UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-KSB


(Mark
One)


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





For the
year ended December 31, 2007


0-18045


(Commission
file number)





World
Racing Group, Inc.


(Exact
name of small business issuer in its charter)





Delaware
            
            90-0284113(State
      or other jurisdiction of
              Incorporation
      or organization)
            
            (IRS
      Employer
              Identification
      No.)





7575
West Winds Blvd. Suite D, Concord North Carolina 28027


(Address
of principle executive offices) (Zip Code)





Issuer’s
telephone number, including area code:  (704) 795-7223





Securities
registered pursuant to Section 12(b) of the Act:





Title
      of Each Class:
            
            Name
      of Each Exchange on Which Registered:None
            
            N/A





Securities
registered pursuant to Section 12(g) of the Act:





Common
Stock, $.0001 par value


(Title
of Class)





Check whether the issuer is not required to file reports pursuant to
Section 13 or 15 (d) of the Exchange Act.   xYes  o No





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act 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.  xYes   oNo





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x





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





The
issuer’s revenues for the year ended December 31, 2007 were $19.6
million.





Aggregate
market value of the voting and non-voting common stock held by non-affiliates of
the issuer as of March 28, 2008:


$8.4
million (at a closing price of $0.34 per share.





As of
March 31, 2008, 32,148,002 shares of the Company’s, $.0001 par value common
stock were outstanding.





Transitional
Small Business Disclosure Format (Check One):  oYes  xNo








WORLD
RACING GROUP, INC.


FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 2007


TABLE OF CONTENTS





PagePART I
            
            
            
            
            3Item 1.
            
            
            Description of Business
            3Item 2.
            
            
            Description of Property
            9Item 3.
            
            
            Legal Proceedings
            10Item 4.
            
            
            Submission of Matters to a Vote of Security
      Holders
            11PART II
            
            
            
            
            11Item 5.
            
            
            Market for Common Equity, Related Stockholder Matters and
      Small Business Purchases of Equity Securities
            11Item 6.
            
            
            Management’s Discussion and Analysis
            11Item 7.
            
            
            Financial Statements
            20Item 8.
            
            
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            20Item 8.A(T)
            
            
            Controls and Procedures
            20Item 8.B
            
            
            Other Information
            21PART III
            
            
            
            
            21Item 9.
            
            
            Directors, Executive Officers, Promoters, Control Persons,
      and Corporate Governance, Compliance with Section 16(a) of the Exchange
      Act
            21Item 10.
            
            
            Executive Compensation
            21Item 11.
            
            
            Security Ownership of Certain Beneficial Owners and
      Management, and Related Stockholder Matters
            26Item 12.
            
            
            Certain Relationships, Related Transactions, and Director
      Independence
            27Item 13.
            
            
            Exhibits
            28Item 14.
            
            
            Principal Accountant Fees and Services
            30


SIGNATURES
            32INDEX TO CONSOLIDATED FINANCIAL
      STATEMENTS
            F1























-2-
 Table of Contents





DISCLOSURE
CONCERNING FORWARD-LOOKING STATEMENTS





This Form
10-KSB includes certain statements that may be deemed to be “forward-looking
statements” within the meaning of Section 27A of the Securities Act of
1933.  All statements, other than statements of historical fact,
included or incorporated by reference in this Form 10-KSB 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.  Forward-looking statements generally
can be identified by the use of forward-looking terminology such as “may,”
“will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” or “believe” or
the negative thereof or any variation thereon or similar
terminology.





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, including general economic and
business conditions, the business opportunities (or lack thereof) that may be
presented to and pursued by us, our performance on its current contracts and its
success in obtaining new contracts, our ability to attract and retain qualified
employees, and other factors, many of which are beyond our
control.  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 these cautionary statements.  Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date made.  Except as required by law, we
undertake no obligation to disclose any revision to these forward-looking
statements to reflect events or circumstances after the date
made.





PART I





Item 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 are a
leading marketer and promoter of 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 of the premier 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, and we expect to sanction races at
nearly 200 tracks across the United States and Canada in 2008.





In 2008,
we intend to focus on streamlining our operations, and growing our ticket and
merchandising sales, sanctioning, membership and license fees, as well as our
sponsorship and advertising revenue, while expanding our position as a premier
motor sports entertainment company.





