Call Now (CLNW) 10-Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

COMMISSION FILE NO. 0-27160

CALL NOW, INC.

(Exact name of Registrant as specified in its charter)

Nevada	65-0337175
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1 Retama Parkway, Selma, TX (Address of principal executive offices)	78154 (Zip Code)

Registrant’s telephone number, including area code: (210) 651-7145

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 preceding 12 months (or 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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero  Accelerated filero  Non-accelerated filer  o
(Do not check if a smaller reporting company) Smaller reporting companyþ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Noþ

Registrant had 2,902,367 shares of common stock issued and outstanding as of November 13, 2008.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4T. CONTROLS AND PROCEDURES
PART II OTHER INFOMRATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 1A. RISK FACTORS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURES
EX-31.1
EX-32.1

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

CALL NOW, INC. AND SUBSIDIARY
Consolidated Balance Sheets

	September 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Current Assets:
Cash and equivalents	$	164,153		$	231,030
Accounts receivable		549,069			369,069
Marketable securities — related party		15,269,788			16,228,731
Marketable securities — other		1,359,803			1,700,966
Other current assets		187,788			266,063
Total current assets		17,530,601			18,795,859
Furniture, Equipment and Improvements (Less Accumulated Depreciation of $37,292 and $36,901 Respectively)		19,230			—
Long-Term Assets:
Marketable securities — related party		145,000			145,000
Investments		4,342,947			3,654,348
Notes and interest receivable — related party		4,847,165			4,071,935
Deferred tax asset		875,982			748,076
Total long-term assets		10,211,094			8,619,359
Total Assets	$	27,760,925		$	27,415,218
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	252,399		$	265,146
Margin loan payable — related party		7,372,114			988,271
Margin loan payable		6,809,224			9,346,388
Deferred tax payable		3,453,669			3,723,324
Total current liabilities		17,887,406			14,323,129
Minority Interest in Consolidated Subsidiary		62,937			26,937
Stockholders’ Equity:
Preferred stock, $.001 par value; authorized 266,667 shares, none outstanding		—			—
Common stock, $.001 par value; authorized 16,666,667 shares, 3,327,075 issued and 2,902,367 outstanding		3,326			3,326
Additional paid-in-capital		7,091,121			7,091,121
Treasury stock, at cost, 424,708 and 162,856 shares		(3,094,454	)		(449,750	)
Accumulated other comprehensive income		6,704,180			7,227,628
Retained earnings (deficit)		(893,591	)		(807,173	)
Total stockholders’ equity		9,810,582			13,065,152
Total Liabilities and Stockholders’ Equity	$	27,760,925		$	27,415,218

See notes to consolidated financial statements.

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CALL NOW, INC. AND SUBSIDIARY
Consolidated Statements of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Reimbursement of payroll and payroll related expenses	$	1,180,624		$	1,197,999		$	3,481,427		$	3,362,211
Management fees		60,000			60,000			180,000			180,000
Total revenues		1,240,624			1,257,999			3,661,427			3,542,211
Expenses
Payroll and payroll related expenses		1,180,624			1,226,499			3,481,427			3,447,711
Other management expenses		—			30,000			—			101,149
Corporate general and administrative operations		218,829			124,033			517,304			368,549
Total expenses		1,399,453			1,380,532			3,998,731			3,917,409
Net Operating (Loss)		(158,829	)		(122,533	)		(337,304	)		(375,198	)
Other Income (Expenses)
Interest income		218,323			157,479			576,775			401,027
Gain on sales of marketable securities		172,875			3,963			172,875			84,229
Other income		—			—			—			8,217
Interest expense — related party		(129,062	)		(138,283	)		(354,205	)		(370,236	)
Interest expense — others		(78,534	)		(92,468	)		(236,465	)		(310,942	)
Total other income (expenses), net		183,602			(69,309	)		158,980			(187,705	)
Income (Loss) before minority interest and income taxes		24,773			(191,842	)		(178,324	)		(562,903	)
Minority interest in income of subsidiary		(12,000	)		(300	)		(36,000	)		1,330
Income (Loss) before income taxes		12,773			(192,142	)		(214,324	)		(561,573	)
Income tax expense (benefit)		(22,635	)		(70,457	)		(127,906	)		(198,761	)
Net Income (Loss)	$	35,408		$	(121,685	)	$	(86,418	)	$	(362,812	)
Per Share Data
Basic and diluted income (loss) per share	$	.01		$	(0.04	)	$	(.03	)	$	(.11	)
Weighted average common shares outstanding:
Basic		3,150,141			3,164,219			3,159,441			3,164,219
Dilutive		3,150,141			3,164,219			3,159,441			3,164,219

