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  **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 March 31, 2007****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. d/b/a World Racing Group** (Exact name of registrant as specified in its charter)   **Delaware** **90-0284113** (State of incorporation) (IRS Employer Identification No.)**7575 West Winds Blvd, Suite D, Concord, North Carolina 28027** (Address of principal executive offices)**(704) 795-7223** (Issuer’s telephone number, including area code)Indicate by check mark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.    þ Yes      o No**APPLICABLE ONLY TO CORPORATE ISSUERS**State the number of shares outstanding of each of the issuer’s classes of common equity, as ofthe latest practicable date:There were 14,565,240 shares of common stock outstanding as of May 14, 2007.Transitional Small Business Disclosure Format (Check one): Yes o       No þ  
 

 
**TABLE OF CONTENTS**       PAGE **PART I — FINANCIAL INFORMATION**         Item 1. Condensed Consolidated Financial Statements    Condensed Consolidated Balance Sheets – March 31, 2007 andDecember 31, 2006  3 Condensed Consolidated Statements of Operations for the Three MonthsEnded March 31, 2007 and 2006  4 Condensed Consolidated Statements of Stockholders’ Equity for the ThreeMonths Ended March 31, 2007  5 Condensed Consolidated Statements of Cash Flows for the Three MonthsEnded March 31, 2007 and 2006  6 Notes to Condensed Consolidated Financial Statements  7 Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations  16 Item 3. Controls and Procedures  25      **PART II — OTHER INFORMATION**         Item 1. Legal Proceedings  25 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  25 Item 4. Submission of Matters to a Vote of Security Holders  25 Item 6. Exhibits  25 Signatures  27 Rule 13a-14(a)/15d-14(a) Certification of Tom Deery    Rule 13a-14(a)/15d-14(a) Certification of Brian Carter    Section 1350 Certification of Tom Deery and Brian Carter     Rule 13a-14(a)/15d-14(a) Certification of Tom Deery Rule 13a-14(a)/15d-14(a) Certification of Brian Carter Section 1350 Certification of Tom Deery and Brian Carter
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**PART I – FINANCIAL INFORMATION****ITEM 1. FINANCIAL STATEMENTS****DIRT MOTOR SPORTS, INC.****CONDENSED CONSOLIDATED BALANCE SHEETSMarch 31, 2007 and December 31, 2006(Unaudited)**           **March 31,**  **December 31,**   **2007**  **2006** **ASSETS**        **Current assets**        Cash and cash equivalents $300,058  $532,230 Accounts receivable — trade  176,306   223,065 Inventory  63,288   110,077 Prepaid expenses and other current assets  280,512   330,943        Total current assets  820,164   1,196,315        Land, buildings and equipment, net  10,656,533   10,447,633 Trademarks  100,000   100,000 Goodwill, net of impairment of $10,320,537  —   — Prepaid Expenses – long term  125,000   166,667 Other assets, net of amortization of $69,667 in 2007 and $55,331 in 2006  124,839   140,122        Total assets $11,826,536  $12,050,737                 **LIABILITIES AND STOCKHOLDERS’ EQUITY**        **Current liabilities**        Accounts payable $883,513  $474,781 Accrued liabilities  967,169   1,147,749 Deferred revenues  743,638   129,424 Notes payable  1,340,823   713,008        Total current liabilities  3,935,143   2,464,962 Notes payable, net of current portion shown above  4,138,687   4,001,711        Total liabilities  8,073,830   6,466,673                 **Stockholders’ Equity**                 Series D Preferred stock, $0.01 par value; 20,000 shares authorized; 17,684 and17,875 shares issued and outstanding at March 31, 2007 and December 31, 2006,respectively  53,052,306   53,624,538          Common stock, $0.0001 par value; 100,000,000 shares authorized; 14,565,240and 14,374,496 shares issued and outstanding at March 31, 2007 andDecember 31, 2006, respectively  1,457   1,438 Additional paid-in capital  13,709,368   12,684,051 Accumulated deficit  (63,010,425)  (60,725,963)       Total stockholders’ equity  3,752,706   5,584,064        Total liabilities and stockholders’ equity $11,826,536  $12,050,737        The accompanying notes are an integral part of these condensed consolidated financial statements.
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**DIRT MOTOR SPORTS, INC.****CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFor the Three Months Ended March 31, 2007 and 2006**(Unaudited)           **2007**  **2006** Revenues        Race sanctioning and event fees $586,568  $310,048 Admission fees and ticket sales  1,419,716   1,351,552 Sponsorship and advertising revenue  368,245   217,526 Merchandise sales  57,065   94,031 Other revenue  42,484   46,910        Total revenues  2,474,078   2,020,067          Operating expenses        Track and event operations  2,823,889   3,182,325 Sales and marketing  375,864   220,156 Merchandise operations and cost of sales  62,519   190,700 General and administrative  763,275   790,977 Non-cash stock compensation  453,104   646,010 Depreciation and amortization  201,739   190,688        Total operating expenses  4,680,390   5,220,856                 Loss from operations  (2,206,312)  (3,200,789)         Other(Expenses) Income        Interest expense, net  (78,150)  (1,665,932)       Total Other Expense  (78,150)  (1,665,932)                Net (Loss) $(2,284,462) $(4,866,721)                Net loss applicable to common stock $(2,284,462) $(4,886,721)                Net loss applicable to common stockper common share —Basic and diluted $(0.16) $(0.42)       Weighted average common shares outstanding —Basic and diluted  14,529,211   11,720,555        The accompanying notes are an integral part of these condensed consolidated financial statements.
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**DIRT MOTOR SPORTS, INC.****CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITYFor the Three Months Ended March 31, 2007(Unaudited)**                                               **Additional**         **Preferred Stock**  **Common Stock**  **Paid-in**  **Accumulated**      **Shares**  **Amounts**  **Shares**  **Amounts**  **Capital**  **(Deficit)**  **Total** Balance, December 31, 2006  17,875  $53,624,538   14,374,496  $1,438  $12,684,051  $(60,725,963) $5,584,064                              Value assigned to stock options, non-cash stockcompensation expense  —   —   —   —   453,104   —   453,104                              Series D conversions to common stock  (191)  (572,232)  190,744   19   572,213   —   —                              Net loss  —   —   —   —   —   (2,284,462)  (2,284,462)                      Balance, March 31, 2007  17,684  $53,052,306   14,565,240  $1,457  $13,709,368  $(63,010,425) $3,752,706                       The accompanying notes are an integral part of these condensed consolidated financial statements.
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**DIRT MOTOR SPORTS, INC.****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Three Months Ended March 31, 2007 and 2006**(Unaudited)           **2007**  **2006** **Cash flows from operating activities:**        Net (loss) $(2,284,462) $(4,866,721)**Adjustments to reconcile net loss to net cash used inoperating activities:**        Depreciation and amortization  201,739   190,688 Non-cash interest expense, notes payable  —   1,306,580 Non-cash stock compensation  453,104   646,010 **Increase (decrease) in cash for changes in:**        Accounts receivable  46,759   144,708 Inventory  46,789   (156,885)Prepaid expenses and other current assets  50,431   (125,659)Other non-current assets and long term prepaid expenses  42,614   (12,222)Accounts payable  408,732   136,643 Accrued liabilities  (180,580)  672,032 Deferred revenue  614,214   553,837                 Net cash (used in) operating activities  (600,660)  (1,510,989)                **Cash flows from investing activities:**        Purchase of property, contract rights, trademarks and goodwill  (164,003)  (164,936)       Net cash (used in) investing activities  (164,003)  (164,936)                **Cash flows from financing activities:**        Cash overdraft  —   (253,232)Payments on notes payable  (67,509)  (44,061)Proceeds from issuance of notes payable  600,000   2,275,000        Net cash provided by financing activities  532,491   1,977,707        Net increase (decrease) in cash and cash equivalents  (232,172)  301,782 Cash and cash equivalents, beginning of period  532,230   18,645        Cash and cash equivalents, end of period $300,058  $320,427                 Supplemental schedule of non-cash activities:        Purchase of vehicles and equipment through the issuance of notes $232,300  $— Cash payments for interest $37,054  $359,359 Issuance of warrants with promissory notes $—  $1,715,113 Non-cash revenues and expenses, barter agreements $38,400  $67,000 The accompanying notes are an integral part of these condensed consolidated financial statements.
