##### Table of Contents



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 September 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 0-18045  Commission File Number
 DIRT Motor Sports, Inc.
  Delaware
    
    84-0953839(State of incorporation)
    
    (IRS Employer Identification No.)
 3600 W. Main St., Suite 150, Norman, OK 73072
 (877) 5-RACING  (Issuers telephone number, including area code)
 þ o
 APPLICABLE ONLY TO CORPORATE ISSUERS
  There were 14,265,319 shares of common stock outstanding as of November 7, 2006.
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets  September 30, 2006 and
December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Stockholders Equity (Deficit) for the Nine
Months Ended September 30, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3. Controls and Procedures
    
    
    30PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Rule 13a-14(a)/15d-14(a) Certification of Tom DeeryRule 13a-14(a)/15d-14(a) Certification of Brian CarterSection 1350 Certification of Tom Deery and Brian CarterRule 13a-14(a)/15d-14(a) Certification of Tom DeeryRule 13a-14(a)/15d-14(a) Certification of Brian CarterSection 1350 Certification of Tom Deery and Brian Carter
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DIRT MOTOR SPORTS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2006 and December 31, 2005
(Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,576,052
    
    
    $
    18,645Accounts receivable  trade
    
    
    248,676
    
    
    
    180,628Inventory
    
    
    74,055
    
    
    
    132,056Prepaid expenses and other current assets
    
    
    623,727
    
    
    
    476,303Total current assets
    
    
    5,522,510
    
    
    
    807,632Land, buildings and equipment, net
    
    
    10,599,558
    
    
    
    10,795,359Trademarks and other intellectual property rights
    
    
    123,429
    
    
    
    100,000Goodwill, net of impairment of $8,812,097 in 2006 and 2005
    
    
    1,508,440
    
    
    
    1,508,440Prepaid Expenses  long term
    
    
    208,334
    
    
    
    333,333Other assets, net of amortization of $41,000 in 2006 and $106,487 in 2005
    
    
    41,000
    
    
    
    230,562Total assets
    
    $
    18,003,271
    
    
    $
    13,775,326LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Cash overdraft
    
    $
    
    
    
    $
    253,232Accounts payable
    
    
    707,411
    
    
    
    1,189,171Accrued liabilities
    
    
    2,867,481
    
    
    
    1,009,181Deferred revenues
    
    
    624,338
    
    
    
    178,784Notes payable  net of discount of $3,622,406 in 2005
    
    
    709,672
    
    
    
    7,140,915Total current liabilities
    
    
    4,908,902
    
    
    
    9,771,283Notes payable  long term
    
    
    4,052,481
    
    
    
    5,293,874Total liabilities
    
    
    8,961,383
    
    
    
    15,065,157Stockholders equity: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; 18,124 shares issued and
Outstanding at September 30, 2006
    
    
    54,372,615
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized;
14,125,137 and 11,720,555 shares issued and outstanding at
September 30, 2006 and December 31, 2005 respectively
    
    
    1,413
    
    
    
    1,172Additional paid-in capital
    
    
    11,337,663
    
    
    
    9,727,830Accumulated deficit
    
    
    (56,669,803
    )
    
    
    (37,917,289
    )Total stockholders equity (deficit)
    
    
    9,041,888
    
    
    
    (1,289,831
    )Total liabilities and stockholders equity
    
    $
    18,003,271
    
    
    $
    13,775,326
  3




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DIRT MOTOR SPORTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
 Three months ended
    
    
    Nine months ended2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Race sanctioning and event fees
    
    $
    2,470,954
    
    
    $
    3,153,747
    
    
    $
    4,242,586
    
    
    $
    6,538,370Track operations, ticket and concession sales
    
    
    2,601,057
    
    
    
    937,750
    
    
    
    5,671,771
    
    
    
    1,735,650Sponsorship and advertising
    
    
    694,370
    
    
    
    466,646
    
    
    
    1,646,940
    
    
    
    1,163,871Merchandise sales
    
    
    240,632
    
    
    