Motor
Sports Industry





Motor
sports are among the most popular and fastest-growing spectator sports in the
United States, with annual attendance at all U.S. motor sports events exceeding
20 million people.  We believe that the impetus for growth in this
industry has been the growing popularity of the National Association of Stock
Car Auto Racing (NASCAR), due to increased broadcast network television
exposure.





The motor
sports racing industry consists of several distinct categories of auto racing,
each with its own organizing body (sanctioning body), with corresponding
sanctioned events.  Sanctioning bodies are responsible for all aspects
of race management required to conduct a racing event, including: regulating
racing, drivers, safety and teams, providing officials to ensure fair
competition, and administering the race and series purses and other prize
payments.   Sanctioning bodies typically derive revenues from
merchandising, race sponsorships, television distribution, and membership
fees.





Of the
sanctioning bodies in the United States, NASCAR, the Indy Racing League (IRL),
National Hot Rod Association (NHRA), and Grand Am are among the more well
known.  The largest auto-racing category in the United States, in
terms of media exposure and sponsorships, is stock car racing, conducted by
NASCAR. Until roughly ten years ago, NASCAR events and viewership were
predominately confined to the southeastern part of the United States. Today,
NASCAR races are held, and viewers hail from, all over the country and the races
are broadcast world-wide.




-3-
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Motor
sport events are generally heavily promoted, with a number of supporting events
surrounding each main race event. Examples of supporting





Dirt-Track
Racing





The
dirt-track style of racing is considered one of the more affordable, grass roots
family entertainment forms of motor sport racing, especially among motor sport
enthusiasts.  Many of the dirt oval tracks currently in operation in
the United States today have their roots at county or state fairgrounds and dirt
track racing has historically been the highlight at these state and county
fairs.  Historically, these types of races were promoted
locally.  Many of the promoters of dirt-track style racing saw large
profits made in this form of racing, and in turn, built their own tracks and
began promoting races on a more regional basis.





Today,
there are over 800 dirt racing tracks in the United States and in excess of
25,000 drivers who actively race on dirt tracks.  There are numerous
sanctioning bodies for this type of racing, and races are generally classified
according to car types, including: modified, super modified, sportsman, late
models and sprint cars.  Among dirt-track style racing sanction
bodies, we believe that World of Outlaws and DIRT Motorsports are the best
known.  Currently the sponsorship for dirt track racing consists
primarily of local and regional sponsors.





General
Business Plan





Our
general business plan is to acquire and operate motor sports sanctioning bodies
and venues and seek to “nationalize” dirt-track style motor sports
racing.  We believe that much of the current success of motor sport
racing is due to the efforts of NASCAR in consolidating, marketing and promoting
its stock car races, and our current strategy is to utilize this model for
dirt-track style racing. Under this business model, we anticipate revenues from
the primary sources that typically generate revenue for motors sport sanctioning
bodies, including: (1) sanctioning and event fees; (2) sponsorships; (3)
television and electronic media distribution rights; (4) merchandise sales and
licensing fees; (5) membership fees; and (6) event ticket sales.





Sanctioning
and Event Fees





Race
sanctioning bodies sanction racing events at various venues in exchange for fees
from track operators and race promoters.  Because a sanctioned racing
event typically draws greater fan attendance, track operators and racing
promoters will generally seek to have their event sanctioned.  Our
sanctioning and event fees for our touring series range from $2,500 to $50,000
per event depending on several variables, including: size of race, race venue,
revenue sharing with the track owner or promoter, race purses and other
prizes.





Sponsorships





Drawn to
the sport by the attractive demographics and strong brand loyalty of the fans,
sponsors are very active in all aspects of auto racing.  Multiple entry
points exist for these sponsors and we control all but one of the major entry
points.  The most prominent position available to corporate sponsors is a
"Title Sponsorship" of a series or sanctioning body (i.e. the "Advance Auto
Parts World of Outlaws Sprint Car Series") where a sponsor will pay us to
control naming rights of an entire series of events.  We also offer
"Official Sponsor" positions which are typically category exclusive, but
virtually unlimited in terms of the number of categories that could be
represented (i.e. Quaker State is the "Official Motor Oil of the World of
Outlaws" and America's Best Value Inn is the "Official Hotel of the World of
Outlaws").  We also have the ability to sell naming rights in the form of
Title and/or Presenting Sponsorships of our premier events (i.e. the
"Alltel DIRTcar Nationals Presented by Mopar").





