International Speedway (ISCB) 10-K 2011 FY Annual report

Exhibit 99

Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements

Motorsports Authentics, LLC

For the Years Ended November 30, 2011, 2010 and 2009

Motorsports Authentics, LLC

Table of contents

Report of Independent Registered Public Accounting Firm	1-2
Consolidated financial statements:
Balance sheets	3
Statements of operations	4
Statements of members’ equity	5
Statements of cash flows	6
Notes to consolidated financial statements	7-18

Report of Independent Registered Public Accounting Firm

To the Board of Managers and Members of

Motorsports Authentics, LLC:

We have audited the accompanying consolidated statements of operations, members’ equity and cash flows ofMotorsports Authentics, LLC (a limited liability company) (the Company) and subsidiaries for the period ended November 30, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Motorsports Authentics, LLC for the period ended November 30, 2009 in conformity with accounting principles generally accepted in the United States of America.

2

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note D in the 2009 consolidated financial statements, the Company was in technical default of certain of its license agreements that were material to the viability of the business which raised substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements did not include any adjustments that might have resulted from the outcome of the uncertainty.

/s/ Grant Thornton LLP

Charlotte, North Carolina

January 27, 2010

Motorsports Authentics, LLC 3

Consolidated balance sheets

(in thousands)

November 30	Unaudited 2011		Unaudited 2010
Assets
Current assets:
Cash and cash equivalents	$	10,372	$	14,728
Accounts receivable, net of allowance of $29 and $171		937		2,606
Inventories		2,119		1,874
Prepaid expenses and other		459		887
Total current assets		13,887		20,095
Long-term assets:
Property and equipment, net		477		927
Other		29		30
Total long-term assets		506		957
	$	14,393	$	21,052
Liabilities and Members’ Equity
Current liabilities:
Accounts payable	$	1,414	$	1,633
Accrued royalties		3,681		6,515
Accrued expenses		1,431		1,716
Taxes payable		437		488
Total current liabilities		6,963		10,352
Long-term liabilities:
Other		4,065		6,316
		4,065		6,316
Commitments and contingencies
Members’ equity		3,365		4,384
	$	14,393	$	21,052

The accompanying notes are an integral part of these consolidated financial statements.

Motorsports Authentics, LLC 4

Consolidated statements of operations

(in thousands)

For the years ended November 30	Unaudited 2011			Unaudited 2010			2009
Net sales	$	34,788		$	75,143		$	118,473
Cost of sales		15,732			46,172			97,431
Gross profit		19,056			28,971			21,042
Operating expenses:
Selling, general and administrative		19,781			27,894			42,808
Amortization of licenses and other intangibles		—			—			1,368
Impairment of goodwill and other long-lived assets		—			—			136,093
Total operating expenses		19,781			27,894			180,269
Operating (loss) income		(725	)		1,077			(159,227	)
Interest expense		(377	)		(276	)		(419	)
Other income (expense)		83			1,999			(83	)
Total other (expense) income, net		(294	)		1,723			(502	)
(Loss) income before income taxes		(1,019	)		2,800			(159,729	)
Income taxes		—			—			(8,092	)
Net (loss) income	$	(1,019	)	$	2,800		$	(151,637	)

The accompanying notes are an integral part of these consolidated financial statements.

Motorsports Authentics, LLC 5

Consolidated statements of members’ equity

(in thousands)

	Contributed Capital		Accumulated Deficit			Total
Balance, November 30, 2008	$	270,252	$	(117,031	)	$	153,221
Net loss		—		(151,637	)		(151,637	)
Balance, November 30, 2009		270,252		(268,668	)		1,584
Net income		—		2,800			2,800
Balance, November 30, 2010, unaudited		270,252		(265,868	)		4,384
Net loss		—		(1,019	)		(1,019	)
Balance, November 30, 2011, unaudited	$	270,252	$	(266,887	)	$	3,365

The accompanying notes are an integral part of these consolidated financial statements.