    468,832
    
    
    
    506,835
    
    
    
    972,031Other revenue
    
    
    126,386
    
    
    
    215,819
    
    
    
    215,299
    
    
    
    337,944Total revenues
    
    $
    6,133,399
    
    
    $
    5,242,794
    
    
    $
    12,283,431
    
    
    $
    10,747,866Operating expenses:Track and event operations
    
    
    7,592,261
    
    
    
    6,412,246
    
    
    
    16,446,929
    
    
    
    13,130,244Sales and marketing
    
    
    446,737
    
    
    
    626,351
    
    
    
    945,926
    
    
    
    1,199,863Merchandise operations and cost of sales
    
    
    257,835
    
    
    
    478,989
    
    
    
    724,317
    
    
    
    862,049General and administrative
    
    
    431,731
    
    
    
    259,375
    
    
    
    2,246,878
    
    
    
    1,940,299Non-cash stock option compensation
    
    
    627,840
    
    
    
    
    
    
    
    2,112,322
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    5,999,571
    
    
    
    
    
    
    
    5,999,571Depreciation and amortization
    
    
    187,521
    
    
    
    201,182
    
    
    
    579,867
    
    
    
    464,083Total operating expenses
    
    
    9,543,925
    
    
    
    13,977,714
    
    
    
    23,056,239
    
    
    
    23,596,109Loss from operations
    
    
    (3,410,526
    )
    
    
    (8,734,920
    )
    
    
    (10,772,808
    )
    
    
    (12,848,243
    )Other (Expenses) Income:Interest income
    
    
    57,523
    
    
    
    13,824
    
    
    
    82,240
    
    
    
    13,824Interest expense
    
    
    (105,176
    )
    
    
    (3,762,931
    )
    
    
    (8,058,795
    )
    
    
    (4,296,808
    )Other expense
    
    
    
    
    
    
    (16,240
    )
    
    
    (3,151
    )
    
    
    (16,240
    )Total Other (Expense) Income:
    
    
    (47,653
    )
    
    
    (3,765,347
    )
    
    
    (7,979,706
    )
    
    
    (4,299,224
    )Net (loss)
    
    $
    (3,458,179
    )
    
    $
    (12,500,267
    )
    
    $
    (18,752,514
    )
    
    $
    (17,147,467
    )Dividends on preferred stock:Warrants and beneficial conversion, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000,000
    )Beneficial conversion, Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (800,000
    )Exchange of Series A for Series B Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,667,801
    )Exchange of warrants for Series C
Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,450,000
    )Issuance cost, Series D Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (1,326,335
    )
    
    
    Exchange of Series B&C for Series D
Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (1,250,000
    )
    
    
    Net loss applicable to common stock
    
    $
    (3,458,179
    )
    
    $
    (12,500,267
    )
    
    $
    (21,328,849
    )
    
    $
    (30,065,268
    )Net loss applicable to common stock
per common share Basic and diluted
    
    $
    (0.25
    )
    
    $
    (0.96
    )
    
    $
    (1.65
    )
    
    $
    (2.15
    )Weighted average common shares outstandingBasic and diluted
    
    
    14,042,408
    
    
    
    13,012,695
    
    
    
    12,890,746
    
    
    
    13,958,708
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DIRT MOTOR SPORTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
For the Nine Months Ended September 30, 2006
(Unaudited)
 AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amounts
    
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBalance, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,349,033
    
    
    
    
    
    
    
    1,349,033Exchange of Notes payable and accrued interest
into Series B preferred stock
    
    
    460
    
    
    
    1,381,356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,381,356Exchange 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
    
    
    (120
    )
    
    
    (358,974
    )
    
    
    119,658
    
    
    
    12
    
    
    
    358,962
    
    
    
    
    
    
    
    Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    825,000
    
    
    
    83
    
    
    
    763,206
    
    
    
    
    
    
    
    763,289Common Stock issued in warrant exchange
    
    
    
    
    
    
    
    
    
    
    1,459,924
    
    
    
    146
    
    
    
    (146
    )
    
