adoption of
SFAS No. 149 had no impact on our financial position, results of operations, or
cash flows. In May 2003, the FASB issued SFAS No. 150, Accounting for Instruments with
Characteristics of Both Debt and Equity (SFAS 150). Statement 150 requires
liability classification for three types of instruments: 1) mandatorily
redeemable shares that obligate the company to deliver cash or other assets to
shareholders on fixed or determinable dates; 2) freestanding written put
options and forward purchase contracts on a companys own shares that obligate
the company to deliver cash or other assets, and 3) contracts that obligate a
company to issue its own shares in amounts that are unrelated to, or inversely
related to, the value of the shares. The effective date of SFAS 150 has been
deferred indefinitely. The adoption of SFAS No. 150 had no impact on our
financial position, results of operations or cash flows. 
 Item 3. Controls and Procedures Prior to the date of filing of this report, the Company carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated subsidiaries)
required to be included in our periodic SEC filings. There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date we carried out this evaluation. 21




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PART II OTHER INFORMATION 
 Item 1. Legal Proceedings On March 19, 2004, Boundless Track Operations, Inc. one of the Companys
subsidiaries (BTO), was served a complaint filed by Greenway-University Centre
Partners, L.P. (GUCP), alleging that BTO breached a lease agreement with GUCP
and committed fraud in connection with entering into the leased agreement. BTO
has denied these allegations and intends to vigorously defend this litigation.
This litigation is still in its early stages and no discovery has been
conducted at this time. 
 Item 6. Exhibits and Reports on Form 8-K The following documents are filed as part of this report: (a) 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
    
    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 filed for the year ended September
30, 2003).2.3
    
    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).2.4
    
    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).2.5
    
    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 2.5 of the
Companys Quarterly Report on Form 10-QSB filed for the fiscal quarter
ended March 31, 2004).2.6
    
    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).2.7
    
    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).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).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).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). 22




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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).10.8
    
    Amendment to Promissory Notes and Loans dated as of April 15, 2004 by and
between Mr. Paul Kruger and the Company (Incorporated by reference to
Exhibit 10.8 of the Companys Quarterly Report on Form 10-QSB filed for
the fiscal quarter ended March 31, 2004).10.9
    
    Credit Agreement dated as of April 15, 2004, by and between the Company
and Mr. Paul A. Kruger. (Incorporated by reference to Exhibit 10.9 of the
Companys Quarterly Report on Form 10-QSB filed for the fiscal quarter
ended March 31, 2004).10.10
    
    Promissory Note dated as of April 15, 2004 issued by the Company as
maker to Mr. Paul Kruger as Payee. (Incorporated by reference to Exhibit
10.10 of the Companys Quarterly Report on Form 10-QSB filed for the
fiscal quarter ended March 31, 2004).10.11
    
    Security Agreement dated as of April 15, 2004, by and between the
Company and Mr. Paul A. Kruger.(Incorporated by reference to Exhibit 10.11
of the Companys Quarterly Report on Form 10-QSB filed for the fiscal
quarter ended March 31, 2004).10.12
    
    Promissory Note dated May 19, 2004, by and between the Company and
Boundless Investments, LLC. (Incorporated by reference to Exhibit 10.12 of
the Companys Quarterly Report on Form 10-QSB filed for the fiscal quarter
ended March 31, 2004).10.13
    
    Extension Agreement dated as of May 21, 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 filed for the fiscal quarter
ended March 31, 2004).10.13
    
    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).10.14
    
    Consulting Agreement dated as of August 6, 2004, by and between
Boundless Motor Sports Racing, Inc. and Mr. Glenn Donnelly (Incorporated
by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed with the Commission on August 12, 2004).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).31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications.*31.2
    
    Rule 13a-14(a)/15d-14(a) Certifications.*32.1
    
    Section 1350 Certifications.*32.2
    
    Section 1350 Certifications.*   *Filed herewith (b) Reports on Form 8-K: The Company filed the following reports on Form 8-K during the quarter ended
March 31, 2004:  (1)
    
    Form 8-K/A filed with the Commission on January 9, 2004 reporting
under Item 7, the pro forma financial information related to the
acquisitions of Boundless and GPX;(2)
    
    Form 8-K filed on January 13, 2004 reporting, under Item 5, the
anticipated filing date for the Companys Form 10-KSB; 23




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(3)
    
    Form 8-K filed on January 28, 2004 reporting, under Item 5, a
revised anticipated filing date for the Companys Form 10-KSB;(5)
    
    Form 8-K filed on February 10, 2004 reporting under Item 2 and 7,
reporting the acquisition of substantially all of the assets of World
of Outlaws, Inc.;(6)
    
    Form 8-K filed on April 28, 2004 reporting under Item 4, changes in
Registrants certifying accountant; and(7)
    
    Form 8-K/A filed on May 25, 2004 reporting under item 7, the
audited financial statements World of Outlaws, Inc. and the pro forma
financial information related to the acquisition of World of Outlaws,
Inc. 24




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. BOUNDLESS MOTOR SPORTS RACING, INC.
(Registrant)Date: August 13, 2004
    /s/ Paul A. KrugerPaul A Kruger, Chief Executive Officer Date: August 13, 2004
    /s/ Thomas L. EarnshawChief Financial Officer 25