See notes to consolidated financial statements.

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CALL NOW, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2008			2007
	(Unaudited)			(Unaudited)
Operating Activities
Net (loss)	$	(86,418	)	$	(362,812	)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Net realized (gains) on sales of marketable securities		(172,875	)		(84,229	)
Minority interest		36,000			(1,330	)
Deferred taxes		(127,906	)		(198,761	)
Depreciation		391			—
Changes in operating assets and liabilities:
Accounts receivable		(180,000	)		(180,000	)
Other current assets		(876,341	)		(978,679	)
Accounts payable and accrued expenses		(12,747	)		186,058
Net Cash (Used) by Operating Activities		(1,419,896	)		(1,619,753	)
Investing Activities
Proceeds from sales of available-for-sale marketable securities and investments		548,097			4,510,502
Purchase of available-for-sale marketable securities		(1,180,056	)		(3,083,422	)
Purchase of other investments		(688,599	)		(670,000	)
Purchases of furniture, equipment and improvements		(19,621	)		—
Net Cash Provided (Used) by Investing Activities		(1,340,179	)		757,080
Financing Activities
Proceeds from margin loans		12,771,631			11,149,284
Payments on margin loans		(8,924,952	)		(10,385,626	)
Purchase of treasury stock		(1,153,481	)		—
Net Cash Provided by Financing Activities		2,693,198			763,658
Net Change in Cash		(66,877	)		(99,015	)
Cash at beginning of period		231,030			135,071
Cash at End of Period	$	164,153		$	36,056
Supplemental Disclosures
Interest paid in cash	$	590,670		$	681,178
Income tax paid in cash		—			31,250
Treasury stock acquired with marketable security — other		1,491,224			—

See notes to consolidated financial statements

4

CALL NOW, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements

NOTE 1 — BASIS OF PRESENTATION

Nature of Business:Call Now, Inc. (the “Company”) was organized under the laws of the State of Florida on September 24, 1990 under the name Rad San, Inc. Its name was changed to Phone One International, Inc. in January 1994 and to Call Now, Inc. in December 1994, and its domicile was changed to the State of Nevada in 1999.

The primary operation of the Company is the management of Retama Park Racetrack (“Retama Park”) in Selma, Texas, through an 80% owned subsidiary, Retama Entertainment Group, Inc. (“REG”). Retama Park is owned by the Retama Development Corporation (the “RDC”). The RDC has an agreement with REG to operate and manage Retama Park. The RDC, as owner of the facility, reimburses REG for the majority of payroll and payroll related expenses, plus a monthly management fee.

The accompanying unaudited consolidated financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company’s financial position, results of operations and cash flows for such periods. The accompanying interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

Certain prior period amounts have been reclassified to conform to the current year’s presentation.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure on 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 Call Now, Inc. and its 80% owned subsidiary, Retama Entertainment Group, Inc. (collectively “the Company” or “Call Now”). All significant inter-company transactions and balances have been eliminated in consolidation.

Marketable Securities:The Company classifies its marketable security investment portfolio as either held to maturity, available-for-sale, or trading. At September 30, 2008, all of the Company’s marketable securities were available-for-sale. Securities classified as available-for-sale are carried at fair value with unrealized gains and losses included in stockholders’ equity as a component of other comprehensive income. Classification as current or non-current is based primarily on whether there is an active public market for such security.