Motorsports Authentics, LLC 6

Consolidated statements of cash flows

(in thousands)

For the years ended November 30	Unaudited 2011			Unaudited 2010			2009
Cash flows from operating activities:
Net (loss) income	$	(1,019	)	$	2,800		$	(151,637	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Impairment of goodwill and other long-lived assets		—			—			136,093
Deferred income taxes		—			—			(8,092	)
Provision for excess inventories		36			996			9,029
Depreciation and amortization		612			1,911			5,036
Provision for doubtful accounts		(29	)		(70	)		(197	)
Loss on contracts		—			—			1,371
(Gain) loss on sale of property and equipment		(16	)		(5	)		87
Royalty settlement from related party		—			(1,500	)		—
Insurance proceeds		—			(500	)		—
Gain on insurance reimbursement		—			334			—
Change in assets and liabilities, net of business acquired and disposed:
Accounts receivable		1,698			7,512			15,754
Inventories		(281	)		2,529			8,868
Prepaid royalties		—			63			426
Prepaid expenses and other		429			283			258
Accounts payable and accrued expenses		(481	)		(2,838	)		(7,849	)
Accrued royalties		(2,834	)		(5,102	)		5,231
Taxes payable, net		(51	)		(217	)		(72	)
Other liabilities		(2,251	)		972			1,930
Net cash flows (used in) provided by operating activities		(4,187	)		7,168			16,236
Cash flows from investing activities:
Property and equipment purchases		(235	)		(421	)		(645	)
Property and equipment sales proceeds		66			75			160
Net cash flows used in investing activities		(169	)		(346	)		(485	)
Cash flows from financing activities:
Borrowings under line of credit		—			—			143,656
Repayments under line of credit		—			—			(151,603	)
Net cash flows used in financing activities		—			—			(7,947	)
Net change in cash and cash equivalents		(4,356	)		6,822			7,804
Cash and cash equivalents, beginning of year		14,728			7,906			102
Cash and cash equivalents, end of year	$	10,372		$	14,728		$	7,906
Supplemental disclosures of cash flow information:
Cash paid for interest	$	382		$	—		$	167
Supplemental disclosures of noncash transactions:
Tooling transfer for relief of guaranteed minimum royalties	$	—		$	688		$	—
Fixed assets acquired with accounts payable		(45	)		(68	)		(49	)

The accompanying notes are an integral part of these consolidated financial statements.

Motorsports Authentics, LLC 7

Notes to consolidated financial statements

All information and amounts included in these notes related to 2011 and 2010 are unaudited.

Note A - Organization and Nature of Business

Operations

In August 2005, International Speedway Corporation and Speedway Motorsports, Inc. (collectively the members) formed an equally owned joint venture, SMISC, LLC, which operates independently through a wholly owned subsidiary, as Motorsports Authentics, LLC (the Company). Motorsports Authentics, LLC, a Delaware limited liability company, and its subsidiaries design and sell licensed motorsports collectible and consumer products. Motorsports Authentics, Inc. and subsidiaries, a subsidiary of Motorsports Authentics, LLC, is taxed on a consolidated basis as a C corporation. The Company’s products include apparel (including tee-shirts, hats and jackets), die-cast scaled replicas of motorsports vehicles and memorabilia. The Company is a licensee of, among others, the National Association for Stock Car Auto Racing (NASCAR).

In the fiscal third quarter ending August 31, 2009, for various strategic purposes, the Company ceased paying certain guaranteed royalties under several license agreements where estimated royalties payable based on projected sales were less than stipulated guaranteed minimum royalties (unearned royalties). All earned royalties that were due have been paid. The Company received notices from certain licensors alleging default under the license agreements if the Company did not pay unearned royalties within stipulated cure periods. Upon default, a material amount of guaranteed royalty payments under several license agreements could have been asserted by the licensors as immediately due. As of November 30, 2009, and subsequent to that date, the Company was unable to renegotiate its license agreements with essentially all significant licensors of NASCAR merchandise on terms that would allow the Company reasonable future opportunities to operate profitably. These ongoing alleged license defaults were severely impacting the Company’s business and its ability to continue operating. On June 16, 2010, the Company entered into a Diecast Business Acquisition Agreement and a Termination, Mutual Release and Transition Services Agreement (the Agreement) to transfer a majority of the assets associated with its die-cast business, including, but not limited to, NASCAR tooling, equipment, inventory and intellectual property, and end its mass retail business in exchange for termination of existing license agreements and the release of identified claims against the Company arising from the Company’s failure to pay unearned guarantees under license agreements between the Company and certain licensors. The Agreement released the Company from contracted current and future unearned guaranteed minimum royalties payable to NASCAR team licensors, except for one licensor (Note K). Under the transition services agreement, the Company continued to service various aspects of the die-cast business through December 31, 2010, in order to ensure there would be no disruption to the manufacturing and distribution of die-cast. The Company’s operations beginning in fiscal 2011 consist principally of trackside event souvenir merchandise as licensed and regulated by the NASCAR Teams Licensing Trust (the Trust), which is described below, with limited distribution rights with specialty retailers and distributor networks that target specialty retailers. As a part of these transactions, a related party provided non-monetary consideration for settlement of certain liabilities. Due to the transaction above, the Company reversed the unearned guaranteed minimum royalties payable of $9.9 million that was previously accrued as of the agreement date and transferred NASCAR tooling with a net book value of $0.6 million, which are both included in other income (expense) for 2010.