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**DIRT MOTOR SPORTS, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2007****NOTE 1 – DESCRIPTION OF BUSINESS**     References in this document to “the Company,” “Boundless,” “DIRT,” “we,” “us” and “our” meanDirt Motor Sports, Inc. and its wholly owned subsidiaries. Subsequent to the acquisition of DIRTMotorsports, Inc. in 2004, the Company began operating under the d/b/a name DIRT MotorSports and inJuly 2005, the Company reincorporated in Delaware and changed the Company’s name from “BoundlessMotor Sports Racing, Inc.” to “Dirt Motor Sports, Inc.” The Company has begun doing business asWorld Racing Group, and management expects to seek shareholder approval to change the name of theCompany to World Racing Group, Inc. at its 2007 meeting of stockholders.     On February 4, 2004, the Company completed the acquisition of substantially all the assets ofthe World of Outlaws, Inc. (“World of Outlaws”). Prior to this event, the Company was devotingsubstantially all of its efforts to establishing the business and was therefore a development stageenterprise until February 4, 2004.     During the quarter ended December 31, 2004, the Company entered into a series of relatedtransactions resulting in the acquisition of 100% of the outstanding stock of DIRT Motorsports,Inc. (“DIRT”) and two affiliated race tracks.     On December 5, 2004, the Company acquired all of the outstanding membership interest in UnitedMidwestern Promoters Motorsports, LLC (“UMP”).     On November 7, 2004, the Company entered into an Asset Purchase Agreement to acquiresubstantially all of the assets of Lernerville Speedway, Inc. (“LSI”). This acquisition wascompleted in March 2005, and the total consideration for the assets acquired was $3,240,000.     On March 10, 2005, the Company entered into and consummated an Asset Purchase Agreementpursuant to which the Company acquired all of the assets related to the business of sanctioning andconducting the dirt track racing events known as the Mid America Racing Series (“MARS”). Theassets were acquired in exchange for an aggregate cash purchase price of $150,000.     On June 30, 2005, the Company acquired substantially all of the assets of Volusia SpeedwayPark, Inc., (“Volusia Speedway”) in exchange for an aggregate purchase price of $3,600,000.     We are a leading marketer and promoter of motorsports entertainment in the United States. Weoperate 7 dirt motorsports tracks (4 are owned and 3 facilities are under short term leaseagreements) in New York, Pennsylvania and Florida. We own and operate four of the premiersanctioning bodies in dirt motorsports: the World of Outlaws, DIRT Motorsports, United MidwesternPromoters (UMP) and the Mid America Racing Series (MARS). Through these sanctioning bodies weorganize and promote 16 national and regional racing series including the World of Outlaw SprintSeries and the World of Outlaws Late Model Series.**NOTE 2 — GOING CONCERN**     The accompanying consolidated financial statements have been prepared in conformity withaccounting principles generally accepted in the United States of America, which contemplatescontinuation of the Company as a going concern. The Company incurred a net loss of $22.8 millionfor the year ended December 31, 2006 and a net loss of $2.3 million for the three months endedMarch 31, 2007. The Company has an accumulated deficit of $63.0 million and negative workingcapital of $3.1 million as of March 31, 2007, which raises substantial doubt about the Company’sability to continue as a going concern. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.     The Company is dependent on its ability to attain profitable operations and upon its abilityto obtain additional working capital. To address its working capital needs, and ultimately achieveprofitability, management’s plan is to execute its business plan to obtain sponsorship, advertisingand other revenue, and immediately seek additional equity and/or debt financing. If the Companyis unsuccessful in its plans to: (i) obtain additional debt or equity financing; or (ii) generatesufficient revenues from sponsorship, advertising, and other sources, the Company will haveinsufficient capital to continue its operations. The financial statements do not include anyadjustments relating to the recoverability and classification of recorded asset amounts or toamounts and classification of liabilities that may be necessary if the Company is unable tocontinue as a going concern. The financial statements do not include any adjustments relating tothe recoverability and clarification of recorded asset amounts or to the amounts and classificationof liabilities that may be necessary if the Company is unable to continue as a going concern.**NOTE 3 – BASIS OF PRESENTATION**     The accompanying condensed consolidated financial statements have been prepared in compliancewith Rule 10-01 of Regulation S-X and U.S. generally accepted accounting principles, but do notinclude all of the information and disclosures required for audited financial statements. Thesestatements should be read in conjunction with the condensed consolidated financial statements andnotes thereto included in the Company’s latest Annual Report on Form 10-KSB for the year endedDecember 31, 2006. In the opinion of
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management, these statements include all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation of the results of operations, financialposition and cash flows for the interim periods presented. Operating results for the three monthsended March 31, 2007 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2007 due to the seasonal nature of the Company’s business.     The factors discussed in Footnote 2 above raise substantial doubt about the Company’s abilityto continue as a going concern. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.**NOTE 4 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES****Reclassifications**     Certain amounts in prior periods presented have been reclassified to conform to the currentfinancial statement presentation. These reclassifications have no effect on previously reportednet income or loss.**Use of Estimates**     The preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptions thataffect the reported amount of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.**Principles of Consolidation**     The accompanying consolidated financial statements include the accounts of DIRT Motor Sports,Inc. and its wholly-owned subsidiaries. All material intercompany accounts and transactions havebeen eliminated in consolidation.**Revenue Recognition and Deferred Revenue**     The Company derives its revenues from race sanctioning and event fees, admission fees andticket sales, sponsorship and advertising, merchandise sales and other revenue. “Race sanctioningand event fees” includes amounts received from track owners and promoters for the organizationand/or delivery of our racing series or touring shows including driver fees. “Admission fees andticket sales” includes ticket sales for all events held at the Company’s owned or leased facilitiesand ticket sales for our touring shows where we rent tracks for individual events and organize,promote and deliver our racing programs. “Sponsorship and advertising” revenue includes feesobtained for the right to sponsor our motorsports events, series or publications, and foradvertising in our printed publications or television programming.     The Company recognizes race sanctioning and event fees upon the successful completion of ascheduled race or event. Race sanction and event fees collected prior to a scheduled race event aredeferred and recognized when earned upon the occurrence of the scheduled race or event. Trackoperations, ticket and concession sales are recognized as revenues on the day of the event. Incomefrom memberships to our sanctioning bodies is recognized on a prorated basis over the term of themembership. The Company recognizes revenue from sponsorship and advertising agreements when earnedin the applicable racing season as set forth in the sponsorship or advertising agreement eitherupon completion of events or publication of the advertising. Revenue from merchandise sales arerecognized at the time of sale less estimated returns and allowances, if any. Revenues and relatedexpenses from barter transactions in which the Company receives goods or services in exchange forsponsorships of motorsports events are recorded at fair value in accordance with Emerging IssuesTask Force (“EITF”) Issue No. 99-17, *Accounting for Advertising Barter Transactions*. Bartertransactions accounted for $38,400 and $67,000 of total revenues for the three month period endedMarch 31, 2007 and 2006 respectively.     During 2006, we entered into a multi-year sponsorship and marketing agreement under which theCompany began delivering services in 2007. As of the date of this filing, the customer hasbreached its obligations and failed to cure such breaches under the agreement, including thefailure to make scheduled payments. The Company will pursue its rights under the agreement,however, no revenue will be recognized under the agreement until such time that payments arereceived, if ever. As of May 14, 2007, the Company has discontinued providing services under thisagreement and is pursuing its rights under the agreement.**Expense Recognition and Deferral**     Certain direct expenses pertaining to specific events, including prize and point fund monies,advertising and other expenses associated with the promotion of our racing events are deferreduntil the event is held, at which point they are expensed. Annual points fund monies which arepaid at the end of the racing season are accrued during the racing season based upon the races heldand total races scheduled.     The cost of non-event related advertising, promotion and marketing programs are expensed asincurred.
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**Net Loss Per Share and Warrants Outstanding**     Basic and diluted earnings per share (EPS) are calculated in accordance with FASB StatementNo. 128, Earnings per Share. For the years ended March 31, 2007 and 2006, the net loss per shareapplicable to common stock has been computed by dividing the net loss by the weighted averagenumber of common shares outstanding.           **March 31**   **2007**  **2006** Net (Loss) $(2,284,462) $(4,866,721)       Net loss applicable to common stock $(2,284,462) $(4,866,721)                Net loss applicable to common stockper common share —Basic and diluted $(0.16) $(0.42)       Weighted average common shares outstanding —Basic and diluted  14,529,211   11,720,555             In addition, as of March 31, 2007, the Company’s Series D Preferred Stock was convertible into17.7 million shares of common stock and the Company had warrants outstanding to purchase 7.1million common shares and options to purchase 2.1 million shares of common stock None of these wereincluded in the computation of diluted EPS because the Company had a net loss and all potentialissuance of common stock would have been anti-dilutive.     The following table summarizes the Company’s common stock purchase warrant and certain stockoptions outstanding at March 31, 2007. These warrants and stock options were not considered incomputing diluted earnings per share as their effect would be anti-dilutive:                   Weighted  Weighted Average       Average  Contractual Life   Shares  Exercise Price  (years) Promissory note warrants  1,948,510  $4.50   3.6 Series D warrants  2,520,178  $4.50   4.2              Placement agent warrants  1,186,266  $3.07   4.6              UMP acquisition warrants  40,000  $3.65   1.0 Warrants issued in exchange for thesurrender of common stock  542,738  $0.001   4.2 Other Warrants  890,059  $3.00   4.2 Stock options  2,094,000  $3.50   3.9                        Total warrants and stock options outstanding  9,221,751  $3.68   4.1 **Cash and Cash Equivalents**     For purposes of the statement of cash flows, the Company considers all highly liquidinvestments with original maturities of three months or less to be cash equivalents.**Inventories**     Inventories of retail merchandise are stated at the lower of cost or market on the first in,first out method. Shipping, handling and freight costs related to merchandise inventories arecharged to cost of merchandise.**Property and Equipment**     Property and equipment are stated at cost. Depreciation is provided for financial reportingpurposes using the straight-line method over the estimated useful lives of the related assetsranging from 3 to 40 years. Expenditures for maintenance, repairs and minor renewals
