World Racing (WRGI) 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

¨ 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

                
World Racing Group, Inc.

(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 by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer   ¨	Accelerated filer  ¨
Non-accelerated filer   ¨	Smaller reporting company  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

As of May 12, 2008, the issuer had 32,546,735 outstanding shares of Common Stock.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets – March 31, 2008 and December 31, 2007	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007	4
	Condensed Consolidated Statements of Stockholders' Deficit for the Three Months Ended March 31, 2008	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4T.	Controls and Procedures	24
PART II	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 6.	Exhibits	25
Signatures		26

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PART I

FINANCIAL INFORMATION

ITEM  1.                                FINANCIAL STATEMENTS

WORLD RACING GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2008 and December 31, 2007

	March 31, 2008 (Unaudited)			December 31, 2007 (Derived from audited financial statements)
ASSETS
Current assets
Cash and cash equivalents	$	261,400		$	1,668,611
Accounts receivable — trade		987,919			317,678
Inventory		121,259			10,252
Prepaid interest, secured notes		360,712			721,424
Prepaid expenses and other current assets		876,393			746,982
Total current assets		2,607,683			3,464,947
Land, buildings and equipment, net		10,340,991			10,300,476
Trademarks		100,000			100,000
Goodwill, net of impairment of $10,320,537 in 2008 and 2007		—			—
Other assets, net of amortization of $320,852 in 2008 and $209,598 in 2007		482,431			593,685
Total assets	$	13,531,105		$	14,459,108
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	1,119,821		$	620,973
Accrued liabilities		936,495			1,125,404
Deferred revenues		1,234,446			421,438
Notes payable, current portion		1,315,982			689,208
Total current liabilities		4,606,744			2,857,023
Notes payable, net of discount of $2,236,414 in 2008 and $2,515,966 in 2007		13,031,350			13,091,045
Total liabilities		17,638,094			15,948,068
Stockholders' Equity (Deficit)
Series E Preferred stock, $0.01 par value; 50,000 shares authorized:  44,859 shares issued and outstanding at March 31, 2008 and  December 31, 2007		449			449
Common stock, $0.0001 par value; 100,000,000 shares authorized; 32,546,735 and 32,147,879 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively		3,255			3,215
Additional paid-in capital		72,441,467			71,883,978
Accumulated deficit		(76,552,160	)		(73,376,602	)
Total stockholders' equity (deficit)		(4,106,989	)		(1,488,960	)
Total liabilities and stockholders' equity	$	13,531,105		$	14,459,108

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

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WORLD RACING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2008 and 2007

(Unaudited)

	2008			2007
Revenues
Race sanctioning and event fees	$	552,194		$	586,568
Admission fees and ticket sales		1,510,546			1,419,716
Sponsorship and advertising revenue		775,052			368,245
Merchandise sales		53,339			57,065
Other revenue		52,848			42,484
Total revenues		2,943,979			2,474,078
Operating expenses
Track and event operations		3,159,906			2,823,889
Sales and marketing		674,295			375,864
Merchandise operations and cost of sales		81,036			62,519
General and administrative		625,783			763,275
Non-cash stock compensation		557,529			453,104
Depreciation and amortization		212,955			201,739
Total operating expenses		5,311,504			4,680,390
Loss from operations		(2,367,525	)		(2,206,312	)
Other (Expenses) Income
Interest expense, net		(808,033	)		(78,150	)
Total Other Expense		(808,033	)		(78,150	)
Net (Loss)		(3,175,558	)	$	(2,284,462	)
Net loss applicable to common stock		(3,175,558	)	$	(2,284,462	)
Net loss applicable to common stock per common share — Basic and diluted	$	(0.10	)	$	(0.16	)
Weighted average common shares outstanding — Basic and diluted		32,152,262			14,529,211

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

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WORLD RACING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

For the Three months ended March 31, 2008

(Unaudited)

									Additional
	Preferred Stock				Common Stock				Paid-in		Accumulated
	Shares		Amounts		Shares		Amounts		Capital		(Deficit)			Total
Balance, December 31, 2007		44,859	$	449		32,147,879	$	3,215	$	71,883,978	$	(73,376,602	)	$	(1,488,960	)
Value assigned to stock options, restricted stock and warrants, non-cash compensation expense		—		—		100,000		10		467,900		—			467,910
Restricted stock issued in exchange for services		—		—		96,000		10		28,790		—			28,800
Restricted stock issued in exchange for warrants		—		—		202,856		20		60,799		—			68,819
Net loss		—		—		—		—		—		(3,175,558	)		(3,175,558	)
Balance, March 31, 2008		44,859	$	449		32,546,735	$	3,255	$	72,441,467	$	(76,552,160	)	$	(4,106,989	)

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

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WORLD RACING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three months ended March 31, 2008 and 2007

(Unaudited)

	2008			2007
Cash flows from operating activities:
Net (loss)	$	(3,175,558	)	$	(2,284,462	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		212,955			201,739
Non-cash interest expense		279,552
Non-cash stock compensation		557,529			453,104
Increase (decrease) in cash for changes in:
Accounts receivable		(670,241	)		46,759
Inventory		(111,007	)		46,789
Prepaid expenses and other current assets		231,301			50,431
Other non-current assets		91,499			42,614
Accounts payable		498,848			408,732
Accrued liabilities		(188,909	)		(180,580	)
Deferred revenue		813,008			614,214
Net cash (used in) operating activities		(1,461,023	)		(600,660	)
Cash flows from investing activities:
Purchase of property, contract rights, trademarks and goodwill		(233,715	)		(164,003	)
Net cash (used in) investing activities		(233,715	)		(164,003	)
Cash flows from financing activities:
Payments on notes payable		(48,398	)		(67,509	)
Proceeds from issuance of notes payable		335,925			600,000
Net cash provided by financing activities		287,527			532,491
Net increase (decrease) in cash and cash equivalents		(1,407,211	)		(232,172	)
Cash and cash equivalents, beginning of period		1,668,611			532,230
Cash and cash equivalents, end of period	$	261,400		$	300,058
Supplemental schedule of non-cash activities:
Purchase of vehicles and equipment through the issuance of notes	$	-		$	232,300
Cash payments for interest	$	127,629		$	37,054
Non-cash revenues and expenses, barter agreements	$	-		$	38,400

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

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WORLD RACING GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

NOTE 1. DESCRIPTION OF BUSINESS

References in this document to “the Company,” “Boundless,” “DIRT,” “WRG,” “we,” “us” and “our” mean World Racing Group, Inc. and its wholly owned subsidiaries.  Subsequent to the acquisition of DIRT Motorsports, Inc. in 2004, we began operating under the name DIRT MotorSports and in July 2005, we reincorporated in Delaware and changed our name from “Boundless Motor Sports Racing, Inc.” to “DIRT Motor Sports, Inc.” We changed our name to World Racing Group, Inc. in January 2008.

We market and promote motor sports entertainment in the United States.  Our motorsports subsidiaries operate seven dirt motor sports tracks (four are owned and three facilities are under short term lease agreements) in New York, Pennsylvania and Florida.  We own and operate four sanctioning bodies in dirt motor sports:  the World of Outlaws; DIRTcar Racing formerly known as DIRT MotorSports and United Midwestern Promoters (UMP); and the Mid America Racing Series (MARS).  Through these sanctioning bodies we organize and promote national and regional racing series including the World of Outlaw Sprint Series and the World of Outlaws Late Model Series. 