Securities that do not trade in an active market are valued based on the best information available to Management. Impairments are reviewed on at least an annual basis. Gains or losses from the sale or redemption of the marketable securities are determined using the specific identification method.

NOTE 2 — STOCK BASED COMPENSATION

The Company does not have a stock-based compensation plan; however, in past years, certain options have been granted (non-qualified stock options) to its Directors and Officers. The Company does not currently have any unexercised options outstanding.

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NOTE 3 — MARGIN LOANS PAYABLE

Penson Financial Services, Inc. — Related Party

The Company has a margin loan payable to Penson Financial Services, Inc., a wholly owned subsidiary of Penson Worldwide, Inc. (“PWI”), which accrues interest at brokers call rate plus 2.70%, which was 8.20% as of September 30, 2008. The balance of the margin loan was $7,372,114 at September 30, 2008 and $988,271 at December 31, 2007. The margin loan is collateralized by a portion of the Company’s marketable securities other than the PWI common stock that is owned by the Company. The Company paid interest on the margin loan for the three months ended September 30, 2008 and 2007 of $129,062 and $138,283, respectively, and for the nine months ended September 30, 2008 and 2007 of $354,205 and $370,236, respectively.

Others

The Company has a margin loan payable to a third party that accrues interest at 4.60% as of September 30, 2008. The balance of the margin loan was $6,809,224 at September 30, 2008 and $9,346,388 at December 31, 2007. A portion of the Company’s marketable securities, including the PWI common stock, collateralizes the margin loan. The Company paid interest on the margin loan for the three months ended September 30, 2008 and 2007 of $78,534 and $92,468, respectively, and for the nine months ended September 30, 2008 and 2007 of $236,465 and $310,942, respectively.

NOTE 4 — INCOME TAXES

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statements No. 109” (“FIN 48”), on January 1, 2007. FIN 48 provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements. Guidance is also provided regarding de-recognition, classification and disclosure of these uncertain tax positions. Adoption of FIN 48 did not have a significant impact on the Company’s financial statements (see Note 9). If applicable, interest and penalties related to uncertain tax positions would be charged to interest expense. As of September 30, 2008, the Company had not accrued any interest related to uncertain tax provisions.

The Company has not included any accruals for unrecognized income tax benefits in its income tax calculations as of September 30, 2008 and September 30, 2007. The Company does not anticipate a significant change in its unrecognized tax benefits in the next 12 months.

The Company’s tax years ended from December 31, 2000 through 2007 remain subject to examination by tax authorities.

NOTE 5 — EARNINGS PER SHARE

Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding during each year. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

The following reconciles the components of the earnings per share (EPS) computation.

	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
Three Months Ended September 30, 2008
Basic EPS:
Net income	$	35,408		3,150,141	$	0.01
Effect of dilutive options		—		—		—
Dilutive EPS	$	35,408		3,150,141	$	0.01

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	Income			Shares		Per Share
	(Numerator)			(Denominator)		Amount
Three Months Ended September 30, 2007
Basic EPS:
Net (loss)	$	(121,685	)		3,164,219	$	(0.04	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(121,685	)		3,164,219	$	(0.04	)
Nine Months Ended September 30, 2008
Basic EPS:
Net (loss)	$	(86,418	)		3,159,441	$	(0.03	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(86,418	)		3,159,441	$	(0.03	)
Nine Months Ended September 30, 2007 Basic EPS:
Net (loss)	$	(362,812	)		3,164,219	$	(0.11	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(362,812	)		3,164,219	$	(0.11	)