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are expensed as incurred; major renewals and betterments are capitalized. At the timedepreciable assets are retired or otherwise disposed of, the cost and the accumulated depreciationof 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 expectedfuture undiscounted cash flows. If events or circumstances indicate that the carrying value of anasset may not be recoverable, an impairment loss would be recognized equal to the differencebetween the carrying value of the asset and its fair value.**Purchase Accounting**     The Company accounted for its acquisitions of assets in accordance with Statement of FinancialAccounting Standards No. 141 (“SFAS No. 141”), Business Combinations and Statement of FinancialAccounting Standards No. 142, Goodwill and Intangible Assets (“SFAS No. 142”). SFAS no. 141requires that all business combinations entered into subsequent to June 30, 2001 be accounted forunder the purchase method of accounting and that certain acquired intangible assets in a businesscombination 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 assetswith indefinite lives are not to be amortized but are tested for impairment at least annually.Intangible assets with definite useful lives are to be amortized over the respective estimateduseful lives or anticipated future cash flow streams when appropriate.     At least annually the Company tests for possible impairment of all intangible assets and moreoften whenever events or changes in circumstances, such as a reduction in operating cash flow or adramatic change in the manner that the asset is intended to be used indicate that the carryingamount of the asset is not recoverable. If indicators exist, the Company compares the discountedcash flows related to the asset to the carrying value of the asset. If the carrying value isgreater than the discounted cash flow amount, an impairment charge is recorded in the operatingexpense section in the statement of operations for amounts necessary to reduce the carrying valueof the asset to fair value. The Company has chosen the fourth quarter of its fiscal year to conductits annual impairment test.**Income Taxes**     The Company accounts for income taxes under Financial Accounting Standards Number 109 (“SFAS109”), “Accounting for Income Taxes”. Deferred income tax assets and liabilities are determinedbased upon differences between financial reporting and tax basis of assets and liabilities and aremeasured using the enacted tax rates and laws that will be in effect when the differences areexpected to be reversed. Deferred tax assets are reduced by a valuation allowance when, in theopinion of management, it is more likely than not that some portion or all of the deferred taxassets will not be realized.**Concentration of Credit Risk**     Due to the nature of the Company’s sponsorship agreements, the Company could be subject toconcentration of accounts receivable within a limited number of accounts. As of March 31, 2007 theCompany had bank deposits in excess of FDIC insurance of approximately $0.1 million.**New Accounting Pronouncements**     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No.123(R), *Share-Based Payment*, (“SFAS No. 123(R)”), using the modified prospective transition method.SFAS No. 123(R) requires equity-classified share-based payments to employees, including grants ofemployee stock options, to be valued at fair value on the date of grant and to be expensed over theapplicable vesting period. Under the modified prospective transition method, share-based awardsgranted or modified on or after January 1, 2006, are recognized in compensation expense over theapplicable vesting period. Also, any previously granted awards that are not fully vested as ofJanuary 1, 2006 are recognized as compensation expense over the remaining vesting period. Noretroactive or cumulative effect adjustments were required upon The Company’s adoption of SFAS No.123(R).     In February 2006, the FASB issued Statement No. 155, *“Accounting for Certain Hybrid FinancialInstruments”*(“SFAS No. 155”), which amends FASB Statements No. 133 and 140. This Statement permitsfair value remeasurement for any hybrid financial instrument containing an embedded derivative thatwould otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”)permitted holdings to include passive derivative financial instruments that pertain to otherderivative financial instruments. This Statement is effective for all financial instrumentsacquired, issued or subject to a remeasurement event occurring after the beginning of an entity’sfirst fiscal year beginning after September 15, 2006. This Statement has no current applicabilityto the Company’s financial statements. Management adopted this Statement on January 1, 2007 andthe initial adoption of this Statement did not have a material impact on the Company’s financialposition, results of operations, or cash flows.     In June 2006, the FASB issued Interpretation 48, *“Accounting for Uncertainty in Income Taxes”*(“FIN 48”), an interpretation of FASB Statement No. 109, *“Accounting for Income Taxes.”*FIN 48clarifies the accounting and reporting for income taxes where interpretation of the law isuncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition,measurement,
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presentation and disclosure of income tax uncertainties with respect to positions taken orexpected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. This Statement has no current applicability to the Company’s financialstatements. Management adopted this Statement on January 1, 2007 and the initial adoption of FIN48 did not have a material impact on the Company’s financial position, results of operations, orcash flows.     In September 2006, the FASB issued Statement No. 157, *“Fair Value Measurements”*(“SFAS No.157”). SFAS No. 157 addresses how companies should measure fair value when they are required to usea fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, withearlier adoption permitted. Management is assessing the impact of the adoption of this Statement.     In September 2006, the FASB issued Statement No. 158, *“Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans”*(“SFAS No. 158”), an amendment of FASB StatementsNo. 87, 88, 106 and 132(R). SFAS No. 158 requires (a) recognition of the funded status (measured asthe difference between the fair value of the plan assets and the benefit obligation) of a benefitplan as an asset or liability in the employer’s statement of financial position, (b) measurement ofthe funded status as of the employer’s fiscal year-end with limited exceptions, and (c) recognitionof changes in the funded status in the year in which the changes occur through comprehensiveincome. The requirement to recognize the funded status of a benefit plan and the disclosurerequirements are effective as of the end of the fiscal year ending after December 15, 2006. Therequirement to measure the plan assets and benefit obligations as of the date of the employer’sfiscal year-end statement of financial position is effective for fiscal years ending after December15, 2008. This Statement has no current applicability to the Company’s financial statements.Management adopted this Statement on December 31, 2006 and the adoption of SFAS No. 158 did nothave a material impact to the Company’s financial position, results of operations, or cash flows.     In September 2006, the Securities Exchange Commission issued Staff Accounting Bulletin No. 108(“SAB No. 108”). SAB No. 108 addresses how the effects of prior year uncorrected misstatementsshould be considered when quantifying misstatements in current year financial statements. SAB No.108 requires companies to quantify misstatements using a balance sheet and income statementapproach and to evaluate whether either approach results in quantifying an error that is materialin light of relevant quantitative and qualitative factors. When the effect of initial adoption ismaterial, companies will record the effect as a cumulative effect adjustment to beginning of yearretained earnings and disclose the nature and amount of each individual error being corrected inthe cumulative adjustment. SAB No. 108 was effective beginning January 1, 2007 and the initialadoption of SAB No. 108 did not have a material impact on the Company’s financial position, resultsof operations, or cash flows.     In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for FinancialAssets and Financial Liabilities” (SFAS 159). This statement permits companies to choose to measuremany financial assets and liabilities at fair value. Unrealized gains and losses on items for whichthe fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscalyears beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159on its consolidated financial statements.**Stock-Based Compensation**     The Company’s 2004 Long Term Incentive Plan (the “Plan”) provides for the grant of shareoptions and shares to its employees for up to 3,950,000 shares of common stock. Option awards aregenerally granted with an exercise price equal to the market price of the Company’s stock at thedate of grant; those option awards generally vest based on 3 years of continuous service and have 5year contractual terms. Share awards generally vest over 3 years. Certain option and share awardsprovide for accelerated vesting if there is a change in control, as defined in the Plan.     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No.123(R), *Share-Based Payment*, (“SFAS No. 123(R)”), using the modified prospective transition method.SFAS No. 123(R) requires equity-classified share-based payments to employees, including grants ofemployee stock options, to be valued at fair value on the date of grant and to be expensed over theapplicable vesting period. Under the modified prospective transition method, share-based awardsgranted or modified on or after January 1, 2006, are recognized in compensation expense over theapplicable vesting period. Also, any previously granted awards that are not fully vested as ofJanuary 1, 2006 are recognized as compensation expense over the remaining vesting period. Noretroactive or cumulative effect adjustments were required upon the Company’s adoption of SFAS No.123(R).     The fair value of each option award is estimated on the date of grant using the Black-Scholesoption valuation model that uses the assumptions noted in the following table. Expectedvolatilities are based on the historical volatility of the market price of the Company’s commonstock over a period of time ending on the grant date. Based upon historical experience of theCompany, the expected term of options granted is equal to the vesting period. The risk-free ratefor periods within the contractual life of the option is based on the U.S Treasury yield curve ineffect at the time of the grant.     The following table provides information relating to outstanding stock options for the yearended December 31, 2006 and the three months ended March 31, 2007:
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     Expected volatility  58%Expected life in years  4.0 Weighted average risk free interest rate  4.66%          The Company has not declared dividends and does not intend to do so in the foreseeable future,and thus did not use a dividend yield. In each case, the actual value that will be realized, ifany, depends on the future performance of the common stock and overall stock market conditions.There is no assurance that the value an optionee actually realizes will be at or near the valueestimated using the Black-Scholes model.          The fair value of restricted common stock awards is based on the closing price of theCompany’s common stock on date of the grant. The Company issued 750,000 restricted shares of commonstock in 2006 with a fair value of $2,737,500, which will be recorded as compensation expense overthe three year vesting period of the restricted shares.               A summary of the status of stock options and related activity for the three months ended March31, 2007 is presented below:                       **Weighted**       **Weighted**  **Average**       **Average**  **Remaining**       **Exercise Price**  **Contractual**   **Shares**  **per Share**  **Term** Options outstanding at December 31, 2006  2,040,000  $3.54   4.2 Granted  54,000   2.00     Exercised  —   —     Forfeited/expired  —   —                             Options outstanding at March 31, 2007  2,094,000  $3.50   3.9           Options exercisable at March 31, 2007  973,333  $3.70   3.3                Unrecognized compensation expense as of December 31, 2006 related to outstanding stock optionsand restricted stock grants was $3.7 million. Unrecognized compensation expense as of March 31,2007 related to outstanding stock options and restricted stock grants was $3.2 million.**NOTE 5 – PROPERTY AND EQUIPMENT**Property and equipment consisted of the following at March 31, 2007:           Cost  Depreciable Life Land $6,916,338   N/A Buildings and grandstands  3,436,164  7 - 40 years Transportation equipment  1,653,825  5 - 7 years          Office furniture and equipment  554,071  3 - 7 years            12,560,398     Less accumulated depreciation  (1,903,865)            Property and equipment, net $10,656,533             Depreciation is computed on a straight-line basis. Depreciation expense for the three monthperiods ended March 31, 2007 and 2006 was $187,403 and $167,041, respectively.**NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS**As discussed in Note 4, the Company conducts an annual impairment test as required by SFAS No. 142.Under SFAS 142, goodwill impairment is deemed to exist if the carrying value of a reporting unitexceeds its estimated fair value. In calculating the impairment charge, the fair values of thereporting units were estimated using the expected present value of future cash flows from thoseunits. The World of Outlaws acquisition, the DIRT acquisition, the UMP acquisition, the MARSacquisition, and the Lernerville acquisition were treated as separate reporting units for purposesof making these impairment calculations. During the year ended September 30, 2004 an impairment of$2,954,978 was recorded related to 2004 acquisitions. During the year ended December 31, 2005,impairments related to