NOTE 2. GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company incurred a net loss of $12.7 million for the year ended December 31, 2007 and a net loss of $3.2 million for the three months ended March 31, 2008.  The Company has an accumulated deficit of $76.6 million and negative working capital of $2.0 million as of March 31, 2008, which raises substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Specialty Tires of America, Inc. and Race Tires America, Inc., a division of Specialty Tires of America, Inc. (RTA), brought a civil action against the Company and Hoosier Racing Tire Corporation (Hoosier) in the United States District Court for the Western District of Pennsylvania,  in September 2007.  RTA has sought injunctive relief and damages for alleged violations of the Sherman Act, including alleged conspiracies between the Company and Hoosier to restrain trade in and monopolize race tire markets.  From RTA’s initial disclosures, it appears that they are claiming in excess of $91.2 million in monetary damages plus costs and attorneys fees.  The Company answered RTA’s complaint denying all claims, and intends to vigorously defend the allegations set forth in the complaint.  The Court has conducted an initial scheduling conference.  The case is presently in its initial stages, and paper discovery has only recently begun.   An adverse outcome regarding this litigation could have a materially adverse effect on the Company’s ability to continue as a going concern.

The Company is dependent on existing cash resources and external sources of financing to meet its working capital needs.  Management currently intends to seek additional financing prior to the end of the quarter ending June 30, 2008, as current sources of liquidity may be insufficient to provide for its budgeted and anticipated working capital requirements.  No assurances can be given that such capital will be available to the Company on acceptable terms, if at all.  If the Company is unable to obtain additional financing when it is needed or if such financing cannot be obtained on terms favorable to us or if the Company is unable to renegotiate existing financing facilities, we may be required to delay or scale back our operations, which could delay development and adversely affect our ability to generate future revenues.

To attain profitable operations, management’s plan is to (i) increase the number of sanctioned events; (ii) leverage existing owned and leased tracks to generate ancillary revenue streams; (iii) partner with existing promoters to create additional marquis events; and (iv)  continue to build sponsorship, advertising and related revenue, including license fees related to the sale of branded merchandise.   If the Company is unsuccessful in its plan, we will continue to be dependent on outside sources of capital to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and clarification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.

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NOTE 3. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared in compliance with Rule 8-03 of Regulation S-X and U.S. generally accepted accounting principles, but do not include all of the information and disclosures required for audited financial statements. These statements should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-KSB for the year ended December 31, 2007. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008 due to the seasonal nature of the Company’s business.

The factors discussed in Footnote 2 above raise substantial doubt about the Company's ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications

Certain amounts in prior periods presented have been reclassified to conform to the current financial statement presentation.  These reclassifications have no effect on previously reported net income or loss.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of World Racing Group, Inc. and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition and Deferred Revenue

The Company derives its revenues from race sanctioning and event fees, admission fees and ticket sales, sponsorship and advertising, merchandise sales and other revenue. “Race sanctioning and event fees” includes amounts received from track owners and promoters for the organization and/or delivery of our racing series or touring shows including driver fees. “Admission fees and ticket sales” includes ticket sales for all events held at the Company’s owned or leased facilities and 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 fees obtained for the right to sponsor our motorsports events, series or publications, and for advertising in our printed publications or television programming. 

The Company recognizes race sanctioning and event fees upon the successful completion of a scheduled race or event. Race sanction and event fees collected prior to a scheduled race event are deferred and recognized when earned upon the occurrence of the scheduled race or event. Track operations, ticket and concession sales are recognized as revenues on the day of the event.  Income from memberships to our sanctioning bodies is recognized on a prorated basis over the term of the membership. The Company recognizes revenue from sponsorship and advertising agreements when earned in the applicable racing season as set forth in the sponsorship or advertising agreement either upon completion of events or publication of the advertising. Revenue from merchandise sales are recognized at the time of sale less estimated returns and allowances, if any. Revenues and related expenses from barter transactions in which the Company receives goods or services in exchange for sponsorships of motorsports events are recorded at fair value in accordance with Emerging Issues Task Force (“EITF”) Issue No. 99-17, Accounting for Advertising Barter Transactions. Barter transactions accounted for $38,400 of total revenues for the quarter ended March 31, 2007 with no amounts in the quarter ended March 31, 2008, respectively.

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 deferred until the event is held, at which point they are expensed.  Annual points fund monies which are paid at the end of the racing season are accrued during the racing season based upon the races held and total races scheduled.

The cost of non-event related advertising, promotion and marketing programs are expensed as incurred.

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Net Loss Per Share and Warrants Outstanding

Basic and diluted earnings per share (EPS) are calculated in accordance with FASB Statement No. 128, Earnings per Share. For the quarters ended March 31, 2008 and 2007, the net loss per share applicable to common stock has been computed by dividing the net loss by the weighted average number of common shares outstanding.

	March 31
	2008			2007
Net (Loss)	$	(3,175,558	)	$	(2,284,462	)
Net loss applicable to common stock	$	(3,175,558	)	$	(2,284,462	)
Net loss applicable to common stock per common share — Basic and diluted	$	(0.10	)	$	(0.16	)
Weighted average common shares outstanding — Basic and diluted		32,152,262			14,529,211

In addition, as of March 31, 2008, the Company’s Series E Preferred Stock was convertible into 44.9 million shares of common stock and the Company had warrants outstanding to purchase 1.0 million common shares and options to purchase 0.4 million shares of common stock. None of these were included in the computation of diluted EPS because the Company had a net loss and all potential issuance of common stock would have been anti-dilutive.

The following table summarizes the Company’s common stock purchase warrant and certain stock options outstanding at March 31, 2008.  These warrants and stock options were not considered in computing diluted earnings per share as their effect would be anti-dilutive:

	Shares		Weighted Average Exercise Price		Weighted Average Contractual Life (years)
Placement agent warrants		275,803	$	2.99		3.2
UMP acquisition warrants		40,000	$	3.65		0.8
Other Warrants		625,059	$	1.69		3.0
Stock options		420,000	$	3.95		2.9
Total warrants and stock options outstanding		1,360,862	$	2.71		3.0

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash 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 are charged to cost of merchandise.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets ranging from three to 40 years. Expenditures for maintenance, repairs and minor renewals are expensed as incurred; major renewals and betterments are capitalized. At the time depreciable assets are retired or otherwise disposed of, the cost and the accumulated depreciation of the assets are eliminated from the accounts and any profit or loss is recognized.

The carrying values of property and equipment are evaluated for impairment based upon expected future undiscounted cash flows. If events or circumstances indicate that the carrying value of an asset may not be recoverable, an impairment loss would be recognized equal to the difference between the carrying value of the asset and its fair value.

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Purchase Accounting

The Company accounted for its acquisitions of assets in accordance with Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business Combinations and Statement of Financial Accounting Standards No. 142, Goodwill and Intangible Assets (SFAS No. 142). SFAS no. 141 requires that all business combinations entered into subsequent to June 30, 2001 be accounted for under the purchase method of accounting and that certain acquired intangible assets in a business combination be recognized and reported as assets apart from goodwill.

Intangible Assets

Upon its inception, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142 goodwill and intangible assets with indefinite lives are not to be amortized but are tested for impairment at least annually. Intangible assets with definite useful lives are to be amortized over the respective estimated useful lives or anticipated future cash flow streams when appropriate.

At least annually the Company tests for possible impairment of all intangible assets and more often whenever events or changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the manner that the asset is intended to be used indicate that the carrying amount of the asset is not recoverable. If indicators exist, the Company compares the discounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the discounted cash flow amount, an impairment charge is recorded in the operating expense section in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair value. The Company has chosen the fourth quarter of its fiscal year to conduct its annual impairment test.

Income Taxes

The Company accounts for income taxes under Financial Accounting Standards Number 109 (SFAS 109), Accounting for Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process.  The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.  The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements.  A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met.  Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The adoption of FIN 48 at January 1, 2007 did not have a material effect on the Company’s financial position.