NOTE 6 — MARKETABLE SECURITIES — RELATED PARTY

The Company owns 1,100,922 shares of Penson Worldwide, Inc. (Nasdaq: PNSN) common stock with a market value of $15,269,788 at September 30, 2008, based on a closing stock price of $13.87 per share, and a market value of $16,228,731 at December 31, 2007, based on a closing stock price of $14.35 per share. The Company also has a margin loan payable to Penson Financial Services, Inc., a wholly owned subsidiary of Penson Worldwide, Inc., with a balance of $7,372,114 at September 30, 2008 and $988,271 at December 31, 2007. The President of Call Now, Inc. is a Director of Penson Worldwide, Inc. During this fiscal quarter ended September 30, 2008 the Company sold 30,000 shares of Penson Worldwide, Inc. common stock at a price of $18.30 per share. Subsequent to the conclusion of the Company’s third fiscal quarter ended September 30, 2008, the price of PWI’s common stock significantly declined. As of the 4:00 p.m. EST closing of the NASDAQ stock market on November 10, 2008, PWI common stock closed at $7.00 per share and the market value of the Company’s holding of PWI common stock was $7,706,454.

The Company currently owns $145,000 of the Retama Development Corporation Special Facilities Revenue bonds, Series A (“Series A Bonds”), which are classified as long-term. The Series A Bonds are secured by a senior lien on the Retama Park racetrack facility. The principal amount of the Series A Bonds outstanding is $6,250,000 at September 30, 2008 and $6,345,000 at December 31, 2007.

The Company owns $43,962,500 of the Retama Development Corporation Special Facilities Revenue bonds, Series B (“Series B Bonds”) at September 30, 2008 and December 31, 2007. The Series B Bonds are secured by a lien on the Retama Park racetrack facility that is subordinate to the Series A Bonds and the Funding Agreement (discussed in Note 8). The principal amount of the Series A Bonds outstanding is $86,925,000 at September 30, 2008 and December 31, 2007. The Company’s carrying value (investment) in the Series B bonds was written down to $0 in 2006.

NOTE 7 — MARKETABLE SECURITIES — OTHER

During the quarter ended September 30, 2008, the Company incurred a $230,502 write-down of its investment in certain municipal bonds.

The Company subsequently exchanged its holdings in a municipal bond issue for 147,646 shares of the Company’s common stock at $10.10 per share with its Chairman and controlling stockholder, Christopher J. Hall. This matter was previously reported on Form 8-K filed September 30, 2008. The Company’s other marketable securities have not incurred any significant changes since December 31, 2007. For more information, see the discussion in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007 and under Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

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NOTE 8 — NOTES AND INTEREST RECEIVABLE

As part of the RDC’s bankruptcy and debt refinancing in 1996 and 1997, the Company entered into an agreement with the RDC that required the Company to fund any operating losses of the RDC for a period of up to 2 years (the “Funding Agreement”). Although the Company is no longer obligated to provide financing under the Funding Agreement, the Company has continued to periodically fund various capital needs of the RDC. At September 30, 2008, the total amount funded by the Company to the RDC was $3,627,569 in principal plus $1,219,596 in accrued interest. At December 31, 2007, the amount funded was $3,088,419 in principal plus $983,516 in accrued interest.

NOTE 9 — CONTINGENCY

Federal Income Taxes

During 2004, the Internal Revenue Service (the “IRS”) notified the RDC that it was conducting an examination of the tax-exempt status of the bonds issued in connection with the RDC’s reorganization in 1997. In October of 2004 the IRS issued a preliminary adverse determination, and in February 2005 the IRS issued a proposed adverse determination with respect to the RDC’s 1997 Series A and Series B bonds, stating that the interest on the bonds is not excludable from the gross income of their holders. The RDC has filed a protest of such determination and requested that the matter be referred to the Office of Appeals of the IRS. Management has been advised that the Retama Development Corporation is vigorously defending itself with respect to this issue.

The IRS has completed examinations of the Company’s tax returns for the years 2000 through 2004. As a result of the examinations, the IRS has submitted a request for change to include in taxable income the interest earned by the Company on the RDC Series A bonds in the total amount of $598,000. If the IRS is successful, the Company would recognize federal income tax expense of approximately $200,000; however, this amount would reduce the Company’s available tax net operating loss carryforward and not result in a cash outlay to the Company. The Company filed a formal appeal with the IRS with respect to the IRS examinations. While the Company and the IRS have engaged in possible settlement discussions, any conclusion to this matter remains uncertain, as the conversations are preliminary. Accordingly, as required by FIN No. 48, “Accounting for Uncertainty in Income Taxes”, this contingency is disclosed, but an accrual is not included in the financial statements at September 30, 2008.