Motorsports Authentics, LLC 8

In July 2010, certain industry stakeholders created the NASCAR Teams Licensing Trust that is represented by a Board of Directors that includes representatives from NASCAR and from NASCAR teams. This new Trust substantially restructures the NASCAR souvenir merchandising and licensing business. The Trust represents four key product categories (die-cast, toys, apparel and trackside retail rights) and grants the rights of any participating NASCAR driver or team for these licensing categories.

On June 1, 2010, the Company entered into a Tooling Acquisition Agreement to sell certain assets, including, but not limited to, tooling, trademarks and internet domain names related to its MUSCLE MACHINES product line, in exchange for full and complete release and discharge of any and all obligations under a license agreement. The Company recognized a $0.5 million gain on the settlement of certain liabilities, which is included in other income (expense) for 2010.

Products previously have been marketed throughout North America through:

• Specialty retailers,

• Distributor networks that target specialty retailers,

• Mobile trackside stores that target motorsports event attendees,

• Mass-merchant retailers,

• A members-only collectors’ catalog club,

• Television programming on QVC, and

• Other distribution channels.

The Company works closely with drivers, teams, owners, track operators and sponsors to design and merchandise products. Production of die-cast, apparel and memorabilia is outsourced. The Company retains ownership and control over designs and maintains close working relationships with outsourced manufacturers to help assure quality product.

Sales to the top five customers accounted for 12.0%, 26.9% and 36.4% of sales in 2011, 2010 and 2009, respectively. No individual customer had sales over 10% of revenue in 2011. Sales to the largest customer were approximately 14.6% and 24.1% of revenue in 2010 and 2009, respectively. Accounts receivable from this customer totaled $0.3 million at November 30, 2010.

Note B - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Motorsports Authentics, LLC and its wholly owned and majority owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Estimates are used for, but not limited to, the accounting for doubtful accounts, inventory values, goodwill and other intangible assets, depreciation, amortization, accrued royalties, accrued losses on contracts, self-insurance reserves, taxes and contingencies. Actual results could differ from those estimates.

One of the Company’s most significant estimates is determining the net realizable value of inventories. The carrying values of inventories are subject to numerous management judgments and estimates to ensure the carrying value of the inventory is recorded at the lower of cost or net realizable value. The value of inventory could decline as a result of future changes in teams, drivers, sponsors and cars, among other things. In management’s judgment, inventory values are recorded at the lower of cost or net realizable value at November 30, 2011 and 2010, based on available information. Actual results of inventory write-downs could differ from management estimates.

Motorsports Authentics, LLC 9

Prior to 2011, the Company performed a gross margin analysis on all existing contracts and recorded a provision for estimated losses. Due to certain contract restructuring such analysis is no longer applicable. The provision for losses was $1.4 million for 2009, which is included in cost of sales (Note C). There was no provision for losses for 2010.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, title passes to the customer, the amount is fixed or determinable and collection is probable. Most distributor and specialty retailer sales are recognized when product is shipped to a distributor or specialty retailer because title to the product passes to the distributor or specialty retailer at shipment. Trackside sales are recognized when the consumer purchases product at the point of sale. Corporate sales are recognized when product is shipped to corporate customers because title to the product passes to the corporate customer at shipment. Prior to fiscal 2011, sales to mass-merchant retailers were recognized when title to the product passed to the retailer, either at time of shipment to the retailer or receipt by the retailer. In addition, prior to 2011, Collectors’ Club Catalog sales were recognized at time of shipment because title to the product passed to the customer at shipment and Internet sales were generally recognized when delivered to the consumer.

Net sales include sales net of estimated sales returns, discounts and other allowances. These amounts are recorded as a reduction from sales when revenue is recognized.

Net sales include any applicable taxes collected and remitted to government agencies. Applicable taxes collected and remitted to government agencies were $1.6 million, $1.9 million and $2.3 million for 2011, 2010 and 2009, respectively.