Concentration of Credit Risk

Due to the nature of the Company’s sponsorship agreements, the Company could be subject to concentration of accounts receivable within a limited number of accounts.  As of March 31, 2008, the Company had bank deposits in excess of FDIC insurance of approximately $0.1 million.

New Accounting Pronouncements

In February 2006, the FASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS No. 155), which amends FASB Statements No. 133 and 140. This Statement permits fair value re-measurement for any hybrid financial instrument containing an embedded derivative that would otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (QSPE) permitted holdings to include passive derivative financial instruments that pertain to other derivative financial instruments. This Statement is effective for all financial instruments acquired, issued or subject to a re-measurement event occurring after the beginning of an entity’s first fiscal year beginning after September 15, 2006. This Statement has no current applicability to the Company’s financial statements.  Management adopted this Statement on January 1, 2007 and the initial adoption of this Statement did not have a material impact on the Company’s financial position, results of operations, or cash flows.

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In June 2006, the FASB issued FIN 48, which clarifies the accounting and reporting for income taxes where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company files tax returns in the United States and various state jurisdictions.  The Company’s 2003-2006 U.S. federal and state income tax returns remain open to examination by the Internal Revenue Service. The Company is continuing its practice of recognizing interest and/or penalties related to income tax matters as general and administrative expenses. The Company may have nexus in more states than it is currently filing tax returns.  Thus, upon examination, the Company could be required to file additional tax returns.  Due to the losses incurred, it is unlikely that any additional filings would result in any additional income tax.  Management adopted this Statement on January 1, 2007 and the initial adoption of FIN 48 did not have a material impact on the Company’s financial position, results of operations, or cash 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 use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management adopted this Statement on January 1, 2007 and the initial adoption SFAS 157 did not have a material impact on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires (a) recognition of the funded status (measured as the difference between the fair value of the plan assets and the benefit obligation) of a benefit plan as an asset or liability in the employer’s statement of financial position, (b) measurement of the funded status as of the employer’s fiscal year-end with limited exceptions, and (c) recognition of changes in the funded status in the year in which the changes occur through comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure the plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 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 not have 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 misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings and disclose the nature and amount of each individual error being corrected in the cumulative adjustment. SAB No. 108 was effective beginning January 1, 2007 and the initial adoption of SAB No. 108 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In February 2007, the FASB issued Statement No. 159 The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Management adopted this Statement on January 1, 2007 and the initial adoption SFAS 157 did not have a material impact on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. This Statement changes the accounting and reporting for non-controlling interests in consolidated financial statements. A non-controlling interest, sometimes referred to as a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Specifically, SFAS No. 160 establishes accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; (ii) the equity amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated income statement (consolidated net income and comprehensive income will be determined without deducting minority interest, however, earnings-per-share information will continue to be calculated on the basis of the net income attributable to the parent’s shareholders); and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently and similarly—as equity transactions. This Statement is effective for fiscal years, and interim period within those fiscal years, beginning on or after December 15, 2008. Early adoption is not permitted. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for its presentation and disclosure requirements, which shall be applied retrospectively for all periods presented.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which is a revision of SFAS No. 141, “Business Combinations.” SFAS No. 141R will apply to all business combinations and will require most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” At the acquisition date, SFAS No 141R will also require transaction-related costs to be expensed in the period incurred, rather than capitalizing these costs as a component of the respective purchase price. SFAS No. 141R is effective for acquisitions completed after January 1, 2009 and early adoption is prohibited. The adoption will have a significant impact on the accounting treatment for acquisitions occurring after the effective date.

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In December 2007, the Securities and Exchange Commission issued SAB 110, Certain Assumptions Used in Valuation Methods, which extends the use of the "simplified" method, under certain circumstances, in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123R. Prior to SAB 110, SAB 107 stated that the simplified method was only available for grants made up to December 31, 2007.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). This Statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  We are assessing the impact of the adoption of this Statement.

Stock-Based Compensation

The Company’s 2004 Long Term Incentive Plan (2004 Plan) provides for the grant of share options and shares to its employees for up to 3,950,000 shares of common stock. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on three years of continuous service and have five year contractual terms. Share awards generally vest over three years. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2004 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 of employee stock options, to be valued at fair value on the date of grant and to be expensed over the applicable vesting period. Under the modified prospective transition method, share-based awards granted or modified on or after January 1, 2006, are recognized in compensation expense over the applicable vesting period. Also, any previously granted awards that are not fully vested as of January 1, 2006 are recognized as compensation expense over the remaining vesting period. No retroactive 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 stock options using the intrinsic-value based method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, (“APB No. 25”) and related interpretations. This method required compensation expense to be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company’s net loss for the year ended December 31, 2006 was $2.2 million greater than if the Company had continued to account for share-based compensation under APB No. 25. Also, basic and diluted losses per share were approximately $0.16 per share higher as a result of the adoption. Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash inflows in the statement of cash flows. SFAS No. 123(R) requires the cash inflows resulting from tax deductions in excess of the compensation expense recognized for those stock options (excess tax benefits) to be classified as financing cash inflows.  The Company did not report any excess tax benefits as financing cash inflows for the year ended December 31, 2006.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the market price of the Company’s common stock over a period of time ending on the grant date. Based upon historical experience of the Company, the expected term of options granted is equal to the vesting period. The risk-free rate for periods within the contractual life of the option is based on the U.S Treasury yield curve in effect at the time of the grant.

The following table provides information relating to outstanding stock options as of March 31, 2008 however the Company did not grant any stock options in 2008: 

Expected volatility	58%
Expected life in years	2.0
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, if any, 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 value estimated using the Black-Scholes model.

The fair value of restricted common stock awards is based on the closing price of the Company’s common stock on date of the grant. The Company issued 750,000 restricted shares of common stock in 2006 with a fair value of $2,737,500, which will be recorded as compensation expense over the three year vesting period of the restricted shares.

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A summary of the status of stock options and related activity as of March 31, 2008 is presented below:

	Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2007	1,824,000	$	3.42	3.2	$ -
Granted	-		-
Exercised	-		-
Forfeited/expired/surrendered	(1,404,000)		3.26
Options outstanding at March 31, 2008	420,000	$	3.95	2.9	$ -
Options exercisable at March 31, 2008	395,000	$	3.90	2.9	$ -

Unrecognized compensation expense as of March 31, 2008 related to outstanding stock options and restricted stock grants were $ 2.0 million.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2008 and December 31, 2007:

	2008			2007			Depreciable Life
Land	$	6,916,338		$	6,916,338		N/A
Buildings and grandstands		3,423,859			3,444,624		7 - 40 years
Transportation equipment		1,863,927			1,669,309		5 - 7 years
Office furniture and equipment		781,698			743,663		3 - 7 years
		12,985,822			12,773,934
Less accumulated depreciation		(2,644,831	)		(2,473,458	)
Property and equipment, net	$	10,340,991		$	10,300,476

Depreciation is computed on a straight-line basis. Depreciation expense for the three month periods ended March 31, 2008 and 2007 was $193,200 and $187,403, 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 unit exceeds its estimated fair value. In calculating the impairment charge, the fair values of the reporting units were estimated using the expected present value of future cash flows from those units. The World of Outlaws acquisition, the DIRT acquisition, the UMP acquisition, the MARS acquisition, and the Lernerville acquisition were treated as separate reporting units for purposes of 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 the goodwill associated with the acquisition of the World of Outlaws, UMP and Dirt was determined to be impaired by $2,027,248, $2,218,171 and $1,611,700 respectively.  In addition, the trademark associated with the World of Outlaws was determined to be impaired by $142,452.  These amounts were charged to current earnings for the quarter ended September 30, 2005.  The Company evaluated again in 2006 and it was determined that the remaining goodwill for each reporting unit was fully impaired and the remaining amounts recorded as goodwill were impaired and during the year ended December 31, 2006, an impairment of $1,508,440 was recorded related to the goodwill associated with the acquisitions of the UMP, MARS and Lernerville was determined to be impaired by $812,715, $148,000 and $547,725, respectively.