Investment Company Act

Management has taken the position that the Company is not an investment company required to register under the Investment Company Act of 1940. If it was established that the Company was an unregistered investment company, there would be a risk, among other material adverse consequences, that the Company could become subject to monetary penalties or injunctive relief, or both, in an action brought by the Securities and Exchange Commission. The Company may also be unable to enforce contracts with third parties or third parties could seek to obtain rescission of transactions undertaken in the period it was established that the Company was an unregistered investment company.

NOTE 10 — COMPREHENSIVE INCOME

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The components of comprehensive income are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30
	2008			2007			2008			2007
Net income (loss) as reported	$	35,408		$	(121,685	)	$	(86,418	)	$	(362,812	)
Other comprehensive income:
Change in fair market value of available-for-sale securities		2,174,781			(6,805,414	)		(793,102	)		(10,093,920	)
Income tax effect		(739,425	)		2,313,841			269,655			3,431,933
Total comprehensive income (loss)	$	1,470,764		$	(4,613,258	)	$	(609,865	)	$	(7,024,799	)

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NOTE 11 — FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS 157, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective January 1, 2008. The FASB has also issued Staff Position FAS 157-2 (FSP No. 157-2), which delays the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. Effective January 1, 2008, the Company adopted SFAS 157 as discussed above and has elected to defer the application thereof to nonfinancial assets and liabilities in accordance with FSP No. 157-2.

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

The three levels of the fair value hierarchy defined by SFAS 157 are as follows:

Level 1:	Quoted prices are available in active markets for identical asset or liabilities;
Level 2:	Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or
Level 3:	Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2008. As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

	September 30, 2008
Recurring Fair Value Measures	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities — related party	$	15,269,788	$	—	$	—	$	15,269,788
Marketable securities — other		1,359,803		—		—		1,359,803
Liabilities:
None	$	—	$	—	$	—	$	—

The Company’s financial instruments relate to its available-for-sale marketable securities, which are valued using quoted market prices. Adjustments to fair value are recorded in other comprehensive income until the investment is sold.

NOTE 12 — TREASURY STOCK

During the quarter ended September 30, 2008, the Company purchased from its Chairman and controlling stockholder, Christopher J. Hall, a total of 261,852 shares of the Company’s common stock at $10.10 per share, for a total cost of $2,644,704. 147,646 shares of common stock were purchased in exchange for the Company’s holdings in a municipal bond issue, and an additional 114,206 shares of the Company’s common stock were purchased for cash. This matter was previously reported on Form 8-K filed September 30, 2008.

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

Forward Looking Statements

The following discussion and analysis of financial condition and results of operations may contain forward-looking statements that involve a number of risks and uncertainties. Actual results in future periods may differ materially from those expressed or implied in such forward-looking statements. This discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and the notes thereto included in this report, and our Annual Report on Form 10-KSB for the year ended December 31, 2007. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

Overview

Call Now, Inc. (the “Company”) was organized under the laws of the State of Florida on September 24, 1990 under the name Rad San, Inc. The Company changed its name to Phone One International, Inc. in January 1994 and to Call Now, Inc. in December 1994. The Company changed its domicile to the state of Nevada in 1999.

Retama Park Racetrack

The primary operation of the Company is the management of Retama Park Racetrack (“Retama Park”) in Selma, Texas, through an 80% owned subsidiary, Retama Entertainment Group, Inc. (“REG”). Retama Park is owned by the Retama Development Corporation (the “RDC”). The RDC has an agreement with REG to operate and manage Retama Park. The RDC, as owner of the facility, reimburses REG for the majority of payroll and payroll related expenses, plus a monthly management fee.