We also
control all of our television, radio and Internet based media and either include
those rights in our sponsorship packages, or sell those rights on an a la
carte basis.  The only entry points not controlled by us are the
sponsorships associated with the cars and drivers themselves, as drivers are
considered independent contractors and retain their sponsorship
revenue.  This arrangement is common in the motor sports
industry. During the 2004 racing season, approximately $2.0 billion was spent on
corporate sponsorship in the motor sports industry, according to IEG Sponsorship
Report, Chicago. We believe that sponsorship revenues will be a significant
source of our potential revenues as we execute our business plan.





Television
and Electronic Media Distribution Rights





Increased
exposure to sanctioned events generally leads to increased revenues from
sponsorships and other forms of advertising in addition to the revenues
generated from licensing the broadcast and distribution rights for the
events.  Thus, we believe that to obtain the greatest exposure for our
events and the highest value in sponsorship rights, we must promote our
sanctioned events though television and other electronic media
distribution.  To this end, we will seek broadcast and media
distribution partners.  We expect to model these efforts after NASCAR
which saw a 29% increase in television viewership in 2002.  In 2003,
the World of Outlaws entered into an agreement with The Outdoor Channel which
extended through December 31, 2006.  Under this agreement a minimum of
27 one hour tape delayed World of Outlaws Sprint Series race programs per year
were produced at the expense of The Outdoor Channel.  In 2006 and
2005, The Outdoor Channel produced 40 and 41 programs,
respectively.  In March 2007, we entered into agreements with ESPN 2
to broadcast eight one hour tape delayed World of Outlaws Sprint Series races
and contracted with SPEED Television to 18 programs to broadcast World of
Outlaws Sprint Series, World of Outlaw Late Model Series and Advanced Auto Parts
Super DIRT Series races. In 2008, we expect to broadcast a minimum of 25 hours
of World of Outlaws racing on SPEED Television.





-4-
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Merchandise
Sales and Licensing Fees





The
growing popularity of motor sports events, has resulted in substantial revenue
growth for officially licensed racing-related merchandise. For example, retail
sales of apparel, souvenirs, collectibles, and other merchandise licensed by
NASCAR drivers, teams, and track operators/promoters has climbed to
approximately $2.1 billion in 2004 from approximately $800 million in 1990. We
believe that there is substantial merchandising revenue potential for our
dirt-track style race sanctioning bodies.





Membership
Fees





In order
for a motor sport racing team to compete in sanctioned races, the teams must
first pay membership fees to the sanctioning body and may pay entry fees for
each event. These fees typically increase with the popularity of race series and
serve to pay for costs associated with running a sanctioning
body.   Our membership fees range from $50 to $150 per
individual, depending on several variables, including our ability to
successfully promote the races we sanction.





Event
Ticket Sales





Track
owners and promoters make a large portion of their revenues from event ticket
sales.  The prices charged range from $10 to $100 depending on several
variables, including: size of race, race venue, popularity of the drivers, teams
and overall racing series.  We will only receive revenues from event
ticket sales at tracks we own or lease.





Current
Activities





Management
is currently considering several opportunities to increase revenue, including
acquiring additional tracks and sanctioning bodies to increase our market share
of dirt track racing events, the intent of which is to improve our economies of
scope and position among competitors.  These potential acquisitions
range from small, single-track asset purchases to large scale event sanctioning
bodies that fit our business model.  Some of these acquisitions will
require us to raise additional equity or debt financing, and no assurances can
be given that we will be successful in this regard.





DIRTcar
Racing, North East, formerly known as DIRT Motorsports New York





DIRT
Motorsports New York was founded in the mid 1970’s, and as DIRTcar Racing, North
East, is the country’s largest dirt-racing sanctioning body for Big Block
Modified, 358 Modified, and Sportsman classes.  The sanctioning body’s
premier race, the Rite Aid 200 held at the New York State Fairgrounds in
Syracuse, New York, celebrated its 36th anniversary in October 2007, and drew
approximately 50,000 fans.  Each year, DIRTcar sanctioned races are
held at approximately 25 DIRTcar affiliated tracks situated throughout the
Northeastern U.S. and Canada.