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NOTE 7. ACCRUED LIABILITIES

Accrued liabilities at March 31, 2008 and December 31, 2007 consisted of the following:

	March 31,		December 31,
	2008		2007
Points fund	$	124,573	$	587,875
Interest		124,517		84,378
Salaries, wages and other compensation and benefits		254,193		170,263
Sales taxes		242,532		64,548
Office closure and relocation		92,639		79,639
Acquisition liabilities		15,000		15,000
Other accrued liabilities		83,041		123,701
Total Accrued Liabilities	$	936,495	$	1,125,404

NOTE 8. DEFERRED REVENUE

Deferred revenues at March 31, 2008 and December 31, 2007 consisted of the following:

	March 31,		December 31,
	2008		2007
Sponsorship prepayments	$	892,748	$	180,910
Sanction fee advances		149,920		123,017
Season ticket  sales, advance ticket sales		118,889		98,416
Membership fees		72,889		19,095
	$	1,234,446	$	421,438

NOTE 9. NOTES PAYABLE

From May 2005 through April 2006 we issued $12.4 million in promissory notes payable to existing shareholders.  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 gross proceeds 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 to purchase 1,948,510 shares of our common stock at an exercise price of $4.50 in connection with these notes.  The warrants were valued based on the Black-Scholes fair value method and the value was recorded as a non-cash debt discount and was being amortized over the life of the notes.  In connection with the Series D Preferred Stock financing in May 2006, we repaid $867,506 of these notes plus accrued interest and we exchanged the remaining $11.6 million in notes plus accrued interest into 4,401 shares of our Series D Preferred stock and issued Series D warrants to purchase 1,320,178 shares of our common stock at an exercise price of $4.50.  At the time of conversion, the Company 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% into Series D preferred stock (Note 9).

During the first quarter of 2007, the Company entered into a line of credit agreement with one of its principal shareholders to provide the Company with working capital advances.  Amounts outstanding bear interest at 8%, no amounts are outstanding under the line of credit as of December 31, 2007.

Beginning in March 2007, the Company issued to several of its principal shareholders $2.3 million in short-term secured promissory notes payable (Short-Term Notes). The Short-Term Notes bear interest at 8% per year and were secured by the assets of the Company.  The proceeds from the Short-Term Notes were used to fund the working capital needs of the Company.   An estimate of the fair value of the common shares expected to be issued upon the completion of a secured note financing has been recorded as an increase in additional paid in capital and is recorded as a discount to these notes payable and was recognized as interest expense in the second quarter of 2007 in the amount of $0.7 million. In September 2007, the Company completed the initial closing of a secured note financing (Note Financing). At the closing, we issued $12.0 million principal amount of our senior secured promissory notes (Senior Notes) to a limited number of accredited investors pursuant to a Note Purchase Agreement by and among us and the investors (Note Purchase Agreement). The purchase price consisted of $10,150,000 of cash proceeds and cancellation of $1,850,000 principal amount of outstanding Short-Term Notes. We used approximately $470,000 of the proceeds to repay certain unsecured indebtedness and approximately $650,000 to repay the Short-Term Notes. Under the terms of the Note Purchase Agreement, we may issue up to an additional $3.0 million principal amount of Senior Notes.

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The Senior Notes are due March 15, 2010 and accrue interest at the rate of 12.5% per annum payable quarterly on each of December 15, March 15, June 15 and September 15. Upon issuance, we prepaid $1,167,347 of interest, representing the first three (3) interest payments. Commencing September 15, 2008, interest due under the Senior Notes is payable at our option in cash or additional Senior Notes that will accrue interest at 13.5% per annum. The Senior Notes are secured by substantially all of the assets of the Company and our subsidiaries, including our four race tracks, pursuant to a Security Agreement (Security Agreement) and mortgages (Mortgages) by and among us, certain of our subsidiaries, and the lenders. The Senior Notes contain various standard and customary covenants, including prohibitions on incurring additional indebtedness, except under certain limited circumstances, or granting a security interest in any of our properties. Our obligations under the Senior Notes are guaranteed by our principal operating subsidiaries pursuant to a Subsidiary Guarantee (Guarantee) by and among us, our principal operating subsidiaries, and the lenders.

The Senior Notes were issued together with 275,000 shares of common stock, $.0001 par value per share ("Common Stock"), for each $1.0 million principal amount of Senior Notes purchased. If the foregoing issuance would result in any investor becoming the beneficial owner of more than 4.99% of our Common Stock, such investor was issued shares of our Series E Convertible Preferred Stock, $.01 par value per share, convertible into a like number of shares of Common Stock (Series E Shares). We issued an aggregate of 1,828,750 shares of Common Stock and 2,103.75 Series E Shares convertible into an aggregate of 2,103,750 additional shares of Common Stock. Pursuant to prior agreement, at the closing we also issued an aggregate of 632,500 shares of Common Stock to the holders of the Short-Term Notes.   The fair value of the Common Stock and Series E shares was recorded as an increase in additional paid in capital and is recorded as a discount to these notes payable and will be recognized as interest expense through the maturity of the Secured Notes.

Notes payable at March 31, 2008 consisted of the following:

● $12.0 million of Senior Notes due March 15, 2010 bearing interest at 12.5% per annum payable quarterly.  These notes are secured by substantially all of the assets of the Company and our subsidiaries.

● $2,340,000 note payable issued in connection with the purchase of Lernerville Speedway, bearing interest at 10% annually payable each November.  The balance is due in a $500,000 installment on November 7, 2008, a $900,000 installment on November 7, 2009 and the remaining balance and unpaid interst due upon maturity on November 7, 2010.  As part of the agreement to extend the date of maturity of the note, the Company has agreed to pay the holder any additional taxes due related to the repayment of the note due to changes in tax rates or regulations.

●  $2,000,000 note payable issued in connection with the purchase of Volusia Speedway, bearing interest at one percent over prime and payable in fifty-nine equal monthly installments commencing at $24,000 per month and adjusted quarterly for changes in interest rates with the balance of the outstanding principal and accrued interest due on June 30, 2010.  The outstanding principle balance on this note was $1,648,566 as of March 31, 2008.  This note is secured by a mortgage on the real property, and security agreement covering the other assets acquired from Volusia Speedway.

● $595,180 in various vehicle notes payable, bearing interest at rates ranging from 6.25% to 8.25% and due in monthly installments of principal and interest through December 2026.

The aggregate amounts of maturities of debt during each of the years ending December 31, 2008 through 2012 and thereafter are:

Remainder of 2008	$	822,461
2009		1,132,138
2010		14,386,856
2011		43,599
2012		38,584
Thereafter		160,108
	$	16,583,746
Less:  Note Discount		(2,236,414	)
	$	14,347,332

NOTE 10. STOCKHOLDERS’ EQUITY

In series of transactions completed on May 19, 2006, effective May 16, 2006, the Company entered into a Series D Convertible Preferred Stock Purchase Agreement pursuant to which the Company issued and sold 4,000 shares of Series D Convertible Preferred Stock (Series D Stock) and warrants to purchase 1,200,000 shares of our common stock, $0.0001 par value per share (Series D Warrants), for an aggregate purchase price of $12,000,000. The Series D Stock was convertible into an aggregate of 4,000,000 shares of common stock, representing a conversion price of $3.00 per share.