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the goodwill associated with the acquisition of the World of Outlaws, UMP and Dirt was determinedto be impaired by $2,027,248, $2,218,171 and $1,611,700 respectively. In addition, the trademarkassociated with the World of Outlaws was determined to be impaired by $142,452. These amounts werecharged to current earnings for the quarter ended September 30, 2005. The Company evaluated againin 2006 and it was determined that the remaining goodwill for each reporting unit was fullyimpaired and the remaining amounts recorded as goodwill were impaired and during the year endedDecember 31, 2006, an impairment of $1,508,440 was recorded related to the goodwill associated withthe acquisitions of the UMP, MARS and Lernerville was determined to be impaired by $812,715,$148,000 and $547,725, respectively.**NOTE 7 – ACCRUED LIABILITIES**Accrued liabilities at March 31, 2007 and December 31, 2006 consisted of the following:           March 31,  December 31,   2007  2006 Points fund $146,975  $453,150 Interest  143,541   74,913 Salaries, wages and other compensation and benefits  274,830   195,770 Sales taxes  209,663   158,728 Office closure and relocation  36,305   114,611 Acquisition liabilities  15,000   42,532 Other accrued liabilities  140,855   108,045                 Total Accrued Liabilities $967,169  $1,147,749        **NOTE 8 – DEFERRED REVENUE**Deferred revenues at March 31, 2007 and December 31, 2006 consisted of the following:           March 31,  December 31,   2007  2006 Sponsorship prepayments $394,550  $8,650 Sanction fee advances  88,833   12,958 Season ticket sales, advance ticket sales  142,511   107,816 Membership fees  117,744   —                   $743,638  $129,424        **NOTE 9 – NOTES PAYABLE**From May 2005 through April 2006 we issued $12.4 million in promissory notes payable to existingshareholders. These notes were classified as current, due and payable on the first to occur of:(i) October 27, 2006 (ii) the completion of an equity or equity linked financing with grossproceeds of $9,000,000 or (iii) the acceleration of the obligations under the promissory notes.These promissory notes bear interest at 8% for the first 6 months from the date of issuance and 12%for the next 6 months and was payable on a quarterly basis. The Company issued warrants topurchase 1,948,510 shares of our common stock at an exercise price of $4.50 in connection withthese notes. The warrants were valued based on the Black-Scholes fair value method and the valuewas recorded as a non-cash debt discount and was being amortized over the life of the notes. Inconnection with the Series D Preferred Stock financing in May 2006, we repaid $867,506 of thesenotes plus accrued interest and we exchanged the remaining $11.6 million in notes plus accruedinterest into 4,401 shares of our Series D Preferred stock and issued Series D warrants to purchase1,320,178 shares of our common stock at an exercise price of $4.50. At the time of conversion, thecompany recognized the remaining unamortized debt discount as interest expense in 2006.Additionally, the Company recognized interest expense for the conversion of the notes at 110% intoSeries D preferred stock (Note 10).During the first quarter of 2007, the Company entered into a line of credit agreement with one ofits principal shareholders to provide the Company with working capital advances. Amountsoutstanding bear interest at 8%, no amounts are outstanding under the line of credit as of March31, 2007.In March 2007, the Company issued to several of its principal shareholders $0.6 million in securedpromissory notes payable. The notes are due June 30, 2007, bear interest at 8% per year and aresecured by the assets of the Company. The proceeds from these notes were
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used to fund the working capital needs of the Company. In April 2007, the Company issued toseveral of its principal shareholders $0.4 million in secured promissory notes payable. The notesare due June 30, 2007, bear interest at 8% per year and are secured by the assets of the Company.The proceeds from these notes were used to fund the working capital needs of the Company. TheCompany expects to complete an additional financing in the second quarter of 2007 at which time theholders of these notes issued in 2007 will receive warrants in amounts and exercise pricesequivalent to those issued in the subsequent financing. The fair value of the warrants issued willbe recorded as an increase in additional paid in capital and will be recorded as a discount tothese notes payable and will be recognized as interest expense in the second quarter of 2007.Notes payable at March 31, 2007 consisted of the following:$92,000 note payable issued in connection with the purchase of Lernerville Speedway, which isdue in one installment of $110,000, including accrued interest, on May 30, 2007. This note issecured by a mortgage on the Lernerville Speedway Facility.$2,340,000 notes payable issued in connection with the purchase of Lernerville Speedway,bearing interest at 7% payable annually each November. The balance is due upon maturity onMarch 15, 2009. This note is secured by a mortgage on the Lernerville Speedway Facility.$2,000,000 note payable issued in connection with the purchase of Volusia Speedway, bearinginterest at one percent over prime and payable in fifty-nine equal monthly installmentscommencing at $24,000 per month and adjusted quarterly for changes in interest rates with thebalance of the outstanding principal and accrued interest due on June 30, 2010. Theoutstanding principle balance on this note was $1,716,877 as of March 31, 2007. This note issecured by a mortgage on the real property, and security agreement covering the other assetsacquired from Volusia Speedway.$423,000 note payable to an individual bearing interest at 8% and payable on or before June15, 2007.$307,633 in various vehicle notes payable, bearing interest at 6.25% and due in monthlyinstallments of principal and interest through February 2011.$600,000 in secured promissory notes payable issued in March 2007 bearing interest at 8% peryear and due June 30, 2007. These promissory notes are secured by the assets of the Company.     The aggregate amounts of principal payments during each of the yearsending December 31, 2007 through 2011 and thereafter are:     Remainder of 2007 $1,280,152 2008  237,964 2009  2,595,014 2010  1,227,476 2011 and thereafter  138,904       $5,479,510     **NOTE 10 – STOCKHOLDERS’ EQUITY**Effective September 22, 2005, the Company and Glenn Donnelly (Consultant) entered into a BusinessRelationship Termination Agreement (the “Termination Agreement”). The Termination Agreementprovided for, among other things, the payment by the Company to Mr. Donnelly of $1,000,000 cash, anote payable in the amount of $500,000, the cancellation of 768,999 issued shares of common stockof the Company owned by Mr. Donnelly, and 500,000 shares currently held by Donnelly to bere-issued. In addition, as part of the Termination Agreement, Mr. Donnelly agreed for a period oftwo-years not to compete against the Company in the business of dirt track motor sports racing orthe promotion and/or sanctioning of dirt track motor sports racing. As of September 30, 2005 thecash payment due to Mr. Donnelly remained unpaid. Subsequent to year end this settlement amountwas reduced to $1,290,000. The Company has retroactively reflected the $210,000 reduction in thetermination agreement as of September 30, 2005. The entire $1,290,000 settlement was treated asthe cost of retiring the 768,999 shares of stock returned by Glenn Donnelly and cancelled. During2006, the Company amended the Business Relationship Termination Agreement to provide for a cashpayment of $1,000,000 and the issuance of a note payable of $423,000 which is due on or before June15, 2007. The cash payment was made in May 2006.**Preferred Stock**In series of transactions completed on May 19, 2006, effective May 16, 2006, the Company enteredinto a Series D Convertible Preferred Stock Purchase Agreement pursuant to which the Company issuedand sold 4,000 shares of Series D Convertible Preferred Stock (the “Series D Stock”) and warrantsto purchase 1,200,000 shares of our common stock, $0.0001 par value per share (the “Series DWarrants”), for an aggregate purchase price of $12,000,000.
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The Series D Stock is convertible into an aggregate of 4,000,000 shares of common stock,representing a conversion price of $3.00 per share. The Series D Stock will automatically convertinto shares of common stock on the date at least one hundred eighty (180) days following theeffective date of a registration statement covering the shares of common stock into which theSeries D Stock is convertible (“Registration Statement”), if (a) the closing bid price of ourcommon stock is equal to or greater than $7.50 per share for ten consecutive trading days, (b) thedollar trading volume for each of the ten trading days exceeds $1,000,000, and (c) the RegistrationStatement is and has been effective without lapse or suspension of any kind, for a period of sixtyconsecutive calendar days or the shares of common stock into which the Series D Stock isconvertible may be sold to the public pursuant to Rule 144(k) under the Securities Act of 1933, asamended.The Company also entered into exchange agreements pursuant to which each of its issued andoutstanding shares of Series B Convertible Preferred Stock, par value $.01 per share (“Series BStock”), and Series C Convertible Preferred Stock, par value $.01 per share (“Series C Stock”),were exchanged for an aggregate of 9,843.3 shares of the Company’s Series D Stock. The shares ofSeries D Stock issued in this exchange are convertible into 9,843,270 shares of common stock, thesame number of shares of our common stock as the original Series B Stock and Series C Stock couldhave been converted.The Company also issued 4,400 shares of Series D and 1,320,178 Series D Warrants in pursuant to theexchange of $12,001,616 of short term promissory notes in connection with the Series D financing.Further, warrants to purchase an aggregate of 5,839,701 shares of common stock, at exercise pricesranging from $3.00 to $5.00 per share, were cancelled and exchanged into an aggregate of 917,187shares of our common stock and warrants to purchase 542,738 shares of our common stock at $.001exercise price with a term of five years.The Series D Warrants have a term of five years and are exercisable at an exercise price of $4.50per share. The Company may call the Series D Warrants at any time following the effective date ofthe Registration Statement covering the shares of common stock issuable upon exercise of the SeriesD Warrants, at a price of $0.001 per warrant, if (a) the per share market value our common stock isequal to or greater than $10.00 per share for ten consecutive trading days, (b) the dollar tradingvolume for each of the ten trading days exceeds $500,000, and (c) the Registration Statement is andhas effective been, without lapse or suspension of any kind, for a period of sixty consecutivecalendar days.We agreed to file the Registration Statement covering the resale of the shares of common stock tobe issued upon conversion of the Series D Stock and the Series D Warrants. In the event theRegistration Statement was not (a) filed on or before the fifteenth (15th) day followingthe filing of the Company’s Form 10-QSB for the fiscal quarter ended March 31, 2006, but in noevent later than May 30, 2006, or (b) declared effective on the date that is the earlier of (i) theninetieth (90th) day following the filing date or the date which is within three (3)business days of the date on which the Commission informs the Company (A) that the Commission willnot review the Registration Statement, or (B) that the Company may request the acceleration of theeffectiveness of the Registration Statement and the Company makes such request, then, in eitherevent, the Company will be obligated to pay liquidated damages to the holders of the Series D Stockin the amount equal to two percent (2%) for the first calendar month (prorated for shorter periods)and one and one-half percent (1%) per calendar month there after (prorated for shorter periods) ofthe holder’s initial investment in the preferred shares, until such time as the RegistrationStatement is filed or declared effective, as the case may be; provided, however,that in no event shall liquidated damages payable to any holder resulting from any event that iswithin the control of the Company exceed ten percent (10%) of the holder’s initial investment.The registration statement was effective in accordance with the requirements of the purchaseagreement.**NOTE 11 – INCOME TAXES**     The Company accounts for income taxes under Financial Accounting Standards Number 109 (“SFAS109”), “Accounting for Income Taxes”. Deferred income tax assets and liabilities are determinedbased upon differences between financial reporting and tax basis of assets and liabilities and aremeasured using the enacted tax rates and laws that will be in effect when the differences areexpected to be reversed.     At December 31, 2006, the Company had net operating loss carry forwards of approximately $34.9million for federal income tax purposes.     The statutory income tax benefit resulting from the Company’s net operating loss carryforwards has been fully reserved. The valuation allowance has been provided due to the uncertaintythat the Company will generate future profitable operations to utilize this net operating losscarry forward.**NOTE 12 – COMMITMENTS**     In addition to its owned racing facilities, the Company leases three racing facilities, theCanandaigua Speedway, the Syracuse Fairgrounds Race Track, and the Orange County Fair Speedway.     The Canandaigua Speedway is leased on an annual basis, $22,000 per year, through November 1,2011. The track is located at the Ontario County Fairgrounds in Canandaigua, Ontario County, NewYork.