The Company also owns a portion of the Retama Development Corporation Special Facilities Revenue bonds that were issued in 1997. The proceeds of the 1997 issue were used to refinance the bonds that were issued in 1993 whose proceeds were used to fund the construction of the Retama Park racetrack. Since the RDC has emerged from bankruptcy in 1997, the Company has periodically provided loans to the RDC for operating activities. (SeeNotes to Consolidated Financial Statements, Note 8 — Notes and Interest Receivablefor additional details.)

Penson Worldwide, Inc.

On June 26, 2003 the Company entered into a “Convertible Promissory Note and Purchase Agreement” with Penson Worldwide, Inc. (“PWI”) to lend $6,000,000 with the note maturing on June 26, 2008 (the “PWI Note”). PWI is a related party to the Company as Thomas R. Johnson, President and CEO of Call Now, Inc. is also a member of the Board of Directors of both. On December 23, 2003 an additional $600,000 was loaned to PWI under similar terms and conditions as the original note. On June 30, 2005, the Company converted the entire $6,600,000 principal balance of the PWI Note into 3,283,582 shares of PWI common stock.

On May 16, 2006, PWI completed the Initial Public Offering (“IPO”) of their common stock (Nasdaq: PNSN). In a simultaneous transaction, PWI affected a 1-for-2.4 share reverse split and the split-off of certain non-core business operations known as SAMCO. As part of the IPO, the Company elected to participate in the exchange of PWI shares for SAMCO shares and sell a total of 11.5% of its investment, or 157,337 shares, of the PWI shares in the IPO resulting in a pre-tax gain on the sale of $1,728,504. Following the completion of the PWI IPO, the Company’s resulting position is as follows: 79,900 shares of SAMCO which represents an approximate 7.29% interest in the company; and 1,130,922 shares of the publicly traded PWI common stock, which represented an approximate 4.4% ownership interest. The Company’s current PWI common stock position is 1,100,922 shares. As of September 30, 2008 the realized other comprehensive income is from the increase in value of the PWI common stock of approximately $9,959,000.

The Estates at Canyon Ridge

On March 31, 2005 the Company entered into a partnership agreement to provide approximately forty-six percent (46%) of the equity for the development of a 270-unit luxury apartment complex to be known as The Estates at Canyon Ridge, located in the master planned community of Stone Oak in San Antonio, Texas. The name of the partnership was originally Stone Oak Development, Ltd. and was changed to The Estates at Canyon Ridge, Ltd. (“ECR Ltd.”) on April 26, 2005. ECR Ltd. closed on the purchase of the 19.739 acre development site on May 2,

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2005. The general partner of ECR Ltd. is an unrelated real estate developer (“General Partner”). The Company owns the largest interest in Stone Oak Prime, L.P. (“Limited Partner”) at forty-eight percent (48%). Other partners of the Limited Partner include Thomas R. Johnson, President and CEO of the Company, Christopher J. Hall, Chairman and the majority shareholder of the Company, and Bryan P. Brown, President of REG. The General Partner is required to fund five percent (5%) of the equity and the Limited Partner is required to fund ninety-five percent (95%).

As a Limited Partner, the Company is entitled to receive a preferred return of its capital contribution plus a ten percent (10%) per annum cumulative return, compounded monthly. Following the repayment of the capital contributions and accrued interest, excess cash, at the discretion of the General Partner, and net refinancing or disposition proceeds shall be paid fifty percent (50%) to the General Partner and fifty percent (50%) to the Limited Partner. At September 30, 2008 and December 31, 2007, the Company’s investment totaled approximately $2.598 million and $1.780 million, respectively.