The Company also entered into exchange agreements pursuant to which each of its issued and outstanding shares of Series B Convertible Preferred Stock, par value $.01 per share (Series B Stock), 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 of Series D Stock issued in this exchange were convertible into 9,843,270 shares of common stock, the same number of shares of our common stock as the original Series B Stock and Series C Stock could have been converted.

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The Company also issued 4,400 shares of Series D Stock and 1,320,178 Series D Warrants in exchange 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 prices ranging from $3.00 to $5.00 per share, were cancelled and exchanged into an aggregate of 917,187 shares of our common stock and warrants to purchase 542,738 shares of our common stock at $.001 exercise price with a term of five years.

The Series D Warrants had a term of five years and were exercisable at an exercise price of $4.50 per share.

On December 14, 2007, the Company received consent agreements from holders of 100% of the issued and outstanding shares of our Series D Stock, representing 17,684 shares (Consent Agreements). Under the terms of the Consent Agreements, each holder received 3,000 shares of common stock for each share of Series D Stock held by such holder, or shares of Series E Convertible Preferred Stock, convertible into an equivalent number of shares of common stock (Series D Exchange).   In connection with the execution of the Consent Agreements, all warrants held by each holder of Series D Stock were surrendered and cancelled, and each holder received two shares of common stock for every three warrants held by such holder (Warrant Exchange).  As a result of the Series D Exchange and Warrant Exchange, we eliminated approximately $54.3 million in liquidation preference associated with the Series D Stock, and accrued dividends, and issued 15.7 million shares of common stock and 41,164 shares of Series E Convertible Preferred Stock convertible into 41.2 million shares of common stock.   

The Company has designated 50,000 shares of preferred stock as Series E Convertible Preferred Stock, which rank senior to the Company’s common stock in the event of a liquidation.  The Series E Preferred Stock has no voting rights other than class voting rights provided by applicable law.  Each share of Series E Preferred Stock is convertible into 1,000 shares of common stock.  No dividends are payable to the holders of the Series E Preferred Stock.

NOTE 11. INCOME TAXES

The Company accounts for income taxes under Financial Accounting Standards Number 109 (SFAS 109), Accounting for Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed.

At March 31, 2008, the Company had net operating loss carry forwards of approximately $47.4 million for federal income tax purposes.

The statutory income tax benefit resulting from the Company’s net operating loss carry forwards has been fully reserved.  The valuation allowance has been provided due to the uncertainty that the Company will generate future profitable operations to utilize this net operating loss carry forward.

NOTE 12. COMMITMENTS

In addition to its owned racing facilities, the Company leases three racing facilities, the Canandaigua 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, New York.

The Syracuse Fairgrounds Race Track is leased for the Super Dirt Week series of races held annually during October.  The track is located in Syracuse, New York.  The track is leased on a year-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.

The Company entered into a lease for a new corporate facility in Concord, North Carolina for approximately 9,000 square feet of office and 7,000 square feet of warehouse space.  It is leased under a 62 month lease for $9,492 per 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
	Total		Remainder of 2008		2009		2010		2011		2012 and Thereafter
Operating leases	$	777,901	$	277,616	$	139,931	$	142,285	$	144,694	$	73,375

Operating lease expense for the quarter ended March 31, 2008 and 2007 was $74,379 and $24,625, respectively.

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The Company has employment agreements with its executive officers and other employees, the terms of which expire at various times over the next three years. The aggregate commitment for future salaries at March 31, 2008 was $0.4 million.

NOTE 13. LITIGATION AND CONTINGENCIES

Race Tires America, Inc., a division of Specialty Tires of America, Inc. and Specialty Tires of America, Inc., (RTA), has brought a civil action against the Company in the United States District Court for the Western District of Pennsylvania.  This civil action was brought by RTA against Hoosier Racing Tire Corp. (Hoosier) and the Company in September 2007.  RTA has sought injunctive relief and damages for alleged violations of the Sherman Act, including alleged conspiracies of the Company in combination with Hoosier to restrain trade in and monopolize race tire markets.  From RTA’s initial disclosures, it appears that they are claiming in excess of $91.2 million in monetary damages plus costs and attorneys fees.  The Company has answered RTA’s complaint denying all claims, and intends to vigorously defend the allegations set forth in the complaint.  The Court has conducted an initial scheduling conference.  The case is presently in its initial stages, and paper discovery has only recently begun.  

We are from time to time involved in various additional legal proceedings incidental to the conduct of our business. We believe that the outcome of all such pending legal proceedings will not in the aggregate have a material adverse effect on our business, financial condition, results of operations or liquidity.

NOTE 14. SUBSEQUENT EVENTS

On May 14, 2008, the Company issued $3.0 million in additional Senior Notes due March 15, 2010.  The Senior Notes were issued to existing Senior Note Holders and were issued under the terms of a Note Purchase Agreement, dated September 27, 2007 which allowed for the issuance of up to $15.0 million in Secured Notes.  The Senior Notes accrue interest at the rate of 12.5% per annum payable quarterly on each of December 15, March 15, June 15 and September 15. Commencing September 15, 2008, interest due under the Senior Notes is payable at our option in cash or additional Senior Notes that will accrue interest at 13.5% per annum. The Senior Notes are secured by substantially all of the assets of the Company and our subsidiaries, including our four race tracks, pursuant to a Security Agreement (Security Agreement) and mortgages (Mortgages) by and among us, certain of our subsidiaries, and the lenders. The Senior Notes contain various standard and customary covenants, including prohibitions on incurring additional indebtedness, except under certain limited circumstances, or granting a security interest in any of our properties. Our obligations under the Senior Notes are guaranteed by our principal operating subsidiaries pursuant to a Subsidiary Guarantee (Guarantee) by and among us, our principal operating subsidiaries, and the lenders.

The Senior Notes were issued together with 275,000 shares of our common stock for each $1.0 million principal amount of Senior Notes purchased. We issued an aggregate of 825,000 shares of common stock in May 2008. The fair value of the common stock will be recorded as an increase in additional paid in capital and will be recorded as a discount to the Senior Notes payable and will be recognized as interest expense through the maturity date of the Secured Notes.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The following Management’s Discussion and Analysis is intended to assist the reader in understanding our results of operations and financial condition.  Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements beginning on page 3 of this Quarterly Report. This Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act.  All statements, other than statements of historical fact, included in this Form 10-Q that address activities, events or developments that we expect, project, believe, or anticipate will or may occur in the future, including matters having to do with expected and future revenues, our ability to fund our operations and repay debt, business strategies, expansion and growth of operations and other such matters, are forward-looking statements.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions.  These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances.  These statements are subject to a number of assumptions, risks and uncertainties, that could cause actual results to differ materially from results proposed in such statements.  These include, but are not limited to, general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by us, our performance on our current contracts and our success in obtaining new contracts, our ability to attract and retain qualified employees, and other factors, many of which are beyond our control, as well as those factors set forth under the caption "Risk Factors" in our Annual Report on Form 10-KSB for our fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission.  You are cautioned that these forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in such statements.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing.  Except as required by law, we assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.

Results of Operations – Impact of Seasonality and Weather on Quarterly Results

In 2007, we scheduled 84 World of Outlaw Sprint Series races, 56 World of Outlaw Late Model Series Races, 27 Advance Auto Parts Big Block Modified Events, and over 200 other major racing events in our other regional and touring racing series.  In 2008, we have scheduled 83 World of Outlaw Sprint Series races, 56 World of Outlaw Late Model Series Races, 27 Advance Auto Parts Big Block Modified Events, and over 200 other major racing events in our other regional and touring racing series.   Most of these events are scheduled in the period from March to November each year.   As a result, our business has been, and is expected to remain, highly seasonal.