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     The Syracuse Fairgrounds Race Track is leased for the Super Dirt Week series of races heldannually during October. The track is located in Syracuse, New York. The track is leased on ayear-to-year basis for one week per year at a rental rate of $110,000.     The Orange County Fair Speedway is leased on an annual basis at a rate of $115,000 per year.The track is located in Middletown, New York.     Our corporate office was located in Norman, Oklahoma until March 2007. It was leased on amonth-to-month basis, $4,664 per month for approximately 3,855 square feet of office space. Ournew corporate facility in Concord, North Carolina contains approximately 9,000 square feet ofoffice and 7,000 square feet of warehouse space. It is leased under a 62 month lease for $9,492per month for the first year escalating annually to $10,275 in year five.     Total scheduled future minimum lease payments, under these operating leases are as follows:                                   Payment Due by Period             Remainder of               Total  2007  2008  2009  2010  Thereafter    Operating leases $922,345  $186,444  $257,616  $139,931  $142,285  $196,069      Operating lease expense for the three months ended March 31, 2007 and 2006 was $24,625 and$54,382, respectively.     The Company has employment agreements with its executive officers and other employees, theterms of which expire at various times over the next three years. The aggregate commitment forfuture salaries at March 31, 2007 was $1.4 million.**NOTE 13 – LITIGATION AND CONTINGENCIES**     We are from time to time involved in various legal proceedings incidental to the conduct ofour business. We believe that the outcome of all such pending legal proceedings will not, in theaggregate, have a material adverse effect on our business, financial condition, results ofoperations or liquidity.**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS****FORWARD LOOKING STATEMENTS**     This Form 10-QSB includes certain statements that may be deemed to be “forward-lookingstatements” within the meaning of Section 27A of the Securities Act. All statements, other thanstatements of historical fact, included in this Form 10-QSB that addresses activities, events ordevelopments that the Company expects, projects, believes, or anticipates will or may occur in thefuture, including matters having to do with expected and future revenues, the Company’s ability tofund its operations and repay debt, business strategies, expansion and growth of operations andother such matters, are forward-looking statements. These statements are based on certainassumptions and analyses made by our management in light of its experience and its perception ofhistorical trends, current conditions, expected future developments, and other factors it believesare appropriate in the circumstances. These statements are subject to a number of assumptions,risks and uncertainties, including general economic and business conditions, the businessopportunities (or lack thereof) that may be presented to and pursued by the Company, the Company’sperformance on its current contracts and its success in obtaining new contracts, the Company’sability to attract and retain qualified employees, and other factors, many of which are beyond theCompany’s control. You are cautioned that these forward-looking statements are not guarantees offuture performance and that actual results or developments may differ materially from thoseprojected in such statements.**Nature of Business**     We are a leading marketer and promoter of motorsports entertainment in the United States. Weoperate 7 dirt motorsports tracks (4 are owned and 3 facilities are under short term leaseagreements) in New York, Pennsylvania and Florida. We own and operate four of the premiersanctioning bodies in dirt motorsports: the World of Outlaws, DIRT Motorsports, United MidwesternPromoters (UMP) and the Mid America Racing Series (MARS). Through these sanctioning bodies weorganize and promote 16 national and regional racing series including the World of Outlaw SprintSeries and the World of Outlaws Late Model Series.     On February 4, 2004, the Company completed the acquisition of substantially all the assets ofthe World of Outlaws, Inc. (“World of Outlaws”). Prior to this event, the Company was devotingsubstantially all of its efforts to establishing the business and was therefore a development stageenterprise until February 4, 2004.     During the quarter ended December 31, 2004, the Company entered into a series of relatedtransactions resulting in the acquisition of 100% of the outstanding stock of DIRT Motorsports,Inc. (“DIRT”) and two affiliated race tracks.
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     On December 5, 2004, the Company acquired all of the outstanding membership interest in UnitedMidwestern Promoters Motorsports, LLC (“UMP”).     On November 7, 2004, the Company entered into an Asset Purchase Agreement to acquiresubstantially all of the assets of Lernerville Speedway, Inc. (“LSI”). This acquisition wascompleted in March 2005, and the total consideration for the assets acquired was $3,240,000.     On March 10, 2005, the Company entered into and consummated an Asset Purchase Agreementpursuant to which the Company acquired all of the assets related to the business of sanctioning andconducting the dirt track racing events known as the Mid America Racing Series (“MARS”). Theassets were acquired in exchange for an aggregate cash purchase price of $150,000.     On June 30, 2005, the Company acquired substantially all of the assets of Volusia SpeedwayPark, Inc., (“Volusia Speedway”) in exchange for an aggregate purchase price of $3,600,000.**Results of Operations – Impact of Seasonality and Weather on Quarterly Results**     In 2006, we scheduled 79 World of Outlaw Sprint Series races, 40 World of Outlaw Late ModelSeries Races, 32 Advance Auto Parts Big Block Modified Events, and over 200 other major racingevents in our other regional and touring racing series. In 2007, we scheduled 84 World of OutlawSprint Series races, 56 World of Outlaw Late Model Series Races, 27 Advance Auto Parts Big BlockModified Events, and over 200 other major racing events in our other regional and touring racingseries. Most of these events are scheduled in the period from March to November each year. As aresult, our business has been, and is expected to remain, highly seasonal.     The concentration of racing events in any particular quarter, and the growth in our operationswith attendant increases in overhead expenses, may tend to reduce operating income in quartersoutside of our peak operating months. Our racing schedules from year to year may change from timeto time which can lessen the comparability of operating results between quarters of successiveyears and increase or decrease the seasonal nature of our motorsports business.     We market and promote outdoor motorsports events. Weather conditions surrounding these eventsaffect the completion of scheduled racing, the sale of tickets and the sale of merchandise andconcessions. Poor weather conditions can have a negative effect on our results of operations.Additionally, our owned and operated tracks are currently primarily geographically concentrated inNew York, Pennsylvania and Florida and adverse weather conditions in these regions could have agreater negative effect on our results of operations.**Results of Operations – Comparison of Three Months Ended March 31, 2007 (“2007”) and 2006 (“2006”)**     *Revenues*– Our total revenues increased from to $2.5 million in 2007 from $2.0 million in2006.     Race sanctioning and event fees revenue increased to $0.6 million in 2007 from $0.3 million in2006. This increase is due an increase in the sanctioned events in 2007 from 2006. In 2007 wecompleted 8 sanctioned events at non-owned facilities and 3 events at our facilities. In 2006 wecompleted 5 World of Outlaws Sprint Series sanctioned events at non-affiliated facilities and 2events. In 2007 and 2006 we completed 5 World of Outlaw Late Model Series Events. We expectsanction fees to reflect the increase in the number of sanctioned events at non-affiliatedfacilities for the remainder of 2007 as compared to 2006.     During 2007 we generated $1.42 million in track operations, ticket and concession sales ascompared to $1.35 million in 2006. These revenues are generated at events held at our owned oroperated racetracks, primarily at Volusia Speedway during February each year. Our racing season atour tracks in New York and Pennsylvania typically begins in late March or early April each year butis dependent upon the weather in each region. We expect our track operations, ticket andconcession sales to remain higher for the remainder of 2007 as compared to 2006 for additionalevents scheduled during the year.     Our sponsorship and advertising revenues increased from $0.2 in 2006 to $0.4 million 2007. Weexpect sponsorship and advertising revenues to increase in 2007 for new sponsorship agreements forour sprint series and for our sanctioning bodies. Additionally, we expect sponsorship andadvertising revenues to increase for sales of advertising within our television broadcasts whichwill begin to air in May 2007 and will air through October 2007. Sales of merchandise decreased in2007 from 2006 as we have entered into arrangements to license our product sales in areas otherthan our on-site sales at our World of Outlaw Sprint Series races. We expect that our netoperating cash generated from the new arrangements to increase our overall operating margins inthese areas however the arrangements will result in decreased gross revenues recorded.     *Operating expenses*– Our total operating expenses decreased to $4.7 million in 2007 from $5.2million in 2006. The decreases are due to efforts across all aspects of the company to reduceoperating costs while focusing on increasing our sponsorship and advertising revenue.     Track and event operations — Our track and event operations expenses include purses and otherattendance fees paid to our drivers, personnel costs and other operating costs for the organizationof our events and the operation of our tracks. Track and event operations