The Cambridge at Auburn

On December 11, 2006 the Company entered into a partnership agreement to provide ninety-five percent (95%) of the equity for the acquisition and rehabilitation of a 156-unit, 312-bed full service, private dormitory located in Auburn, Alabama, immediately adjacent to the campus of Auburn University. The project is now known as The Cambridge at Auburn. The Company is the sole limited partner of Cambridge at Auburn, LP (“CA, LP”). The general partner of CA, LP is an unrelated real estate developer that will also serve as the management company of the project. The general partner of CA, LP is the same general partner of The Estates at Canyon Ridge, Ltd. transaction described in the preceding paragraph. As the limited partner, the Company is entitled to receive a preferred return of its capital contribution plus a ten percent (10%) per annum cumulative return, compounded monthly. Following the repayment of the preferred return on the capital contribution, excess cash, at the discretion of the general partner, as well as refinancing or disposition proceeds shall be paid fifty percent (50%) to the general partner and fifty percent (50%) to the limited partner. At September 30, 2008 and December 31, 2007, the Company’s investment totaled approximately $1.36 million and $1.50 million, respectively.

TNO Holdings, LLC

During the course of 2007, the Company provided financing to TNO Holdings, LLC, a Florida limited liability company, totaling approximately $811,000 at September 30, 2008. TNO Holdings owned three municipal bond issues secured by a first mortgage lien on five long-term care facilities located in Oklahoma and Texas. The purpose of the loan from the Company is to provide working capital for the facilities and fund various capital improvements. The loan accrued interest at a rate of 9.50% and compounds monthly. Following discussions with the managing member of TNOH, the Company has agreed convert the loan to an approximately 42% equity interest in TNOH. During the fourth quarter of 2007, the two nursing homes located in Texas were sold to a third party and the net sales proceeds were used to redeem a portion of the municipal bond issue secured by the facilities and owned by TNO Holdings. The subsequent distribution to the members of TNOH resulted in the repayment of substantially all of the funds originally loaned to TNOH by the Company plus an additional return. The Company continues to maintain an equity interest in TNOH. TNOH continues to own the Texas municipal bond issue pending collection of the remaining accounts receivable and two Oklahoma municipal bond issues secured by three additional nursing home facilities.

Critical Accounting Policies

General

Management’s discussion and analysis of its financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses and the valuation of our assets, income taxes, and contingencies. We base our estimates on historical experience and on various other assumptions, as well as reliance on independent appraiser reports on the valuation of certain of our debt securities. We believe our estimates and assumptions to be reasonable under the circumstances. However, actual results could differ form those estimates under different assumptions or conditions.

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Valuation of Marketable Securities

Investments in publicly traded equity securities are generally based on quoted market prices. Investments in the RDC Series A and B bonds represent debt securities and there is no readily available quoted market price, as these securities are owned by a limited number of holders. The Series A bonds have been valued at $145,000, which represents the pro rata share of the underlying value of the collateral (the Retama Park horse track facility). The Company has fully impaired the Series B bonds based on the limited available market, the uncertainty of principal or interest payments and the subordinate lien on the collateral.

Valuation of Other Investments

Other investments (in non-marketable securities) are generally stated at cost, and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount on the investment may not be fully recoverable. Recoverability of such investments is measured by a comparison of the carrying amount of the investment to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the investment exceeds the fair value of the investment.

Income Taxes

Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Risk Factors

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in Part II, Item 6 in our Annual Report on Form 10-KSB for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-KSB are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO SEPTEMBER 30, 2007

RESULTS OF OPERATIONS

   a. Revenues and Other Income

     Revenue

The Company’s revenue for the three months and nine months ended September 30, 2008 was $1,240,624 and $3,661,427, respectively, compared to $1,257,999 and $3,542,211, respectively, for the three months and nine months ended September 30, 2007. Retama Entertainment Group, Inc. (“REG”), an 80% owned subsidiary of the Company, is engaged as the management company of the Retama Park racetrack located in Selma, TX. The owner of the facility, the Retama Development Corporation (the “RDC”), reimburses REG for the majority of payroll and payroll related expenses, plus a monthly management fee of $20,000. It is important to note that the financial performance of Retama Park does not directly impact and is not included in the Company’s financial statements. As a result of this arrangement, the majority of the Company’s revenue consists of the reimbursement of REG’s payroll expenses. Therefore, the similarity in revenue for the three months and nine months ended September 30, 2008 as compared to the three months and nine months ended September 30, 2007 largely reflects continued personnel efficiency at Retama Park, offset somewhat by raises offered to key REG employees.