    
    
    
    
    
    Net(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,752,514
    )
    
    
    (18,752,514
    )Balance, September 30, 2006
    
    
    18,124
    
    
    $
    54,372,615
    
    
    
    14,125,137
    
    
    $
    1,413
    
    
    $
    11,337,663
    
    
    $
    (56,669,803
    )
    
    $
    9,041,888
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DIRT MOTOR SPORTS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
 2006
    
    
    2005Cash flows from operating activities:Net (loss)
    
    $
    (18,752,514
    )
    
    $
    (17,147,467
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    579,867
    
    
    
    464,083Non-cash interest expense, notes payable
    
    
    7,930,582
    
    
    
    4,071,609Non-cash stock option compensation
    
    
    2,112,322
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    5,999,571Increase (decrease) in cash for changes in:Accounts receivable
    
    
    (68,048
    )
    
    
    (327,698
    )Inventory
    
    
    58,001
    
    
    
    (256,415
    )Prepaid expenses and other current assets
    
    
    (147,424
    )
    
    
    (106,461
    )Other non-current assets
    
    
    124,999
    
    
    
    118,252Accounts payable
    
    
    (481,760
    )
    
    
    (193,388
    )Accrued liabilities
    
    
    2,578,116
    
    
    
    666,066Deferred revenue
    
    
    445,554
    
    
    
    (12,757
    )Net cash (used in) operating activities
    
    
    (5,620,305
    )
    
    
    (6,724,605
    )Cash flows from investing activities:Purchase of property, contract rights, trademarks and goodwill
    
    
    (322,439
    )
    
    
    (5,950,396
    )Net cash (used in) investing activities
    
    
    (322,439
    )
    
    
    (5,950,396
    )Cash flows from financing activities:Payments on notes payable
    
    
    (1,863,493
    )
    
    
    (1,325,417
    )Payments of placement agent fees and other issuance costs
    
    
    (1,326,335
    )
    
    
    (545,000
    )Repayments, cash overdraft
    
    
    (253,232
    )
    
    
    (55,279
    )Proceeds from issuance notes payable
    
    
    1,943,211
    
    
    
    10,359,991Proceeds from issuance of preferred stock
    
    
    12,000,000
    
    
    
    5,000,000Net cash provided by financing activities
    
    
    10,500,151
    
    
    
    13,434,295Net increase (decrease) in cash and cash equivalents
    
    
    4,557,407
    
    
    
    759,294Cash and cash equivalents, beginning of period
    
    
    18,645
    
    
    
    Cash and cash equivalents, end of period
    
    $
    4,576,052
    
    
    $
    759,294Supplemental schedule of non-cash activities:Conversion of Preferred Stock: Series A to Series B
    
    $
    
    
    
    $
    15,648,456Conversion of Preferred Stock: Series B and C to Series D
    
    $
    28,279,812
    
    
    $
    Conversion of notes payable into Series D Preferred stock
    
    $
    13,201,777
    
    
    $
    Cash payments for interest
    
    $
    360,869
    
    
    $
    50,090Issuance of warrants with promissory notes
    
    $
    1,715,113
    
    
    $
    Notes payable issued in connection with an agreement to
surrender of common stock
    
    $
    
    
    
    $
    1,323,000Non-cash revenues and expenses, barter agreements
    
    $
    165,500
    
    
    $
    77,400
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DIRT MOTOR SPORTS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  SEPTEMBER 30, 2006
 NOTE 1  DESCRIPTION OF BUSINESS
          NOTE 2
 GOING CONCERN
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NOTE 3  BASIS OF PRESENTATION
   NOTE 4
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Reclassifications
  Use of Estimates
  Principles of Consolidation
  Revenue Recognition and Deferred Revenue
  Accounting for Advertising Barter Transactions
 Expense Recognition and Deferral
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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 300,000 shares at an exercise price of $2.49 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
  Inventories
  Property and Equipment
   Purchase Accounting
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Intangible Assets
   Income Taxes
  Concentration of Credit Risk
  New Accounting Pronouncements
 Share-Based Payment
    Accounting for Certain Hybrid Financial
Instruments
 - 10 -