Cost of Sales

Cost of sales includes product cost, shipping and freight-forwarding costs paid to third parties, depreciation of tooling and dies for 2010 and prior, royalties to third-party licensors, product testing, sample expense and fees paid to a third party for shipping and handling. The Company incurs costs to screen print or embroider certain inventory, which are also included in cost of sales, although the majority of products are procured in its finished state. The Company obtains substantially all apparel, die-cast and memorabilia products on a purchase-order basis from several third-party manufacturers and suppliers. Prior to fiscal 2011, substantial portions of the die-cast products were manufactured under a “preferred provider” agreement with a third-party manufacturer in China. The Company incurred shipping and handling costs of $0.5 million, $1.1 million and $3.5 million for 2011, 2010 and 2009, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include salaries and benefits, use and occupancy expenses, net of sublease income, creative services costs, advertising and promotion costs, sponsorship costs, trackside commissions, depreciation and other general and administrative expenses. Included are the salaries, benefits and other costs of procurement, receiving and warehouse personnel. Advertising costs, including print, radio, television and Internet-based advertising, were $0, $0.04 million and $0.1 million for 2011, 2010 and 2009, respectively.

Motorsports Authentics, LLC 10

Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amounts, which are generally due 30 days after the invoice date and considered past due after 30 days. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The adequacy of this allowance is determined by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. If the financial condition of customers was to deteriorate, additional allowances may be required. Accounts receivable are written off against the allowance once the account is deemed to be uncollectible. This typically occurs once all efforts to collect the account have been exhausted, which includes collection attempts by company employees and outside collection agencies.

Inventory

Inventories are stated at cost, which approximates the first-in, first-out method, or estimated net realizable value if lower. The cost of purchased inventory includes the cost of the purchased product and freight in. Cost of sales also includes freight out, which is not a part of inventory cost.

Royalties

The Company’s license agreements generally require payments of royalties to drivers, sponsors, teams and other parties. Contracts generally provide for royalties to be calculated as a specified percentage of sales. Prior to the Agreement, many contracts provided for guaranteed minimum royalty payments. Royalties payable, calculated using the contract percentage rates, are recognized as cost of sales when the related sales are recognized. To the extent royalties payable projected under a contract, calculated using the contract percentage rate, will be lower than guaranteed minimums during the guarantee period, the Company recognizes additional cost of sales on a straight-line basis over the guarantee period as defined under the contract. Guarantees advanced under the license agreements are carried as prepaid royalties until earned by the third party, or considered to be unrecoverable. The Company evaluates prepaid royalties regularly and expenses prepaid royalties to cost of sales to the extent projected to be unrecoverable through sales. As of November 30, 2011 and 2010, the Company has guaranteed minimum royalty payments of approximately $0.6 million, which is included in accrued royalties. The Company is currently seeking relief of this liability from the third-party. There has been no response from this third-party during fiscal year 2011. Royalty expense under licenses, including guaranteed minimums, were $3.8 million, $11.0 million and $31.6 million for 2011, 2010 and 2009, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid investments with original maturities of three months or less.

Property and Equipment

Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, which range up to 10 years. Prior to the date of the Agreement, tooling consisted of molds and dies used by third parties to manufacture the Company’s die-cast scaled replicas. Tooling costs capitalized consisted of amounts paid to third parties that manufacture the tooling. Depreciation of tooling and other production assets is included in cost of sales. All other depreciation is included in selling, general and administrative expenses. Maintenance and repairs are charged to expense as incurred. The costs of renewals and betterments that materially extend the useful lives of assets or increase their productivity are capitalized.

Motorsports Authentics, LLC 11

Other Long-lived Assets

The Company follows applicable authoritative standards to test, on an annual basis, its other long-lived assets (primarily property, plant and equipment, licenses and customer relationships) for impairment. All assets related to licenses and customer relationships were fully written off as of November 30, 2009. The Company evaluates if impairment indicators related to property, plant and equipment and other long-lived assets are present. These impairment indicators may have included in the past a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long lived asset or asset group is being used or in its physical condition, a material adverse change in the Company’s relationships with significant customers or licensors, the impact of the economic environment on the Company’s customer base or a current period operating or cash flow loss combined with a forecast that demonstrates continuing losses associated with the use of a long lived asset or asset group. If impairment indicators are present, the Company estimates the future cash flows for the asset or group of assets. The sum of the undiscounted cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various assumptions regarding future revenue and expenses, working capital and proceeds from asset disposals on a basis consistent with the strategic plan. If the carrying amount exceeds the sum of the undiscounted cash flows, the Company determines the assets’ fair value and records an impairment charge as the difference between the estimated fair value and the carrying value of the asset or asset group (Note C).

Goodwill and Other Indefinite-lived Intangible Assets

Goodwill and other indefinite-lived intangible assets were fully written off as of November 30, 2009. Goodwill represented the costs in excess of the fair value of net assets acquired in business combinations. Other indefinite-lived intangible assets consisted primarily of tradenames and trademarks acquired in business combinations. The Company was required to conduct an annual test of impairment for goodwill and other indefinite-lived intangible assets in accordance with applicable authoritative standards. The Company was also required to test for impairment if events or circumstances indicated it was more-likely-than-not that the fair value of a reporting unit or the indefinite-lived intangible asset was below its carrying amount. The annual test of impairment was performed in the fourth quarter because it coincided with the Company’s annual strategic planning process.