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expense decreased to $2.8 million in 2007 from $3.2 million in 2006. These decreases are dueto decreases in personnel, contract labor cost and other costs at our events at Volusia Speedwayand certain of our racing series and decreases in certain of our prize and purse fund amounts for2007 as compared to 2006. We expect operating expenses in 2007 to continue at levels below thoseincurred in 2006.     Sales and marketing – Sales and marketing expenses includes expenses incurred by our sales,marketing and public relations departments. The expenses are primarily personnel related to thepursuit of corporate and event sponsors along with professional fees and printing for ouradvertising publications and fulfillment under our sponsorship agreements. Sales and marketingexpense increased to $0.4 million in 2007 from $0.2 million in 2006 for increased professionalfees, promotion and advertising.     Merchandise operations and cost of sales – Merchandise operations and cost of sales includesall operating expenses related to the distribution of our merchandise which includes mobile storefronts that are present at our World of Outlaws touring series event and the cost of goods soldduring 2007. Merchandise operations and cost of sales in 2006 included all operating expensesrelated to the distribution of our merchandise, including mobile store fronts that are present atall of our touring series event and the cost of goods sold. Beginning in 2007, we have entered intoarrangements that have resulted in our licensing the rights to sell merchandise at each of ourtouring series events other than at our World of Outlaws Sprint Series events. The licensingagreements generally include a one-time rights fee and a percentage of sales over certain volumethresholds. These licensing fees will be recorded as sponsorship and advertising sales.     General and administrative – Our general and administrative expenses decreased slightly to$0.8 million in 2007. The decrease from 2006 represents decreases in the number of administrativepersonnel and decreased legal and professional fees offset in part by costs incurred in connectionwith the relocation of our corporate office from Oklahoma to North Carolina.     Non-cash stock Compensation – Non-cash stock compensation of $0.5 million in 2007 and $0.6million in 2006 represents the fair value of warrants and options issued to employees andnon-employees now recognized as an expense due to the implementation of SFAS 123R effective January1, 2006 and the fair value of restricted stock issued to employees.     Depreciation and amortization – Depreciation and amortization expense increased slightly to2007 from 2006 due to the addition of equipment and leasehold and track improvements during 2007.     Interest expense, net – Interest expense decreased to $0.1 million in 2007 from $1.7 millionin 2006. 2006 includes the non-cash amortization of the discounts recorded for the value assignedto warrants granted in connection with the promissory notes issued during the fourth quarter of2005 and quarter ending March 31, 2006. At the time of the note conversions in May 2006, anyunamortized note discount was recorded as an increase in interest expense during 2006. Interestexpense for 2007 will reflect the interest incurred on our notes and mortgages payable on our twotracks and various vehicle notes and any non cash interest expense for the amortization of thediscounts recorded for the value assigned to warrants granted in connection with the securedpromissory notes issued during late March and April 2007.**Liquidity and Capital Resources**     The Company generated $2.5 million in revenues during the period ended March 31, 2007;however, we have not yet achieved a profitable level of operations. Our primary source of fundingfor our operating deficits during the quarter ended March 31, 2007 has been from the issuance ofnotes payable.     During the period ended March 31, 2007, the Company used $0.6 million in operating activitiesprimarily the result of a net loss of $2.3 million, depreciation and amortization of $0.2 million,non-cash stock compensation of $0.5 million and other working capital changes, primarily accountspayable and accrued liabilities.     During the three months ended March 31, 2007, the Company used $0.2 million in investingactivities primarily for track improvements and for leasehold improvements and equipment purchasesfor our new corporate offices in Concord, North Carolina.     During the three months ended March 31, 2007, financing activities provided $0.5 millionprimarily through the issuance of $0.6 million in notes payable offset by repayment of $0.1 millionin notes payable.     The Company incurred a net loss of $2.3 million for the period ended March 31, 2007. TheCompany has an accumulated deficit of $63.0 million as of March 31, 2007, which raises substantialdoubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.     Duringthe second quarter ending June 30, 2007, approximately $1.5 million in notes payableand other obligations become due and payable in addition to ournormal course trade payables.To satisfy these obligations, and continue as a going concern, the Company must obtain additional capital. Management is currentlyin negotiations to secure debt financing from certain current shareholders, and to restructure certain current liabilities and preferredstock. No assurances can be given that the Company will be successful in obtaining such debt or other financing, or in  connection with its restructuring initiatives. As thefuture success of the Company is dependent on our ability to fund operations, the Company’s abilityto continue as a going concern is at a high degree of risk.
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     The following table summarizes our contractual obligations as of March 31, 2007:                           Payment Due by Period       Remainder of              2011 and Contractual obligations Total  2007  2008  2009  2010  thereafter Operating leases $922,344  $186,444  $257,616  $139,931  $142,285  $196,069 Employment agreements  1,123,664   549,563   514,101   60,000   —   — Notes payable andaccrued interest  6,166,486   1,517,889   507,322   2,698,843   1,282,546   159,886      Operating lease expense for the three months ended March 31, 2007 and 2006 was $131,576and $85,913, respectively.**The Company’s significant accounting policies include:****Reclassifications**     Certain amounts in prior periods presented have been reclassified to conform to the currentfinancial statement presentation. These reclassifications have no effect on previously reportednet income or loss.**Use of Estimates**     The preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptions thataffect the reported amount of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.**Principles of Consolidation**     The accompanying condensed consolidated financial statements include the accounts of theCompany and its wholly-owned subsidiaries. All material intercompany accounts and transactions havebeen eliminated in consolidation.**Revenue Recognition and Deferred Revenue**     The Company derives its revenues from race sanctioning and event fees, admission fees andticket sales, sponsorship and advertising, merchandise sales and other revenue. “Race sanctioningand event fees” includes amounts received from track owners and promoters for the organizationand/or delivery of our racing series or touring shows including driver fees. “Admission fees andticket sales” includes ticket sales for all events held at the Company’s owned or leased facilitiesand ticket sales for our touring shows where we rent tracks for individual events and organize,promote and deliver our racing programs. “Sponsorship and advertising” revenue includes feesobtained for the right to sponsor our motorsports events, series or publications, and foradvertising in our printed publications or television programming.     The Company recognizes race sanctioning and event fees upon the successful completion of ascheduled race or event. Race sanction and event fees collected prior to a scheduled race event aredeferred and recognized when earned upon the occurrence of the scheduled race or event. Trackoperations, ticket and concession sales are recognized as revenues on the day of the event. Incomefrom memberships to our sanctioning bodies is recognized on a prorated basis over the term of themembership. The Company recognizes revenue from sponsorship and advertising agreements when earnedin the applicable racing season as set forth in the sponsorship or advertising agreement eitherupon completion of events or publication of the advertising. Revenue from merchandise sales arerecognized at the time of sale less estimated returns and allowances, if any. Revenues and relatedexpenses from barter transactions in which the Company receives goods or services in exchange forsponsorships of motorsports events are recorded at fair value in accordance with Emerging IssuesTask Force (“EITF”) Issue No. 99-17, *Accounting for Advertising Barter Transactions*. Bartertransactions accounted for $38,400 and $67,000 of total revenues for the respective three monthperiods ended March 31, 2007 and 2006.**Expense Recognition and Deferral**     Certain direct expenses pertaining to specific events, including prize and point fund monies,advertising and other expenses associated with the promotion of our racing events are deferreduntil the event is held, at which point they are expensed. Annual points fund monies which arepaid at the end of the racing season are accrued during the racing season based upon the races heldand total races scheduled.     The cost of non-event related advertising, promotion and marketing programs are expensed asincurred.**Net loss Per Share**
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     Basic and diluted earnings per share (EPS) are calculated in accordance with FASB StatementNo. 128, Earnings per Share. For the three months ended March 31, 2007, the net loss per shareapplicable to common stock has been computed by dividing the net loss by the weighted averagenumber of common shares outstanding.     As of March 31, 2007 the Company had the following warrants and stock options outstanding: **•** Promissory note warrants to purchase 1,948,510 shares of common stock at an exercise price of $4.50  **•** 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 54,000 shares at an exercise price of $2.00 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     In addition, as of March 31, 2007, the Company’s Series D Preferred Stock was convertible into17.7 million shares of common stock. None of these were included in the computation of diluted EPSbecause the Company had a net loss and all potential issuance of common stock would have beenanti-dilutive.**Cash and Cash Equivalents**     For purposes of the statement of cash flows, the Company considers all highly liquidinvestments with original maturities of three months or less to be cash equivalents.**Inventories**     Inventories of retail merchandise are stated at the lower of cost or market on the first in,first out method. Shipping, handling and freight costs related to merchandise inventories arecharged to cost of merchandise.**Property and Equipment**     Property and equipment are stated at cost. Depreciation is provided for financial reportingpurposes using the straight-line method over the estimated useful lives of the related assetsranging from 3 to 40 years. Expenditures for maintenance, repairs and minor renewals are expensedas incurred; major renewals and betterments are capitalized. At the time depreciable assets areretired or otherwise disposed of, the cost and the accumulated depreciation of the assets areeliminated from the accounts and any profit or loss is recognized.     The carrying values of property and equipment are evaluated for impairment based upon expectedfuture undiscounted cash flows. If events or circumstances indicate that the carrying value of anasset may not be recoverable, an impairment loss would be recognized equal to the differencebetween the carrying value of the asset and its fair value. As of September 30, 2006, the Companybelieves there is no impairment of property and equipment.**Purchase Accounting**     The Company accounted for its acquisitions of assets in accordance with Statement of FinancialAccounting Standards No. 141 (“SFAS No. 141”), Business Combinations and Statement of FinancialAccounting Standards No. 142, Goodwill and Intangible Assets (“SFAS No. 142”). SFAS no. 141requires that all business combinations entered into subsequent to June 30, 2001 be accounted forunder the purchase method of accounting and that certain acquired intangible assets in a businesscombination be recognized and reported as assets apart from goodwill.