During the first quarter of 2008, inclement weather had a significant negative impact on the operations of our World of Outlaws Sprint Car Series (Series).  We had fifteen events scheduled and were only able to complete seven events during the quarter.   We have rescheduled 4 of these events in the second and third quarter 2008; the remaining events have been cancelled.  Had we completed the races as scheduled, we estimate that we would have generated an additional $0.5 million in total revenues.  Additionally, many of the Series' operating costs, including personnel costs and travel costs, were incurred during the quarter in preparation for the events.  The reduction in the number of events completed also impacted our merchandise sales, as our mobile store fronts continued to incur operating costs without having the ability to sell merchandise at the events that were cancelled.  Similar weather conditions have affected financial performance to date in the second quarter of 2008; however, we have had numerous successful events and believe that the impact from inclement weather is isolated.  Series' operations and merchandise operations are anticipated to improve for the remainder of 2008.

The concentration of racing events in any particular quarter, and the growth in our operations with attendant increases in overhead expenses, may tend to reduce operating income in quarters outside of our peak operating months.  Our racing schedules from year to year may change from time to time which can lessen the comparability of operating results between quarters of successive years and increase or decrease the seasonal nature of our motorsports business.

We market and promote outdoor motorsports events.  Weather conditions surrounding these events affect the completion of scheduled racing, the sale of tickets and the sale of merchandise and concessions.   Poor weather conditions can have a negative effect on our results of operations.   Additionally, our owned and operated tracks are currently concentrated in New York, Pennsylvania and Florida and adverse weather conditions in these regions could have a greater negative effect on our results of operations.

Results of Operations – Comparison of Three months ended March 31, 2008 (“2008”) and 2007 (“2007”)

Revenues – Our total revenues increased from to $2.9 million in 2007 from $2.5 million in 2007.

Race sanctioning and event fees revenue decreased to $520,000 in 2008 from $580,000 in 2007.  This decrease is due a decrease in the number of sanctioned events completed in 2008 as compared to 2007, particularly in the World of Outlaws Sprint Series. These events were cancelled or postponed until later in 2008 due to inclement weather.  In 2008, we completed 4 sanctioned events at non-owned facilities and 3 events at our facilities. In 2007 we completed 8 sanctioned events at non-owned facilities and 3 events at our facilities. In 2008 and 2007 we completed 10 and 5 World of Outlaw Late Model Series Events, respectively.  We expect sanction fees to reflect the increase in the number of sanctioned events at non-affiliated facilities for the remainder of 2008 as compared to 2007.

During 2008 we generated $1.51 million in track operations, ticket and concession sales as compared to $1.42 million in 2007. These revenues are generated at events held at our owned or operated racetracks, primarily at Volusia Speedway during February each year.   Our racing season at our tracks in New York and Pennsylvania typically begins in late March or early April each year but is dependent upon the weather in each region.  We expect our track operations, ticket and concession sales to remain higher for the remainder of 2008 as compared to 2007 for additional events scheduled during the year.

Our sponsorship and advertising revenues increased to $800,000 in 2008 from $400,000 in 2007.  We expect sponsorship and advertising revenues to increase in 2008 for new sponsorship agreements for our World of Outlaws touring series and for our sanctioning bodies.  Additionally, we expect sponsorship and advertising revenues to increase due to sales of advertising within our television broadcasts which will begin to air in May 2008 and continue through October 2008. Sales of merchandise remained the same from 2007 to 2008 despite the cancellation of 8 World of Outlaw Sprint Series Events. In 2007, we entered into arrangements to license our product sales in areas other than our on-site sales at our World of Outlaw Sprint Series races, we continued those relationships in 2008.  We expect that our net operating cash generated from the new arrangements to increase our overall operating margins in these areas and we expect revenues for merchandise sold on-site at our World of Outlaw Sprint Series events to increase as compared to 2007.

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Operating expenses – Our total operating expenses increased to $5.3 million in 2008 from $4.7 million in 2007.  The increase is due to increased expenditures for sales and marketing, event and track operations and non-cash stock compensation offset in part by a decrease in general and administrative Expenses from efforts across all aspects of the Company to reduce operating costs.

Track and event operations - Our track and event operations expenses include purses and other attendance fees paid to our drivers, personnel costs and other operating costs for the organization of our events, and the operation of our tracks.  Track and event operations expense increased to $3.2 million in 2008 from $2.8 million in 2007.  These increases are due to increases in personnel, contract labor cost and other costs at our events at Volusia Speedway and certain of our racing series offset by decreases in certain of our prize and purse fund amounts for 2008 as compared to 2007.

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 the pursuit of corporate and event sponsors along with professional fees and printing for our advertising publications and fulfillment under our sponsorship agreements.  Sales and marketing expense increased to $700,000 in 2008 from $400,000 in 2007 as a result of increased staffing, professional fees, promotion and advertising.

Merchandise operations and cost of sales – Merchandise operations and cost of sales includes all operating expenses related to the distribution of our merchandise which includes mobile store fronts that are present at our World of Outlaws touring series event and the cost of goods sold during 2008 and 2007.  Beginning in 2007, we have entered into arrangements that have resulted in our licensing the rights to sell merchandise at each of our touring series events other than at our World of Outlaws Sprint Series events.  The licensing agreements generally include a one-time rights fee and a percentage of sales over certain volume thresholds. These licensing fees will be recorded as sponsorship and advertising sales.   During the first quarter of 2008, inclement weather caused the cancellation of eight of our Series events.  Our mobile store fronts continued to incur operating costs without having the ability to sell merchandise at the events that were cancelled.  Similar weather conditions have affected financial performance to date in the second quarter of 2008; however, we have had numerous successful events and believe that the impact from inclement weather is isolated.  Series' operations and merchandise operations are anticipated to improve for the remainder of 2008.

General and administrative – Our general and administrative expenses decreased to $0.6 million in 2008 from $0.8 million in 2007. The decrease is due to decreases in the number of personnel in connection with the relocation of our corporate office from Oklahoma to North Carolina.

Non-cash stock Compensation – Non-cash stock compensation of $0.6 million in 2008 and $0.5 million in 2007 represents the fair value of warrants and options issued to employees and non-employees for services provided.

Depreciation and amortization – Depreciation and amortization expense increased slightly in 2008 from 2007 due to the addition of equipment and leasehold and track improvements during 2007 and new transportation equipment in 2008.

Interest expense, net – Interest expense increased to $0.8 million in 2008 from $0.1 million in 2007 from.  2008 includes the non-cash amortization of the discounts recorded for the value assigned to restricted stock granted in connection with the secured notes issued during the third quarter of 2007. Interest expense for 2008, 2009 and 2010 will reflect the interest incurred on our notes and mortgages payable on our two tracks and various vehicle notes and any non cash interest expense for the amortization of the discounts recorded for the value assigned to restricted stock granted in connection with the secured promissory notes issued during the third quarter of 2007.

Liquidity and Capital Resources

The Company generated $2.9 million in revenues during the period ended March 31, 2008; however, we have not yet achieved a profitable level of operations. Our primary source of funding for our operating deficits during the quarter ended March 31, 2008 has been from cash on hand and the issuance of notes payable.

During the period ended March 31, 2008, the Company used $1.5 million in operating activities primarily the result of a net loss of $3.2 million, depreciation and amortization of $0.2 million, non-cash stock compensation of $0.6 million and other working capital changes, primarily accounts receivable, accounts payable and accrued liabilities.

During the three months ended March 31, 2008, the Company used $0.2 million in investing activities primarily for track improvements and for equipment purchases for our traveling series.