The Company had one reporting unit to test for impairment of goodwill and other indefinite-lived intangible assets. The assessment of fair value in the impairment tests was generally determined based upon a discounted cash flow methodology. The discounted cash flows were estimated utilizing various assumptions regarding future revenue and expenses, working capital, terminal value and market discount rates. The underlying assumptions were consistent with those used in the strategic plan.

Goodwill Impairment

If the carrying amount of the reporting unit was greater than estimated fair value, goodwill impairment may have been present. The Company measured the goodwill impairment based upon the fair value of the underlying assets and liabilities of the reporting unit, including any unrecognized intangible assets and estimates the implied fair value of goodwill. An impairment charge was recognized to the extent that recorded goodwill exceeds its implied fair value (Notes C and F).

Other Indefinite-lived Intangible Asset Impairment (primarily Trademarks)

If the carrying amount of the intangible asset exceeded its estimated fair value, an impairment charge was recorded to the extent the recorded intangible asset exceeds the fair value (Notes C and F).

Motorsports Authentics, LLC 12

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future income tax effect of temporary differences between financial and income tax bases of assets and liabilities. The Company’s accounting for income taxes reflects management’s assessment of future tax liabilities based on assumptions and estimates for timing, likelihood of realization and tax laws existing at the time of evaluation. The Company provides a valuation allowance to reduce deferred tax assets if, based on the weight of available evidence, it is more-likely- than-not that some or all of those deferred tax assets may not be realized.

Accounting for Uncertainty in Income Taxes

The Company follows applicable authoritative standards on accounting for uncertainty in income taxes which, among other things, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and applies the standards to significant issues such as de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition (Note I).

Disclosures about Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and line of credit borrowings. The fair value of these instruments approximates carrying values due to their short-term duration.

Deferred Financing Costs

The Company capitalizes loan origination costs and amortizes them using the effective interest rate method over the life of the related loan. Amortization of these deferred financing costs was $0.3 million in 2009, which is included in interest expense. There was no amortization expense recognized for 2011 or 2010.

Self-insurance Reserves

At November 30, 2011, the Company is self-insured for its employee-related health care benefits. Liabilities associated with retained risk are estimated by considering various historical trends and forward-looking assumptions related to costs, claim counts and payments. The estimated accruals for these liabilities could be affected if future occurrences and claims differ from these assumptions and historical trends. Beginning December 1, 2011, the Company became fully-insured for its employee-related health care benefits.

Note C - Impairment

As a result of impairment testing performed in 2011, 2010 and 2009, the Company recorded a noncash impairment charge of $0.04 million, $1.0 million and $146.5 million, respectively, as follows (in thousands):

	2011		2010		2009
Goodwill	$	—	$	—	$	108,488
Trademark		—		—		20,763
Licenses		—		—		2,930
Customer relationship		—		—		2,250
Leasehold improvements		—		—		1,021
Other		—		—		641
		—		—		136,093
Inventory		36		996		9,029
Liability for loss on contracts		—		—		1,371
	$	36	$	996	$	146,493

Motorsports Authentics, LLC 13

In fiscal 2011, due to driver changes and sponsor changes, the Company wrote down inventory by $0.04 million as a charge to cost of sales to reflect the inventory at estimated net realizable value.

In fiscal 2010, due to driver changes, car manufacturer changes, sponsor changes and strategic business initiatives, the Company wrote down inventory by $1.0 million as a charge to cost of sales to reflect the inventory at estimated net realizable value.

The impairment charge recorded in 2009 was primarily the result of the following factors:

During fiscal 2009, the Company’s performance was impacted by unprecedented adverse economic trends, particularly the decline in consumer confidence and the rise in unemployment that began to manifest in early fiscal 2008 and increasingly contributed to the decrease in attendance for motorsports entertainment events in fiscal 2009. The Company expected these adverse economic trends to continue. The Company also faced increased competition for products sold under non-exclusive licenses. Management considered various strategic approaches to optimize performance, but as the challenges have been assessed, it became apparent that there was significant risk in future business initiatives. Therefore, the Company determined that its estimated future cash flows would be lower than originally forecast during the previous year’s strategic planning process. As a result, it was determined that the business likely had a net book value in excess of its estimated fair value and that certain intangible assets more-likely-than not had book values in excess of their fair values. Due to the apparent decline in value, the Company conducted an impairment analysis, following applicable authoritative standards, to test the goodwill and long-lived assets for impairment. This resulted in an impairment charge of $136.1 million in 2009, to write down goodwill and other long-lived assets to estimated fair value.