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**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 assetswith indefinite lives are not to be amortized but are tested for impairment at least annually.Intangible assets with definite useful lives are to be amortized over the respective estimateduseful lives or anticipated future cash flow streams when appropriate.     At least annually the Company tests for possible impairment of all intangible assets and moreoften whenever events or changes in circumstances, such as a reduction in operating cash flow or adramatic change in the manner that the asset is intended to be used indicate that the carryingamount of the asset is not recoverable. If indicators exist, the Company compares the discountedcash flows related to the asset to the carrying value of the asset. If the carrying value isgreater than the discounted cash flow amount, an impairment charge is recorded in the operatingexpense section in the statement of operations for amounts necessary to reduce the carrying valueof the asset to fair value. The Company has chosen the fourth quarter of its fiscal year to conductits annual impairment test.**Income Taxes**     The Company accounts for income taxes under Financial Accounting Standards Number 109 (“SFAS109”), “Accounting for Income Taxes”. Deferred income tax assets and liabilities are determinedbased upon differences between financial reporting and tax basis of assets and liabilities and aremeasured using the enacted tax rates and laws that will be in effect when the differences areexpected to be reversed. Deferred tax assets are reduced by a valuation allowance when, in theopinion of management, it is more likely than not that some portion or all of the deferred taxassets will not be realized.**Concentration of Credit Risk**     Due to the nature of the Company’s sponsorship agreements, the Company could be subject toconcentration of accounts receivable within a limited number of accounts. As of March 31, 2007 theCompany had bank deposits in excess of FDIC insurance of $0.1 million.**New Accounting Pronouncements**     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No.123(R), *Share-Based Payment*, (“SFAS No. 123(R)”), using the modified prospective transition method.SFAS No. 123(R) requires equity-classified share-based payments to employees, including grants ofemployee stock options, to be valued at fair value on the date of grant and to be expensed over theapplicable vesting period. Under the modified prospective transition method, share-based awardsgranted or modified on or after January 1, 2006, are recognized in compensation expense over theapplicable vesting period. Also, any previously granted awards that are not fully vested as ofJanuary 1, 2006 are recognized as compensation expense over the remaining vesting period. Noretroactive or cumulative effect adjustments were required upon The Company’s adoption of SFAS No.123(R).     In February 2006, the FASB issued Statement No. 155, *“Accounting for Certain Hybrid FinancialInstruments”*(“SFAS No. 155”), which amends FASB Statements No. 133 and 140. This Statement permitsfair value remeasurement for any hybrid financial instrument containing an embedded derivative thatwould otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”)permitted holdings to include passive derivative financial instruments that pertain to otherderivative financial instruments. This Statement is effective for all financial instrumentsacquired, issued or subject to a remeasurement event occurring after the beginning of an entity’sfirst fiscal year beginning after September 15, 2006. This Statement has no current applicabilityto the Company’s financial statements. Management adopted this Statement on January 1, 2007 andthe initial adoption of this Statement did not have a material impact on the Company’s financialposition, results of operations, or cash flows.     In June 2006, the FASB issued Interpretation 48, *“Accounting for Uncertainty in Income Taxes”*(“FIN 48”), an interpretation of FASB Statement No. 109, *“Accounting for Income Taxes.”*FIN 48clarifies the accounting and reporting for income taxes where interpretation of the law isuncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition,measurement, presentation and disclosure of income tax uncertainties with respect to positionstaken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginningafter December 15, 2006. This Statement has no current applicability to the Company’s financialstatements. Management adopted this Statement on January 1, 2007 and the initial adoption of FIN48 did not have a material impact on the Company’s financial position, results of operations, orcash flows.     In September 2006, the FASB issued Statement No. 157, *“Fair Value Measurements”*(“SFAS No.157”). SFAS No. 157 addresses how companies should measure fair value when they are required to usea fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, withearlier adoption permitted. Management is assessing the impact of the adoption of this Statement.     In September 2006, the FASB issued Statement No. 158, *“Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans”*(“SFAS No. 158”), an amendment of FASB StatementsNo. 87, 88, 106 and 132(R). SFAS No. 158 requires (a) recognition of the funded status (measured asthe difference between the fair value of the plan assets and the benefit obligation) of a benefitplan as an asset or liability in the employer’s statement of financial position, (b) measurement ofthe funded status as of the
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employer’s fiscal year-end with limited exceptions, and (c) recognition of changes in thefunded status in the year in which the changes occur through comprehensive income. The requirementto recognize the funded status of a benefit plan and the disclosure requirements are effective asof the end of the fiscal year ending after December 15, 2006. The requirement to measure the planassets and benefit obligations as of the date of the employer’s fiscal year-end statement offinancial position is effective for fiscal years ending after December 15, 2008. This Statementhas no current applicability to the Company’s financial statements. Management adopted thisStatement on December 31, 2006 and the adoption of SFAS No. 158 did not have a material impact tothe Company’s financial position, results of operations, or cash flows.     In September 2006, the Securities Exchange Commission issued Staff Accounting Bulletin No. 108(“SAB No. 108”). SAB No. 108 addresses how the effects of prior year uncorrected misstatementsshould be considered when quantifying misstatements in current year financial statements. SAB No.108 requires companies to quantify misstatements using a balance sheet and income statementapproach and to evaluate whether either approach results in quantifying an error that is materialin light of relevant quantitative and qualitative factors. When the effect of initial adoption ismaterial, companies will record the effect as a cumulative effect adjustment to beginning of yearretained earnings and disclose the nature and amount of each individual error being corrected inthe cumulative adjustment. SAB No. 108 was effective beginning January 1, 2007 and the initialadoption of SAB No. 108 did not have a material impact on the Company’s financial position, resultsof operations, or cash flows.          In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for FinancialAssets and Financial Liabilities” (SFAS 159). This statement permits companies to choose to measuremany financial assets and liabilities at fair value. Unrealized gains and losses on items for whichthe fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscalyears beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159on its consolidated financial statements.**Stock-Based Compensation**     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No.123(R), *Share-Based Payment*, (“SFAS No. 123(R)”), using the modified prospective transition method.SFAS No. 123(R) requires equity-classified share-based payments to employees, including grants ofemployee stock options, to be valued at fair value on the date of grant and to be expensed over theapplicable vesting period. Under the modified prospective transition method, share-based awardsgranted or modified on or after January 1, 2006, are recognized in compensation expense over theapplicable vesting period. Also, any previously granted awards that are not fully vested as ofJanuary 1, 2006 are recognized as compensation expense over the remaining vesting period. Noretroactive or cumulative effect adjustments were required upon The Company’s adoption of SFAS No.123(R).     Prior to adopting SFAS No. 123(R), The Company accounted for its fixed-plan employee stockoptions using the intrinsic-value based method prescribed by Accounting Principles Board OpinionNo. 25, *Accounting for Stock Issued to Employees,*(“APB No. 25”) and related interpretations. Thismethod required compensation expense to be recorded on the date of grant only if the current marketprice of the underlying stock exceeded the exercise price.     Unrecognized compensation expense as of March 31, 2007 related to outstanding stock optionswas $3.2 million.     The fair value of each option grant is estimated for disclosure purposes on the date of grantusing the Black-Scholes option-pricing model with the expected lives equal to the vesting period.The weighted average contractual life of the outstanding options at March 31, 2007 was 3.95 years.A summary of the status of stock options and related activity for the three month period endedMarch 31, 2007 is presented below:         Options outstanding at December 31, 2005  2,040,000  $3.54 Granted  54,000   2.00 Exercised  —   — Forfeited/expired  —   —                 Options outstanding at March 31, 2007  2,094,000  $3.50 **Certain Risks**     The Company’s business is subject to numerous risk factors, including the following:**We need additional capital to continue as a going concern and successfully execute our businessstrategy.**
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     Our independent accountants’ opinion on our 2006 consolidated financial statements includes anexplanatory paragraph indicating substantial doubt about our ability to continue as a goingconcern. Revenues from operations are still significantly below levels necessary to achieve positivecash flow. From inception to March 31, 2007, our aggregate net loss is approximately $63.0 million.Our cash position is $0.3 million at March 31, 2007, and we expect the net losses and negative cashflow to continue throughout 2007. During the second quarter ending June 30, 2007, approximately $1.5 million in notes payable and other obligationsbecome due and payable in addition to our normal course tradepayables. To satisfy these obligations, and continue as a going concern, the Company must obtain additional capital.Management is currently in negotiations to secure debt financing from certain current shareholders. In the event we are unable to obtain debt or other financing, we will be unable to continue as a going concern.Our short-term liquidity could disrupt our event schedule, which would adversely affect our results of operations.**We have a limited operating history. As a result, evaluating our current business model andprospects may be difficult.**     We began operations in February 2004 with the acquisition of World of Outlaws. Since then wehave completed the acquisition of DIRT, UMP, LSI, MARS and Volusia Speedway. Thus, we have only alimited operating history with which you can evaluate our current business model and our prospects,and our historical financial data may be of limited value in evaluating our future revenue andoperating expenses.**Speculative nature of our proposed operations.**     The success of our plan of operation will depend to a great extent on the operations,financial condition and management of targeted acquisitions and our ability to identify additionalbusiness opportunities. If we cannot acquire additional business opportunities, we may not be ableto grow our Company. Further, our ability to successfully implement our business plan requires aneffective plan for managing our future growth. Future expansion efforts will be capital intensiveand may significantly strain our managerial and other resources. To manage future growtheffectively, we must maintain and enhance our financial and accounting systems and controls,integrate new personnel and manage expanded operations. If we do not manage growth properly, itcould harm our operating results and financial condition.     **Our failure to achieve or maintain profitability could force us to cease our operations.**     We have not operated at a profit over the course of our brief history, and there can be noassurance that we will be able to achieve or maintain profitability. Our recent acquisitions haveresulted in operating losses since inception, and we expect to incur operating losses in futureperiods. Our ability to attain profitability and positive cash flow is dependent upon a number offactors, including our ability to increase revenues while reducing costs per racing event. We maynot be successful in increasing or maintaining revenues or achieving positive cash flow. Even ifwe do maintain profitability, we may not be able to sustain or increase our profitability on aquarterly or annual basis. If we fail to maintain profitability, we might ultimately be forced todiscontinue our operations.     **Our success depends upon sponsorship and advertising sales for our racing series and racingevents.**     Our business model depends on our ability to attract and maintain sponsorships and advertisersfor our racing series and racing events. A sponsor’s and advertiser’s willingness to enter intoand continue their relationship with us is subject to many risks beyond our control, including: a)Competition for advertising and promotional dollars; b) general market and industry conditions thatmay affect our sponsors; and c) the introduction and success of competition for new racing eventsand racing series.     In the event we are not able to attract sponsors and advertisers, or retain currentsponsorships and advertising relationships, we will experience continued net losses, and thoselosses will be significant.     **Our executive officers, directors and principal stockholders have substantial influence overus.**     As of March 31, 2007, our executive officers, directors and principal stockholders togetherbeneficially own approximately 20% of the outstanding shares of common stock. As a result, thesestockholders, acting together, may be able to exercise substantial influence over all mattersrequiring approval by our stockholders, including the election of directors and approval ofsignificant corporate transactions. The concentration of ownership may also have the effect ofdelaying or preventing a change in our control that may be viewed as beneficial by the otherstockholders.     In addition, our certificate of incorporation does not provide for cumulative voting withrespect to the election of directors. Consequently, our present directors, executive officers,principal stockholders and our respective affiliates may be able to control the election of themembers of the Board of Directors. Such a concentration of ownership could have an adverse effecton the price of the common stock, and may have the effect of delaying or preventing a change incontrol, including transactions in which stockholders might otherwise receive a premium for theirshares over then current market prices.     O**ur quarterly operating results may fluctuate significantly**.