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Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 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,
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Options outstanding at December 31, 2005
    
    
    890,000
    
    
    $
    3.91Granted
    
    
    1,475,000
    
    
    
    3.41Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (400,000
    )
    
    
    3.68Options outstanding at September 30, 2006
    
    
    1,965,000
    
    
    $
    3.58
 NOTE 5  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
   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
    )
 - 12 -




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NOTE 6  PROPERTY AND EQUIPMENT
  Cost
    
    
    Depreciable LifeLand
    
    $
    6,916,338
    
    

    N/ATransportation equipment
    
    
    1,482,898
    
    
    5  7 yearsBuildings and grandstands
    
    
    3,286,212
    
    
    7  40 yearsOffice furniture and equipment
    
    
    450,645
    
    
    3  7 years12,136,093Less accumulated depreciation
    
    
    (1,536,535
    )Property and equipment, net
    
    $
    10,599,558
  NOTE 7  GOODWILL
   The three and nine
    
    
    The three and ninemonths Ended
    
    
    months EndedSeptember 30, 2006
    
    
    September 30, 2005World of Outlaws
    
    $
    
    
    
    $
    2,027,248UMP
    
    
    
    
    
    
    2,218,171Dirt Motorsports, Inc.
    
    
    
    
    
    
    1,611,700World of Outlaws trademark
    
    
    
    
    
    
    142,452Total impairment charges
    
    $
    
    
    
    $
    5,999,571
 NOTE 8  ACCRUED LIABILITIES
  September 30,
    
    
    December 31,2006
    
    
    2005Points fund
    
    $
    2,091,084
    
    
    $
    Salaries, wages and other costs in connection with office closing
    
    
    
    
    
    
    199,059Interest
    
    
    206,874
    
    
    
    491,914Acquisition liabilities
    
    
    103,500
    
    
    
    103,500Compensation and other employee benefits
    
    
    283,351
    
    
    
    139,540Other accrued liabilities
    
    
    182,672
    
    
    
    75,168Total Accrued Liabilities
    
    $
    2,867,481
    
    
    $
    1,009,181
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NOTE 9  DEFERRED REVENUE
  September 30,
    
    
    December 31,2006
    
    
    2005Sanction fee advances
    
    $
    36,564
    
    
    $
    48,958Sponsorship prepayments
    
    
    253,806
    
    
    
    129,826Memberships
    
    
    46,665
    
    
    
    Season Passes / Prepaid Tickets
    
    
    287,303
    
    
    
    Total Deferred Revenue
    
    $
    624,338
    
    
    $
    178,784
 NOTE 10  NOTES PAYABLE
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2006
    
    $
    47,4352007
    
    
    713,0092008
    
    
    211,9422009
    
    
    2,566,8622010 +
    
    
    1,222,905$
    4,762,153
 NOTE 11  STOCKHOLDERS EQUITY
      Preferred Stock
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th th provided however
   NOTE 12  RELATED PARTY TRANSACTIONS
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NOTE 13  INCOME TAXES
    NOTE 14  COMMITMENTS
    Payment Due by PeriodLess than
    
    2 to 3
    
    4 to 5
    
    After 5Total
    
    1 Year
    
    Years
    
    Years
    
    YearsContractual obligations
Operating leases
    
    $
    42,356
    
    
    $
    42,356
    
    
    $
    
    
    
    $
    
    
    
    $
    
   NOTE 15  LITIGATION AND CONTINGENCIES
   NOTE 16  CONSOLIDATION OF OPERATIONS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD LOOKING STATEMENTS
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Nature of Business
        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
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Consideration:Cash paid at closing
    
    $
    1,600,000Notes payable issued
    
    
    2,000,000Direct transaction costs
    
    
    26,393Total purchase price
    
    $
    3,626,393Land
    
    
    (2,700,000
    )Buildings & equipment
    
    
    (926,393
    )
 Results of Operations  Impact of Seasonality and Weather on Quarterly Results
    Results of Operations  Comparison of Three Months Ended September 30, 2006 (2006) and 2005
(2005)
  Revenues
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Operating expenses
       2006
    
    
    2005World of Outlaws
    
    $
    
    
    
    $
    2,027,248UMP
    
    
    
    
    
    
    2,218,171Dirt Motorsports, Inc.
    