In fiscal 2009, due to driver changes, car manufacturer changes, sponsor changes and strategic business initiatives, the Company wrote down inventory by $9.0 million as a charge to cost of sales to reflect the inventory at estimated net realizable value.

In fiscal 2009, based on the Company’s gross margin analysis review on all existing contracts, the Company recorded a provision for estimated contract losses of $1.4 million, which is included in cost of sales.

Note D - Inventories

Inventories consist of the following at November 30 (in thousands):

	2011		2010
Apparel and memorabilia	$	2,006	$	1,363
Die-cast		113		511
	$	2,119	$	1,874

Apparel blank stock and other raw materials were $0.4 million and $0.2 million at November 30, 2011 and 2010, respectively.

Motorsports Authentics, LLC 14

Note E - Property and Equipment

Property and equipment consists of the following at November 30 (in thousands):

	2011		2010		Estimated Useful Life
Leasehold improvements,net of accumulated depreciation of $289 and $179	$	15	$	129	1-10 years
Equipment, software and other,net of accumulated depreciation of $5,571 and $5,761		195		464	3-5 years
Trackside trailers and vehicles,net of accumulated depreciation of $2,747 and $2,766		267		334	5 years
	$	477	$	927

Depreciation expense was $0.6 million, $1.9 million and $3.6 million for 2011, 2010 and 2009, respectively. Of these amounts $0, $0.8 million and $1.6 million for 2011, 2010 and 2009, respectively, relate to tooling depreciation, which is included in cost of sales.

Note F - Goodwill and Other Intangibles

Goodwill and other intangibles were fully written off as of November 30, 2009. Amortization expense was $1.4 million for 2009. See Note C for discussion of impairment of goodwill and other long-lived assets during fiscal 2009.

Note G - Debt and Financing

On June 2, 2010, and November 29, 2010, the Company entered into amendments to its credit and security agreement (the amended credit facility) with a bank. Under the amended credit facility, the $40.0 million revolving credit facility was reduced to $5.0 million and the expiration date was amended from July 7, 2013, to December 15, 2011. The amended credit facility provides for issuance of up to $5.0 million, reduced from $20.0 million, of letters of credit, to the extent not utilized for borrowings. The balance of the revolver was $0 at both November 30, 2011 and 2010. Repayment of borrowings under this facility is secured by a first lien on substantially all company assets. Under the amended credit facility, the Company is required to meet a financial test related to minimum fixed charge coverage ratio. However, when the Company has availability of at least $1.0 million at all times for a period of 30 consecutive days, the Company is not required to comply with the minimum fixed charge coverage ratio. Availability under the Company’s revolving credit facility was $1.6 million and $3.2 million at November 30, 2011 and 2010, respectively, based on the Company’s borrowing base calculation. The credit facility expired on December 15, 2011 and the Company does not intend to renew or secure a new credit facility at this time.

The Company’s credit facility agreement requires a lockbox arrangement, which provides for all receipts to be swept daily to reduce borrowings outstanding under the line-of-credit agreement. This arrangement, combined with the existence of a subjective acceleration clause in the line-of-credit agreement, requires the classification of outstanding borrowings under the bank line-of-credit agreement as a current liability. The acceleration clause allows the Company’s lenders to forego additional advances should they determine there has been a material adverse change in the Company’s financial position or prospects reasonably likely to result in a material adverse effect on its business, condition (financial or otherwise), operations, performance or properties.

The credit facility bears interest at LIBOR plus 3.00% or prime plus 2.00% (5.25% at November 30, 2011 and 2010). The Company pays a commitment fee of 1.00% of the average unused revolving credit facility, a quarterly maintenance fee of $2,500 and a fee of 2.125% of the average outstanding letters of credit. The annual commitment fee on the unused revolving credit facility was $0.05 million, $0.06 million and $0.1 million for 2011, 2010 and 2009, respectively.

Motorsports Authentics, LLC 15

Note H - Employee Benefits

The Company’s defined contribution plan qualifies as a cash or deferred profit-sharing plan under Sections 401(a) and 401(k) of the Internal Revenue Code and is available to substantially all domestic employees. Participating employees may defer all or a portion of their pre-tax compensation, subject to certain limitations. The plan provides for employer matching contributions, which fully match each dollar contributed by an employee, up to a maximum of 3% of the employee’s defined compensation and 50% of each dollar contributed by an employee between 3% and 5%, of the employee’s defined compensation. In 2011, 2010 and 2009, matching contribution expense totaled $0.1 million, $0.2 million and $0.3 million, respectively. The plan also provides for a discretionary annual employer profit sharing contribution in such amounts as the board of managers may determine. In 2011, 2010 and 2009, there were no discretionary employer profit sharing contributions.