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     Our success depends on a number of factors, many of which are beyond our control. Thesefactors include (1) the attendance at our racing events; (2) capital expenditures and other costsrelating to the expansion of operations, (3) changes in our pricing policies and those of ourcompetitors, (4) the number of racing events scheduled during the quarter, (5) weather that mayeffect attendance or cause us to cancel or postpone our racing events, (6) changes in operatingexpenses, (7) changes in strategy, (8) personnel changes, (9) the introduction of competitiveracing events, (10) the timing and effect of potential acquisitions, and (11) other generaleconomic factors.     Our operating results, cash flows and liquidity may fluctuate significantly. Our revenuesdepend on our ability to hold racing events and attract attendees. Our expense levels are based, inpart, on our expectations regarding future revenues, which could be inaccurate. Moreover, ouroperations often require up-front expenses, but result in trailing revenues. To the extent thatrevenues are below expectations, we will be unable to reduce expenses proportionately, andoperating results, cash flow and liquidity will be negatively affected. Due to these and otherfactors, our operating results and/or growth rate may be below the expectations of analysts,management and investors. This, in turn, could cause the price of our common stock to drop.     **Acquisitions of companies or joint venture investments may disrupt our business or diluteshareholder value.**     We may acquire companies or enter into joint ventures. If we are unable to integrate theseacquisitions with our existing operations, we may not receive the intended benefits of theacquisitions. Also, acquisitions may subject us to unanticipated liabilities or risks. Anyacquisition or joint venture may temporarily disrupt our operations and divert management’sattention from day-to-day operations. If we make future acquisitions, we may incur debt or issueequity securities to finance the acquisitions. The issuance of equity securities for anyacquisition could cause our shareholders to suffer significant dilution. Also, our profitabilitymay suffer due to acquisition-related expenses, additional interest expense or amortization costsfor acquired goodwill and other intangible assets and operating losses generated by the acquiredentity or joint venture. Acquisitions and joint ventures that do not successfully complement ourexisting operations may harm our business.     **Dependence on qualified and key personnel.**     We believe our future success will depend in large part upon our ability to identify, attractand retain highly skilled managerial, sales and marketing, finance and operations personnel.Competition for personnel with the type of experience in these areas is intense, and we compete forpersonnel against numerous companies, including larger, more established companies withsignificantly greater financial resources. There can be no assurance we will be successful inidentifying, attracting and retaining personnel.     **Illiquidity of our common stock.**     Although there is a public market for our common stock, trading volume has been historicallylow which substantially increases your risk of loss. We can give no assurance that an active andliquid public market for the shares of the common stock will develop in the future. Low tradingvolume in our common stock could affect your ability to sell the shares of common stock. Thedevelopment of a public trading market depends upon not only the existence of willing buyers andsellers, but also on market makers. The market bid and asked prices for the shares may besignificantly influenced by decisions of the market makers to buy or sell the shares for their ownaccount, which may be critical for the establishment and maintenance of a liquid public market inthe shares. Market makers are not required to maintain a continuous two-sided market and are freeto withdraw firm quotations at any time. Additionally, in order to maintain our eligibility forquotation on the OTC Bulletin Board, we need to have at least one registered and active marketmaker. No assurance can be given that any market making activities of any additional market makerswill commence or that the activities of current market makers will be continued.     **Our common stock price has been volatile, which could result in substantial losses forstockholders**.     Our common stock is currently traded on the OTC under the symbol DMSP. We have in the pastexperienced, and may in the future experience, limited daily trading volume. The trading price ofour common stock has been and may continue to be volatile. This volatility often has been unrelatedto the operating performance of the Company. These broad market fluctuations may significantlyaffect the trading price of our common stock, regardless of our actual operating performance. Thetrading price of our common stock could be affected by a number of factors, including, but notlimited to, changes in expectations of our future performance, changes in estimates by securitiesanalysts (or failure to meet such estimates), quarterly fluctuations in our sales and financialresults and a variety of risk factors, including the ones described elsewhere in this prospectus.Periods of volatility in the market price of a company’s securities sometimes result in securitiesclass action litigation. If this were to happen to us, such litigation would be expensive and woulddivert management’s attention. In addition, if we needed to raise equity funds under adverseconditions, it would be difficult to sell a significant amount of our stock without causing asignificant decline in the trading price of our stock.     **Our stock price may decline if additional shares are sold in the market.**     As of March 31, 2007, we had 14,565,240 shares of common stock outstanding. In addition, asof March 31, 2007, the Company’s Series D Preferred Stock was convertible into 17,684,000 shares ofcommon stock and we had warrants exercisable for 7,127,751 shares of common stock outstanding.Future sales of substantial amounts of shares of our common stock by our existing stockholders inthe public market, or the perception that these sales could occur, may cause the market price ofour common stock to decline. We may be required to issue additional shares upon exercise ofpreviously granted options and warrants that are currently outstanding.
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     **Our articles and bylaws may delay or prevent a potential takeover of us.**     Our Articles of Incorporation, as amended, and Bylaws, as amended, contain provisions that mayhave the effect of delaying, deterring or preventing a potential takeover of us, even if thetakeover is in the best interest of our shareholders. The Bylaws limit when shareholders may calla special meeting of shareholders. The Articles also allow the Board of Directors to fillvacancies, including newly-created directorships.     **No Dividends.**     We have not paid any dividends on our common stock to date, and have no plans to pay anydividends on our common stock for the foreseeable future. Further, so long as shares of our SeriesD Preferred Stock are outstanding, we may not pay any dividend on our common stock unless we havefirst paid all accrued and unpaid dividends on the outstanding shares of Series D.     We can give no assurance that we will ever pay any dividends in respect to our common stock.     **ITEM 3. CONTROLS AND PROCEDURES**     The Company’s Chief Executive Officer and the Company’s principal financial officer, afterevaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in theSecurities Exchange Act of 1934 Rule 13a-14(c) and 15d-14(c) as of the date of the financialstatements included in this report on Form 10-QSB, have concluded that as of the evaluation date,the Company’s disclosure controls and procedures are adequate and effective to ensure that materialinformation relating to the Company (including consolidated subsidiaries) required to be includedin our periodic SEC filings would be made known to them by others within those entities.     There have been no significant changes in the Company’s internal controls or in other factorsthat could significantly affect the Company’s disclosure controls and procedures subsequent to theevaluation date, nor any significant deficiencies or material weaknesses in such disclosurecontrols and procedures requiring corrective actions. As a result, no corrective actions weretaken.     **PART II – OTHER INFORMATION**     **ITEM 1. LEGAL PROCEEDINGS**     We are from time to time involved in various legal proceedings incidental to the conduct ofour business. We believe that the outcome of all such pending legal proceedings will not in theaggregate have a material adverse effect on our business, financial condition, results ofoperations or liquidity.**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**     None.**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**          None.**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**The following documents are filed as part of this report:(a) Exhibits   4.1 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 forththerein. (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with theCommission on May 23, 2006).   4.2 Certificate of Designation of the Relative Rights and Preferences of the Series D ConvertiblePreferred Stock. (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed withthe Commission on May 23, 2006).   4.3 Form of Series D Warrant. (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-Kfiled with the Commission on May 23, 2006).   4.4 Form of Series B Convertible Preferred Exchange Agreement, dated as of May 16, 2006, by andamong 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 onMay 23, 2006).   4.5 Form of Series C Convertible Preferred Exchange Agreement, dated as of May 16, 2006, by andamong 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 onMay 23, 2006).
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   4.6 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 limitedliability company, and North Sound Legacy International Fund Ltd, a British Virgin Islandscorporation. (filed as Exhibit 4.6 to the Company’s Current Report on Form 8-K filed with theCommission on May 23, 2006).   4.7 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’sCurrent Report on Form 8-K filed with the Commission on May 23, 2006).   4.8 Form of Registration Rights Agreement dated as of May 16, 2006. (filed as Exhibit 4.8 to theCompany’s Current Report on Form 8-K filed with the Commission on May 23, 2006).   4.9 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’sCurrent Report on Form 8-K filed with the Commission on May 23, 2006).   4.10 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 theCommission on May 23, 2006).   10.1 Form of Secured Promissory Demand Note (filed as Exhibit 10.1 to the Company’s Current Reporton Form 8-K filed with the Commission on April 10, 2007).   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(b) Reports on Form 8-K*.*     The Company filed a Current Report on Form 8-K, dated April 10, 2007, reporting pursuant toItems 2 of such Form that the Company had issued five senior secured demand promissory notes in theaggregate principal amount of $1.0 million (the “Notes”), payable on June 30, 2007.
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**SIGNATURES**In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.      **DIRT MOTOR SPORTS, INC.**