We
believe that we are  the only dirt-track style race sanctioning body
which has an in-house television production department.  This
department produces, syndicates and distributes live and taped productions of
the DIRTcar Racing Series and the World of Outlaw Series. This racing series is
presently seen on The SPEED Channel and DIRTVision.comTM.  DIRTcar
races are also carried on cyber series coverage with live audio and video on the
World Wide Web during every Advanced Auto Parts Super DIRTcar Series
race.





World
of Outlaws, Inc.





World of
Outlaws is an internationally recognized sanctioning body for dirt-track style
racing and has been the leading name in sprint car racing since
1978.  The early days of sprint car racing saw drivers crisscrossing
the country in search of the highest paying races they could find. At that time
there were no rules governing when, where, or how they raced. Thus they were
dubbed the “Outlaws.” Today, World of Outlaws sanctioned races give fans some of
the most exciting wheel-to-wheel racing on dirt in the world.





Sprint
car racing is a uniquely American form of motor sport, spawned during the early
20th century at fairground horse tracks, where it is still popular today. It was
once considered a stepping-stone to the Indianapolis 500 before the arrival of
rear-engine Indy cars in the early 1960’s; and sprint car racing has maintained
its place in the American culture.





Competition





There are
more than 280 race sanctioning bodies and special events promoters listed in the
National Speedway Directory and motorsports are the fastest growing major
spectator sport in the United States.  We face competition on three
levels: (1) other dirt track sanctioning bodies; (2) pavement race sanctioning
bodies; and (3) on a more generic scale, other entertainment
venues.





The World
of Outlaws Sprint Series is the only national sprint car touring
series.  There are other regional and local races; however, we create
our sprint series schedule taking into account competing venues.





The World
of Outlaws Late Model Series is one of two national late model touring
series.  The Late Model Series also faces competition from smaller
regional and local races.


-5-
 Table of Contents


The
DIRTcar Modified Series is the largest regional touring series of big block
modifieds.  Though primarily held in the Northeastern states, the DIRT
Modified Series has a national presence due to broadcast coverage on The SPEED
Channel.  There are no national big block modified touring
series.





Our dirt
track style racing series also face competition from pavement racing series
including NASCAR, IRL and United States Auto Club (USAC) .  Dirt track
racing is often a training ground for pavement drivers.  Jeff Gordon,
Tony Stewart, Kasey Kahne, Ken Schrader, Kenny Wallace, Dave Blaney, Ryan Newman
and Carl Edwards are among those current NASCAR drivers who began their racing
careers on dirt tracks.  While there is cross-over between audiences,
many fans appreciate the level of action on a dirt track that is not always
evident with pavement venues.





Finally,
on a third level, our racing series face competition from other entertainment
venues during the racing season.  The deciding factors among competing
venues often include ticket prices, specific driver/team appearances at an
event, location and weather conditions.





We
believe that we have established strong recognizable brands within the dirt
track industry.  In order to continue to build these brands we will
not only focus efforts on sponsorship and broadcast opportunities, but target
future fans in order to successfully compete with other motor sports and
entertainment venues.





Employees





As of December 31, 2007, we had56full-time
employees working at ourvariouslocationsand47part-time
employees.  None of the employees belong to a labor
union.  We believe relations with our employees are
satisfactory.





ADDITIONAL
FACTORS THAT MAY AFFECT FUTURE RESULTS




You
should carefully consider these factors that may affect future results, together
with all of the other information included in this Form 10-KSB, in evaluating
our business. The risks and uncertainties described below are those that we
currently believe may materially affect our business and results of operations.
Additional risks and uncertainties that we are unaware of or that we currently
deem immaterial also may become important factors that affect our business and
results of operations.