Note I - Income Taxes

The Company follows applicable authoritative standards and therefore uses an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.

Provision for income taxes from continuing operations for the years ended November 30 are as follows (in thousands):

	2011		2010		2009
Current tax expense:
Federal	$	—	$	—	$	—
State		—		—		—
Deferred tax expense:
Federal		—		—		(7,734	)
State		—		—		(358	)
	$	—	$	—	$	(8,092	)

The 2009 tax benefit is related to intangible asset impairments recorded in that year. The Company had previously recorded tax liabilities for the tax effect of financial statement over tax bases in certain long-lived intangible assets. Impairments recorded in 2009 have reduced financial statement bases in these assets to zero, eliminating these tax liabilities.

Prior to 2009, a portion of profits and losses were included in an LLC entity, which is not taxed at the entity level. The remaining profits and losses reflected in the rate reconciliation below are included in a C corporation structure. Beginning in 2009, all profits and losses are taxed at the entity level. A reconciliation of the federal income tax rate to the effective rate for continuing operations follows:

	2011			2010			2009
Statutory federal rate		35	%		35	%		35	%
State taxes, net of federal benefit		2			2			2
Goodwill impairment		—			—			(18	)
Valuation allowances and other		(37	)		(37	)		(14	)
		0	%		0	%		5	%

Motorsports Authentics, LLC 16

The components of deferred taxes consist of the following at November 30 (in thousands):

	2011			2010
Deferred tax assets:
Inventory reserve and cost capitalization	$	278		$	569
Reserves and accruals		1,603			2,723
Deferred compensation		—			54
Intangible asset capitalization		4,096			6,747
Fixed asset capitalization		795			774
Credit carryforwards		464			485
Net operating losses		65,430			60,960
Other		446			465
Valuation allowance		(73,112	)		(72,777	)
	$	—		$	—

The Company follows applicable authoritative standards to reduce the deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some or all of the deferred tax assets may not be realized. Valuation allowances as of November 30, 2011 and 2010, include $5.5 million and $5.2 million, respectively to reserve tax assets for state net operating losses expected to expire before realized, $59.9 million and $55.8 million, respectively to reserve tax assets for federal net operating loss carryforward, $0.5 million and $0.5 million, respectively to reserve tax assets for the alternative minimum tax credit carryforward, $7.0 million and $11.1 million, respectively to reserve tax assets associated with various timing differences and $0.2 million and $0.2 million, respectively to reserve capital loss carryforwards.

The capital loss carryforward of $0.5 million expires in 2013. State net operating loss carryforwards of $219.4 million expire as follows: $7.0 million in varying amounts in periods 2012 to 2015, and $212.4 million in varying amounts in periods 2016 to 2031. The federal net operating loss carryforward of $176.7 million expires in varying amounts in periods 2025 to 2031.

The Company follows applicable authoritative standards on accounting for uncertainty in income taxes. At the adoption date and at November 30, 2011, 2010 and 2009, the Company did not have any tax positions that required recognition. The Company recognizes interest and penalties related to income tax matters in income tax expense. As of November 30, 2011 and 2010, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state income tax examinations in progress and is no longer subject to federal and state income tax audits by taxing authorities for years prior to 2005.

The Company acquired the outstanding stock of Action Performance Companies, Inc. in fiscal 2005, whose historical tax basis for assets and liabilities are carried-forward for tax reporting purposes, with the assigned value to goodwill under purchase accounting having no tax basis. Goodwill from purchase accounting created a permanent difference because it is not deductible for tax reporting purposes and because, unlike other basis differences created using purchase accounting, no deferred tax liability may be established related to the goodwill. As such, no income tax benefit was recognized with the goodwill impairment charge as is reflected in the Company’s effective rate reconciliation.

Motorsports Authentics, LLC 17

Note J - Commitments and Contingencies

In the normal course of business, the Company generally provides its licensors and distributors certain indemnifications and hold harmless provisions associated with the distribution of its products. The Company carries no reserves for such claims and has not experienced any losses related to indemnification in the past three years. The Company is generally indemnified under its manufacturing agreements for such losses connected with the design and manufacture of products. The Company also maintains general liability and product liability insurance to cover such losses and have had no related claims activity under those insurance contracts in the last three years.