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     Interest Income

Interest income for the three months and nine months ended September 30, 2008 was $218,323 and $576,775, respectively, compared to $157,479 and $401,027, respectively, for the three months and nine months ended September 30, 2007. The increase in interest income is largely attributable to the realization of a full quarter’s preferred return on the Auburn investment in 2008 as compared to 2007, as well as an increase in the RDC receivable accruing additional interest.

   b. Expenses

   Cost and Other Expenses of Revenues

Operating expenses for the three months and nine months ended September 30, 2008 was $1,399,453 and $3,998,731 compared to $1,380,532 and $3,917,409, respectively, for the three months and nine months ended September 30, 2007. Operating expenses have remained flat as payroll and payroll related expenses have remained relatively consistent during these time periods as further detailed in theRevenuesection above.

   Income Tax

Total income tax benefit for each period presented is in the customary relationship to net loss before taxes, as expected for a regular C corporation.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2008, the Company’s operating activities used cash of $1,419,896 compared to $1,619,753 cash used for the nine months ended September 30, 2007. The decrease in cash used for operating activities is largely due to a smaller loss in year-to-date 2008 compared to the same period in 2007 and a reduction in the amount loaned under the Funding Agreement for this period in 2008 as compared to the same period in 2007.

OFF-BALANCE SHEET ARRANGEMENTS

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. SeeNote 6 — Related Party Transactionsto the financial statements herein.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. Early adoption is permitted. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159). SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option for any of its existing financial instruments other than those mandated by other FASB standards; accordingly, the impact of the adoption of SFAS No. 159 on the Company’s financial statements was immaterial.

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In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements, which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141(R) will have an impact on accounting for business combinations once adopted, but the effect is dependent upon acquisitions at that time.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that SFAS 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS No. 160 will impact how we report the minority interest in our consolidated 80% owned subsidiary, but this impact will not be significant to our financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (SFAS 161). SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” currently establishes the disclosure requirements for derivative instruments and hedging activities. SFAS 161 amends and expands the disclosure requirements of Statement 133 with enhanced quantitative, qualitative and credit risk disclosures. The Statement requires quantitative disclosure in a tabular format about the fair values of derivative instruments, gains and losses on derivative instruments and information about where these items are reported in the financial statements. Also required in the tabular presentation is a separation of hedging and non-hedging activities. Qualitative disclosures include outlining objectives and strategies for using derivative instruments in terms of underlying risk exposures, use of derivatives for risk management and other purposes and accounting designation, and an understanding of the volume and purpose of derivative activity. Credit risk disclosures provide information about credit risk related contingent features included in derivative agreements. SFAS 161 also amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to clarify these disclosures about concentrations of credit risk should include derivative adoption. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect the application of this Statement on its disclosures to have a material impact in its consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because we are a smaller reporting company, this Item is not applicable to us.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2008 are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure

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controls and procedures include components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFOMRATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable.

ITEM 1A. RISK FACTORS

Because we are a smaller reporting company, this Item is not applicable to us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following shares of the Company’s common stock were repurchased by the Company during the third quarter.

							Approximate Dollar
					Total Number of		Value of Shares that
					Shares Purchased as		may yet be
	Total Number		Average		part of Publicly		Purchased under
	of Shares		Price		Announced Plans or		the Plans or
Period	Purchased		per Share		Programs		Programs
September 1, to September 30, 2008		261,852	$	10.10		0	$          -0-

These shares were purchased from Christopher J. Hall, Chairman and controlling stockholder, in a private transaction. This matter was previously reported on Form 8-K filed September 30, 2008.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Not Applicable.

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS

(a) Exhibits:

Exhibit No.	Title of Document
31.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Call Now, Inc.

/s/ Thomas R. JohnsonThomas R. Johnson

Chief Executive Officer and

Chief Financial Officer

November 13, 2008

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