    
    
    
    
    
    1,611,700World of Outlaws trademark
    
    
    
    
    
    
    142,452Total impairment charges
    
    $
    
    
    
    $
    5,999,571
   Results of Operations  Comparison of Nine Months Ended September 30, 2006 (2006) and 2005
(2005)
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Revenues
    Operating expenses
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2006
    
    
    2005World of Outlaws
    
    $
    
    
    
    $
    2,027,248UMP
    
    
    
    
    
    
    2,218,171Dirt Motorsports, Inc.
    
    
    
    
    
    
    1,611,700World of Outlaws trademark
    
    
    
    
    
    
    142,452Total impairment charges
    
    $
    
    
    
    $
    5,999,571
   Liquidity and Capital Resources
         Payment Due by PeriodLess than
    
    2 to 3
    
    4 to 5
    
    After 5Total
    
    1 Year
    
    Years
    
    Years
    
    YearsContractual obligations
Operating leases
    
    $
    42,356
    
    
    $
    42,356
    
    
    $
    
    
    
    $
    
    
    
    $
    Employment agreements
    
    
    2,212,188
    
    
    
    732,750
    
    
    
    1,479,438
    
    
    
    
    
    
    
    Notes payable and accrued interest
    
    
    5,008,127
    
    
    
    1,267,047
    
    
    
    683,259
    
    
    
    3,057,821
    
    
    
    
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The Companys significant accounting policies include:
 Reclassifications
  Use of Estimates
  Principles of Consolidation
  Revenue Recognition and Deferred Revenue
  Accounting for Advertising Barter Transactions
 Expense Recognition and Deferral
   Net loss Per Share
   
    
    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
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
    
    Other warrants to purchase 40,000 shares of common stock issued at an exercise price of $3.65
    
    Employee stock options to purchase 300,000 shares at an exercise price of $2.49 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
  Inventories
  Property and Equipment
   Purchase Accounting
  Intangible Assets
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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.
 Fair Value Measurements
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Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
  Stock-Based Compensation
 Share-Based Payment
 Accounting for Stock Issued to Employees,
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Options outstanding at December 31, 2005
    
    
    890,000
    
    
    $
    3.91Granted
    
    
    1,475,000
    
    
    
    3.41Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (400,000
    )
    
    
    3.68Options outstanding at September 30, 2006
    
    
    1,965,000
    
    
    $
    3.58
 Certain Risks
  We may not have sufficient capital to successfully affect our business strategy.
  We have a limited operating history. As a result, evaluating our current business model and
prospects may be difficult.
  Speculative nature of our proposed operations.
  Our failure to achieve or maintain profitability could force us to cease our operations.
  Possible impairment of goodwill.
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Our success depends in part upon sales of our racing series and racing events.
    Our executive officers, directors and principal stockholders have substantial influence over us.
   Our quarterly operating results may fluctuate significantly
   Acquisitions of companies or joint venture investments may disrupt our business or dilute
shareholder value.
  Dependence on qualified and key personnel.
  Illiquidity of our common stock.
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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 certificate of incorporation and bylaws may delay or prevent a potential takeover of us.
  
 ITEM 3. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
   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).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).
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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).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Tom Deery *31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Brian Carter *32
    
    Section 1350 Certification of Tom Deery and Brian Carter *
 
 *
    
    Filed herewith .
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SIGNATURES
  DIRT MOTOR SPORTS, INC.(Registrant)Date: November 14, 2006
    
    /s/ Tom Deery

Tom Deery, Chief Executive OfficerDate: November 14, 2006
    
    /s/ Brian CarterBrian Carter, Chief Financial Officer
 - 33 -