Aggregate future payments and receipts under noncancelable operating leases, net of sublease income of $0.03 million, and other obligations are as follows as of November 30, 2011 (in thousands):

	Amount
For the year ended November 30:
2012	$	3,370
2013		3,288
2014		1,189
2015		1,072
2016		1,063
2017 to 2022		2,106
		12,088
Less - Amounts representing interest		(681	)
	$	11,407

The Company’s noncancelable operating leases consist primarily of a building lease for the Company’s corporate headquarters. In December 2011, the Company entered into a new lease agreement with the same landlord, which terminates the existing lease, previously expiring in 2018, and puts into place a new ten year lease, effective January 1, 2012, expiring December 31, 2021, with two five-year renewal options. Under the new lease, the Company will now be renting approximately 90,000 square feet of the 180,000 square foot building and monthly lease payments will be reduced. Minimum rent is expensed on a straight-line basis over the term of the lease. Any escalation of rent payments relating to increases in construction or acquisition cost of the leased property are included in minimum rent, and payments that depend on an existing index or rate are included in minimum rent based on the index or rate existing at the inception of the lease. In conjunction with the new lease agreement, the Company will recognize the reversal of the deferred rent liability currently recorded of approximately $0.6 million straight-line over 10 years, the life of the new lease.

Rent expense recognized for noncancelable operating leases, net of sublease income, totaled $0.9 million, $1.1 million and $1.5 million for 2011, 2010 and 2009, respectively.

On occasion, the Company is a party to royalty audits by its licensors. As of November 30, 2011 and 2010, there was one royalty audit outstanding that had not yet been resolved. The Company has accrued $0.1 million, which is included in accrued royalties, for what it believes will likely be the resolution for this contingency at November 30, 2011.

At November 30, 2009, the Company had a contingent liability with a related party for an invoice the Company received from Speedway Motorsports Inc. (SMI). SMI’s invoice was for expenses it incurred on behalf of or services it provided the Company of $0.8 million. During fiscal 2010, the Company paid $0.3 million of the invoice upon board of managers’ approval. The remaining amount of the invoice was subsequently reduced in fiscal 2010 by SMI to $0.2 million; however, assessment and approval of the unpaid portion of the invoice has not been completed by the board of managers and the amount to be recognized, if any, upon ultimate board of managers’ approval, is unknown at this time. Pending further assessment and board of managers’ approval of the SMI invoice, the Company expects that an invoice for similar services will be presented by International Speedway Corporation and Speedway Motorsports Inc. may invoice additional amounts.

Motorsports Authentics, LLC 18

In the ordinary course of business, the Company is subject to certain lawsuits and asserted and unasserted claims. Management has accrued for items that are probable and reasonably estimatable and believes that the resolution of any such matters, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Note K - Settlements

During fiscal 2010, due to an accident involving one of the Company’s trackside trailers, the Company recorded an insurance recovery of $0.3 million, which is included in other income (expense). During 2010, the Company renegotiated certain obligations, some of which were guaranteed by the members. As a result, the Company recorded an expense of $9.9 million, which was offset by a related-party payment of $1.5 million towards the settlement. This expense is included in other income (expense) for 2010.

Note L - Related-party Transactions

The Company purchases and sells motorsports merchandise, remits royalty payments and remits trackside commission payments to International Speedway Corporation (ISC), Speedway Motorsports, Inc. (SMI) and NASCAR, who is a related party through ISC.

The following is a summary of related-party transactions as of November 30 (in thousands):

	2011
	ISC		SMI		NASCAR
Merchandise purchases, trackside commission payments, royalty payments and other	$	2,191	$	3,217	$	55
Merchandise sales and other services		895		1,060		—
Accounts receivable due		5		71		—
Accounts payable owed		—		244		—
	2010
	ISC		SMI		NASCAR
Merchandise purchases, trackside commission payments, royalty payments and other	$	2,084	$	4,342	$	1,214
Merchandise sales, sale of equipment and other services		1,560		1,339		1,524
Accounts receivable due		4		193		—
Accounts payable owed		1		305		—
	2009
	ISC		SMI		NASCAR
Merchandise purchases, trackside commission payments, royalty payments and other	$	2,998	$	5,205	$	2,100
Merchandise sales, sale of equipment and other services		1,516		4,659		5

Note M - Subsequent Event

The Company has analyzed its operations subsequent to November 30, 2011, through January 18, 2012, the date the consolidated financial statements are available to be issued and has determined that no material subsequent events should be further disclosed or recorded in these consolidated financial statements.