Keep
these risks in mind when you read “forward-looking” statements elsewhere in this
Form 10-KSB. These are statements that relate to our expectations for future
events and time periods. Generally, the words “anticipate,” “expect,” “intend,”
and similar expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties, and future events and circumstances
could differ significantly from those anticipated in the forward-looking
statements. Please see “Disclosure Regarding Forward-Looking
Statements” above in this Item 1.





We
need additional capital to continue as a going concern and successfully execute
our business strategy.





Revenues
from operations are still significantly below levels necessary to achieve
positive cash flow. From inception to December 31, 2007, our aggregate net loss
is approximately $73.4 million and we have a deficit net worth of $1.5 million.
Our cash position is $1.7 million at December 31, 2007, and is
decreasing.  We expect the net losses and negative cash flow to
continue into 2008.  As a result, we may need to raise additional
equity or debt financing prior to the end of the quarter ending June 30, 2008.
In the event we are unable to obtain additional financing, our known and likely
short term cash requirements will exceed available cash resources. Our
short-term liquidity could disrupt our event schedule, which would adversely
affect our results of operations.





Our
independent accountants' opinion on our 2007 consolidated financial statements
includes an explanatory paragraph indicating substantial doubt about our ability
to continue as a going concern. To continue as a going concern, we will have to
increase our sales from sponsorships and advertising, decrease costs, raise
additional equity financing, and/or raise new debt financing, and possibly
induce creditors to forebear or to convert to equity.  We can give no
assurance that we will be successful in accomplishing these tasks, including
obtaining adequate financing on favorable terms, if at all.  If our
capital needs are met through the issuance of equity or convertible debt
securities, the percentage ownership of our shareholders will be
reduced.





Our
failure to achieve or maintain profitability could force us to cease our
operations.





We have
not operated at a profit over the course of our brief history, and there can be
no assurance that we will be able to achieve or maintain
profitability.  Our recent acquisitions have resulted in operating
losses since inception, and we expect to incur operating losses in future
periods.  Our ability to attain profitability and positive cash flow
is dependent upon a number of factors, including our ability to increase
revenues while reducing costs per racing event. We may not be successful in
increasing or maintaining revenues or achieving positive cash
flow.  Even if we do maintain profitability, we may not be able to
sustain or increase our profitability on a quarterly or annual
basis.  If we fail to maintain profitability, we might ultimately be
forced to discontinue our operations.





-6-
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Our
success depends upon sponsorship and advertising sales for our racing series and
racing events.





Our
business model depends on our ability to attract and maintain sponsorships and
advertisers for our racing series and racing events.  A sponsor’s and
advertiser’s willingness to enter into and continue their relationship with us
is subject to many risks beyond our control, including: (1) competition for
advertising and promotional dollars; (2) general market and industry conditions
that may affect our sponsors; and (3) the introduction and success of
competition for new racing events and racing series.





In the
event we are not able to attract sponsors and advertisers, or retain current
sponsorships and advertising relationships, we will experience continued net
losses, and those losses will be significant.





We
have a limited operating history.  As a result, evaluating our current
business model and prospects may be difficult.





We began
operations in February 2004 with the acquisition of World of Outlaws. Since then
we have completed the acquisition of DIRT, UMP, LSI, MARS and Volusia
Speedway.  Thus, we have only a limited operating history with which
you can evaluate our current business model and our prospects, and our
historical financial data may be of limited value in evaluating our future
revenue and operating expenses.





Speculative
nature of our proposed operations.





The
success of our plan of operation will depend to a great extent on the
operations, financial condition and management of targeted acquisitions and our
ability to identify additional business opportunities.  If we cannot
acquire additional business opportunities, we may not be able to grow our
Company.  Further, our ability to successfully implement our business
plan requires an effective plan for managing our future
growth.  Future expansion efforts will be capital intensive and may
significantly strain our managerial and other resources.  To manage
future growth effectively, we must maintain and enhance our financial and
accounting systems and controls, integrate new personnel and manage expanded
operations. If we do not manage growth properly, it could harm our operating
results and financial condition.