During the three months ended March 31, 2008, financing activities provided $0.3 million primarily through the issuance of $0.3 million in notes payable offset by scheduled repayments of notes payable. During the period ended March 31, 2007, the Company used $0.6 million in operating activities primarily 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 accounts payable and accrued liabilities.

During the three months ended March 31, 2007, the Company used $0.2 million in investing activities primarily for track improvements and for leasehold improvements and equipment purchases for our new corporate offices in Concord, North Carolina.

During the three months ended March 31, 2007, financing activities provided $0.5 million primarily through the issuance of $0.6 million in notes payable offset by repayment of $0.1 million in notes payable.

The Company incurred a net loss of $12.7 million for the year ended December 31, 2007 and a net loss of $3.2 million for the three months ended March 31, 2008.  The Company has an accumulated deficit of $76.6 million and negative working capital of $2.0 million as of March 31, 2008, which raises substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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We are dependent on existing cash resources and external sources of financing to meet our working capital needs.  The Company issued $3.0 million in additional Senior Notes on May 14, 2008, and we may be required to obtain additional financing in 2008, as current sources of liquidity may be insufficient to provide for our budgeted and anticipated working capital requirements.  No assurances can be given that such capital will be available to the Company on acceptable terms, if at all.  If the Company is unable to obtain additional financing when needed or if such financing cannot be obtained on terms favorable to us, or if the Company is unable to renegotiate existing financing facilities, we may be required to delay or scale back our operations, which could delay development and adversely affect our ability to generate future revenues.

The following table summarizes our contractual obligations as of March 31, 2008:

	Payment Due by Period
			Remainder of								2012 and
Contractual obligations	Total		2008		2009		2010		2011		thereafter
Operating leases	$	777,901	$	277,616	$	139,931	$	142,285	$	144,694	$	73,375
Employment agreements		420,914		374,414		46,500		-		-		-
Notes payable and accrued interest		20,200,217		2,202,095		2,965,529		14,769,378		54,973		208,242

Operating lease expense for the quarter ended March 31, 2008 and 2007 was $74,379 and $24,625, respectively.

Off-Balance Sheet Arrangements

As of March 31, 2008, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States.  The significant accounting policies used by us in preparing our consolidated financial statements are described in note 4 to our consolidated condensed financial statements included elsewhere herein and should be read to ensure a proper understanding and evaluation of the estimates and judgments made by management in preparing those consolidated financial statements.  

Inherent in the application of some of these policies is the judgment by management as to which of the various methods allowed under generally accepted accounting principles is the most appropriate to apply to the Company.  In addition, management must take appropriate estimates at the time the consolidated financial statements are prepared.

The methods, estimates and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the United States, have a significant impact on the results we report in our consolidated financial statements.  We base our estimates on our historical experience, our knowledge of economic and market factors, and on various other assumptions that we believe to be reasonable under the circumstances.  The estimates affect the carrying values of assets and liabilities.  Actual results may differ from these estimates under different assumptions or conditions.  

Although all of the policies identified in note 3 to our consolidated condensed financial statements are important in understanding the consolidated financial statements, the policies discussed below are considered by management to be central to understanding the consolidated financial statements, because of the higher level of measurement uncertainties involved in their application.  We have identified the policies below as critical to our business operations and the understanding of our results of operations.  The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis when such policies affect our reported and expected financial results.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Deferred Revenue

We derive our revenues from race sanctioning and event fees, admission fees and ticket sales, sponsorship and advertising, merchandise sales and other revenue. “Race sanctioning and event fees” includes amounts received from track owners and promoters for the organization and/or delivery of our racing series or touring shows including driver fees. “Admission fees and ticket sales” includes ticket sales for all events held at our owned or leased facilities and 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 fees obtained for the right to sponsor our motorsports events, series or publications, and for advertising in our printed publications or television programming. 

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We recognize race sanctioning and event fees upon the successful completion of a scheduled race or event. Race sanction and event fees collected prior to a scheduled race event are deferred and recognized when earned upon the occurrence of the scheduled race or event. Track operations, ticket and concession sales are recognized as revenues on the day of the event.  Income from memberships to our sanctioning bodies is recognized on a prorated basis over the term of the membership. We recognize revenue from sponsorship and advertising agreements when earned in the applicable racing season as set forth in the sponsorship or advertising agreement either upon completion of events or publication of the advertising. Revenue from merchandise sales are recognized at the time of sale less estimated returns and allowances, if any. Revenues and related expenses from barter transactions in which the Company receives goods or services in exchange for sponsorships of motorsports events are recorded at fair value in accordance with Emerging Issues Task Force (EITF) Issue No. 99-17, Accounting for Advertising Barter Transactions.

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 deferred until the event is held, at which point they are expensed.  Annual points fund monies which are paid at the end of the racing season are accrued during the racing season based upon the races held and total races scheduled.

The cost of non-event related advertising, promotion and marketing programs are expensed as incurred.

Net loss Per Share

Basic and diluted earnings per share (EPS) are calculated in accordance with FASB Statement No. 128, Earnings per Share. For the year ended December 31, 2007, the net loss per share applicable to common stock has been computed by dividing the net loss by the weighted average number of common shares outstanding.

As of March 31, 2008, we had the following warrants and stock options outstanding:

● Placement Agent Warrants to purchase 275,803 shares of common stock at exercise prices ranging from $2.70 to $5.00

● Warrants to purchase 275,059 shares of common stock at an exercise price of $3.00

● Other warrants to purchase 250,000 shares of common stock issued at an exercise price  of $0.60

● Other warrants to purchase 100,000 shares of common stock issued at an exercise price  of $0.80

● Other warrants to purchase 40,000 shares of common stock issued at an exercise price  of $3.65

● Director stock options to purchase 75,000 shares at exercise price of $4.75 per share

● Other stock options totaling 345,000 shares at exercise prices ranging from $3.00 to $4.50 per share

In addition, as of March 31, 2008, our Series E Preferred Stock was convertible into 44.9 million shares of common stock. None of these were included in the computation of diluted EPS because we had a net loss and all potential issuance of common stock would have been anti-dilutive.

Cash and Cash Equivalents

For purposes of the statement of cash flows, we consider all highly liquid investments 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 are charged to cost of merchandise.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets ranging from 3 to 40 years. Expenditures for maintenance, repairs and minor renewals are expensed as incurred; major renewals and betterments are capitalized. At the time depreciable assets are retired or otherwise disposed of, the cost and the accumulated depreciation of the assets are eliminated from the accounts and any profit or loss is recognized.

The carrying values of property and equipment are evaluated for impairment based upon expected future undiscounted cash flows. If events or circumstances indicate that the carrying value of an asset may not be recoverable, an impairment loss would be recognized equal to the difference between the carrying value of the asset and its fair value. As of March 31, 2008, the Company believes there is no impairment of property and equipment.

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Purchase Accounting

We accounted for its acquisitions of assets in accordance with Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business Combinations and Statement of Financial Accounting Standards No. 142, Goodwill and Intangible Assets (SFAS No. 142). SFAS No. 141 requires that all business combinations entered into subsequent to June 30, 2001 be accounted for under the purchase method of accounting and that certain acquired intangible assets in a business combination be recognized and reported as assets apart from goodwill.

Intangible Assets

Upon its inception, we adopted SFAS No. 142.  Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not to be amortized but are tested for impairment at least annually. Intangible assets with definite useful lives are to be amortized over the respective estimated useful lives or anticipated future cash flow streams when appropriate.