Impairment
of goodwill





Our
failure to meet projected revenue and earnings has resulted in the impairment of
goodwill incurred in connection with various acquisitions of existing
operations.  As of December 31, 2007, we had allocated $10.3 million
to goodwill in connection with the acquisition of the World of Outlaws, DIRT,
UMP, LSI and MARS.  Goodwill was impaired by $2,954,978 (all related
to World of Outlaws purchase) at September 30, 2004 resulting in a charge
against current earnings at September 30, 2004. As of September 30, 2005 the UMP
series Goodwill was impaired by $2,218,171 and World of Outlaws Goodwill was
impaired by an additional $2,027,248.  DIRT was impaired by $1,611,700
all resulting in a charge against current earnings at September 30,
2005.  An additional goodwill impairment of $1,508,440 was recognized
in the fourth quarter of 2006 for the remaining goodwill recorded in connection
with each of our acquisitions.





Our
executive officers, directors and principal stockholders have substantial
influence over us.





As of
March 31, 2008, our executive officers, directors and principal stockholders
together beneficially own approximately 24% of the outstanding shares of common
stock. As a result, these stockholders, acting together, may be able to exercise
substantial influence over all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. The concentration of ownership may also have the effect of
delaying or preventing a change in our control that may be viewed as beneficial
by the other stockholders.





In
addition, our certificate of incorporation does not provide for cumulative
voting with respect to the election of directors. Consequently, our present
directors, executive officers, principal stockholders and our respective
affiliates may be able to control the election of the members of the Board of
Directors. Such a concentration of ownership could have an adverse effect on the
price of the common stock, and may have the effect of delaying or preventing a
change in control, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices.





Our quarterly operating results may
fluctuate significantly.





Our
success depends on a number of factors, many of which are beyond our control.
These factors include: (1) the attendance at our racing events; (2) capital
expenditures and other costs relating to the expansion of operations; (3)
changes in our pricing policies and those of our competitors; (4) the number of
racing events scheduled during the quarter; (5) weather that may affect
attendance or cause us to cancel or postpone our racing events; (6) changes in
operating expenses; (7) changes in strategy; (8) personnel changes; (9) the
introduction of competitive racing events; (10) the timing and effect of
potential acquisitions; and (11) other general economic factors.





Our
operating results, cash flows and liquidity may fluctuate significantly. Our
revenues depend on our ability to hold racing events and attract attendees. Our
expense levels are based, in part, on our expectations regarding future
revenues, which could be inaccurate. Moreover, our operations often require
up-front expenses, but result in trailing revenues. To the extent that revenues
are below expectations, we will be unable to reduce expenses proportionately,
and operating results, cash flow and liquidity will be negatively
affected.  Due to these and other factors, our operating results
and/or growth rate may be below the expectations of analysts, management and
investors. This, in turn, could cause the price of our common stock to
drop.


-7-
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Acquisitions
of companies or joint venture investments may disrupt our business or dilute
shareholder value.





We may
acquire companies or enter into joint ventures. If we are unable to integrate
these acquisitions with our existing operations, we may not receive the intended
benefits of the acquisitions.  Also, acquisitions may subject us to
unanticipated liabilities or risks. Any acquisition or joint venture may
temporarily disrupt our operations and divert management's attention from
day-to-day operations.  If we make future acquisitions, we may incur
debt or issue equity securities to finance the acquisitions.  The
issuance of equity securities for any acquisition could cause our shareholders
to suffer significant dilution.  Also, our profitability may suffer
due to acquisition related expenses, additional interest expense or amortization
costs for acquired goodwill and other intangible assets and operating losses
generated by the acquired entity or joint venture.  Acquisitions and
joint ventures that do not successfully complement our existing operations may
harm our business.





Dependence
on qualified and key personnel.





We
believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, sales and marketing,
finance and operations personnel. Competition for personnel with the type of
experience in these areas is intense, and we compete for personnel against
numerous companies, including larger, more established companies with
significantly greater financial resources. There can be no assurance we will be
successful in identifying, attracting and retaining personnel.





Illiquidity
of our common stock.