At least annually we test for possible impairment of all intangible assets and more often whenever events or changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the manner that the asset is intended to be used indicate that the carrying amount of the asset is not recoverable. If indicators exist, the Company compares the discounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the discounted cash flow amount, an impairment charge is recorded in the operating expense section in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair value. The Company has chosen the fourth quarter of its fiscal year to conduct its annual impairment test.

Income Taxes

We account for income taxes under Financial Accounting Standards No. 109 (SFAS No. 109), “Accounting for Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process.  The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.  The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements.  A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met.  Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The adoption of FIN 48 at January 1, 2007 did not have a material effect on the Company’s financial position.

Concentration of Credit Risk

Due to the nature of the Company’s sponsorship agreements, the Company could be subject to concentration of accounts receivable within a limited number of accounts.  As of March 31, 2008, the Company had bank deposits in excess of FDIC insurance of $0.1 million.

New Accounting Pronouncements

Effective January 1, 2006, we 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 of employee stock options, to be valued at fair value on the date of grant and to be expensed over the applicable vesting period. Under the modified prospective transition method, share-based awards granted or modified on or after January 1, 2006, are recognized in compensation expense over the applicable vesting period. Also, any previously granted awards that are not fully vested as of January 1, 2006 are recognized as compensation expense over the remaining vesting period. No retroactive or cumulative effect adjustments were required upon our adoption of SFAS No. 123(R).

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In February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid Financial Instruments” (SFAS No. 155), which amends FASB Statements No. 133 and 140. This Statement permits fair value remeasurement for any hybrid financial instrument containing an embedded derivative that would otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”) permitted holdings to include passive derivative financial instruments that pertain to other derivative financial instruments. This Statement is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year beginning after September 15, 2006. This Statement has no current applicability to our financial statements.  Management adopted this Statement on January 1, 2007 and the initial adoption of this Statement did not have a material impact on our financial position, 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 48 clarifies the accounting and reporting for income taxes where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. We file tax returns in the United States and various state jurisdictions.  Our 2003-2006 U.S. federal and state income tax returns remain open to examination by the Internal Revenue Service. We are continuing our practice of recognizing interest and/or penalties related to income tax matters as general and administrative expenses. We may have a nexus in more states than we are currently filing tax returns.  Thus, upon examination, we could be required to file additional tax returns.  Due to the losses incurred, it is unlikely that any additional filings would result in any additional income tax.  Management adopted this Statement on January 1, 2007 and the initial adoption of FIN 48 did not have a material impact on our financial position, results of operations, or cash 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 use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management adopted this Statement on January 1, 2007 and the initial adoption SFAS 157 did not have a material impact on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS No. 158), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires (a) recognition of the funded status (measured as the difference between the fair value of the plan assets and the benefit obligation) of a benefit plan as an asset or liability in the employer’s statement of financial position, (b) measurement of the funded status as of the employer’s fiscal year-end with limited exceptions, and (c) recognition of changes in the funded status in the year in which the changes occur through comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure the plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008.  This Statement has no current applicability to our financial statements.  Management adopted this Statement on December 31, 2006 and the adoption of SFAS No. 158 did not have a material impact to our 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 misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings and disclose the nature and amount of each individual error being corrected in the cumulative adjustment. SAB No. 108 was effective beginning January 1, 2007 and the initial adoption of SAB No. 108 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Management adopted this Statement on January 1, 2007 and the initial adoption SFAS 157 did not have a material impact on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” This Statement changes the accounting and reporting for noncontrolling interests in consolidated financial statements. A noncontrolling interest, sometimes referred to as a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Specifically, SFAS No. 160 establishes accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; (ii) the equity amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated income statement (consolidated net income and comprehensive income will be determined without deducting minority interest, however, earnings-per-share information will continue to be calculated on the basis of the net income attributable to the parent’s shareholders); and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently and similarly—as equity transactions. This Statement is effective for fiscal years, and interim period within those fiscal years, beginning on or after December 15, 2008. Early adoption is not permitted. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for its presentation and disclosure requirements, which shall be applied retrospectively for all periods presented.

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In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which is a revision of SFAS No. 141, “Business Combinations.” SFAS No. 141R will apply to all business combinations and will require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value”At the acquisition date, SFAS No 141R will also require transaction-related costs to be expensed in the period incurred, rather than capitalizing these costs as a component of the respective purchase price. SFAS No. 141R is effective for acquisitions completed after January 1, 2009 and early adoption is prohibited. The adoption will have a significant impact on the accounting treatment for acquisitions occurring after the effective date.

In December 2007, the Securities and Exchange Commission issued SAB 110, “Certain Assumptions Used in Valuation Methods,” which extends the use of the "simplified" method, under certain circumstances, in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123R. Prior to SAB 110, SAB 107 stated that the simplified method was only available for grants made up to December 31, 2007.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). This statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  We are assessing the impact of the adoption of this Statement.

Stock-Based Compensation

Effective January 1, 2006, we 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 of employee stock options, to be valued at fair value on the date of grant and to be expensed over the applicable vesting period. Under the modified prospective transition method, share-based awards granted or modified on or after January 1, 2006, are recognized in compensation expense over the applicable vesting period. Also, any previously granted awards that are not fully vested as of January 1, 2006 are recognized as compensation expense over the remaining vesting period. No retroactive or cumulative effect adjustments were required upon our adoption of SFAS No. 123(R).

Prior to adopting SFAS No. 123(R), We accounted for our fixed-plan employee stock options using the intrinsic-value based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB No. 25) and related interpretations. This method required compensation expense to be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

Unrecognized compensation expense as of March 31, 2008 related to outstanding stock options was $2.0 million.

The fair value of each option grant is estimated for disclosure purposes on the date of grant using 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 December 31, 2007 was 3.2 years.

A summary of the status of stock options and related activity for the three months ended March 31, 2008 is presented below:

Options outstanding at December 31, 2007	1,824,000		$	3.42
Granted	—			—
Exercised	—			—
Forfeited/expired	(1,404,000	)		3.26
Options outstanding at March 31, 2008	420,000		$	3.95

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4T. CONTROLS AND PROCEDURES

a)Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by this Quarterly Report. Based on that evaluation, our principal executive officer and principal financial officer concluded that these controls and procedures were effective as of the end of the period covered by this Quarterly Report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  

b)Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

 OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Specialty Tires of America, Inc. and Race Tires America, Inc., a division of Specialty Tires of America, Inc. (RTA), brought a civil action against the Company and Hoosier Racing Tire Corporation (Hoosier) in the United States District Court for the Western District of Pennsylvania,  in September 2007.  RTA has sought injunctive relief and damages for alleged violations of the Sherman Act, including alleged conspiracies between the Company and Hoosier to restrain trade in and monopolize race tire markets.  From RTA’s initial disclosures, it appears that they are claiming in excess of $91.2 million in monetary damages plus costs and attorneys fees.  The Company answered RTA’s complaint denying all claims, and intends to vigorously defend the allegations set forth in the complaint.  The Court has conducted an initial scheduling conference.  The case is presently in its initial stages, and paper discovery has only recently begun.  As such, we cannot express with any certainty at this time an opinion as to the outcome of this matter.  An adverse outcome regarding this litigation could have a materially adverse effect on the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We are from time to time involved in various legal proceedings incidental to the conduct of our business. We believe that the outcome of all such pending legal proceedings will not in the aggregate have a material adverse effect on our business, financial condition, results of operations or liquidity.

ITEM 6. EXHIBITS

The following exhibits are included as part of this Quarterly Report:

Exhibit Number	Description
31	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 a under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer and Chief Financial Officer

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WORLD RACING GROUP, INC. (Registrant)
Date:  May 15, 2008	By:	/s/ Brian M. Carter
		Brian M. Carter
		Chief Executive Officer and Chief Financial Officer

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