Although
there is a public market for our common stock, trading volume has been
historically low which substantially increases your risk of loss.  We
can give no assurance that an active and liquid public market for the shares of
the common stock will develop in the future.  Low trading volume in
our common stock could affect your ability to sell the shares of common stock.
The development of a public trading market depends upon not only the existence
of willing buyers and sellers, but also on market makers.  The market
bid and asked prices for the shares may be significantly influenced by decisions
of the market makers to buy or sell the shares for their own account, which may
be critical for the establishment and maintenance of a liquid public market in
the shares.  Market makers are not required to maintain a continuous
two-sided market and are free to withdraw firm quotations at any
time.  Additionally, in order to maintain our eligibility for
quotation on the OTC Bulletin Board, we need to have at least one registered and
active market maker. No assurance can be given that any market making activities
of any additional market makers will commence or that the activities of current
market makers will be continued.





Our common stock
price has been volatile, which could result in substantial losses for
stockholders.





Our
common stock is currently traded on the OTC Bulletin Board under the symbol
WRGI.OB. We have in the past experienced, and may in the future experience,
limited daily trading volume. The trading price of our common stock has been and
may continue to be volatile. This volatility often has been unrelated to the
operating performance of the Company.  These broad market fluctuations
may significantly affect the trading price of our common stock, regardless of
our actual operating performance. The trading price of our common stock could be
affected by a number of factors, including, but not limited to, changes in
expectations of our future performance, changes in estimates by securities
analysts (or failure to meet such estimates), quarterly fluctuations in our
sales and financial results and a variety of risk factors, including the ones
described elsewhere in this prospectus. Periods of volatility in the market
price of a company’s securities sometimes result in securities class action
litigation. If this were to happen to us, such litigation would be expensive and
would divert management’s attention. In addition, if we needed to raise equity
funds under adverse conditions, it would be difficult to sell a significant
amount of our stock without causing a significant decline in the trading price
of our stock.





Our stock price may
decline if additional shares are sold in the market.





As of
March 31, 2008, we had approximately 32.1 million shares of common stock
outstanding.  In addition, as of March 31, 2008, our Series E
Preferred Stock was convertible into 44.5 million additional shares of common
stock, and we had outstanding warrants exercisable for an additional 1.0 million
shares of common stock, and outstanding options convertible into an additional
$0.5 million shares of common stock.  Future sales of substantial
amounts of shares of our common stock by our existing stockholders in the public
market, or the perception that these sales could occur, may cause the market
price of our common stock to decline. We may be required to issue additional
shares upon exercise of previously granted options and warrants that are
currently outstanding.





Our
articles and bylaws may delay or prevent a potential takeover of
us.





Our
Articles of Incorporation, as amended, and Bylaws, as amended, contain
provisions that may have the effect of delaying, deterring or preventing a
potential takeover of us, even if the takeover is in the best interest of our
shareholders.  The Bylaws limit when shareholders may call a special
meeting of shareholders.  The Articles also allow the Board of
Directors to fill vacancies, including newly-created directorships.





No
Dividends.





We have
not paid any dividends on our common stock to date, and have no plans to pay any
dividends on our common stock for the foreseeable future.  Further, so
long as our senior secured notes due March 10, 2010 (Senior Notes) are
outstanding, we may not pay any dividend on our common stock unless we have
first paid all amounts due under such Senior Notes.


-8-
 Table of Contents





We can
give no assurance that we will ever pay any dividends in respect to our common
stock.





Standards for compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely
manner, our business could be harmed and our stock price could
decline.





Rules adopted by the SEC pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 require annual assessment of our internal controls
over financial reporting, and attestation of this assessment by our independent
registered public accountants.  The SEC has extended the compliance
dates for smaller public companies, including us.  Accordingly, the
annual assessment of our internal controls requirement will first apply to thisAnnual Reportand that the first attestation report of our assessment
that our independent registered public accounting firm will need to complete
will be required in connection with the preparation of ourAnnual Reportfor
our fiscal year ending December 31, 2008, unless otherwise extended by the
SEC.  The SEC has proposed to extend the initial compliance date to
December 15, 2009.  Compliance with these rules has required us to
incur increased general and administrative expenses and management attention.
The standards that must be met for management to assess the internal control
over financial reporting as effective are new and complex, and require
significant documentation, testing and possible remediation to meet the detailed
standards.  In addition, the attestation process by our independent
registered public accountants is new and we may encounter problems or delays in
completing the implementation of any requested improvements and receiving an
attestation of our assessment by our independent registered public
accountants.  If we cannot assess our internal controls over financial
reporting as effective, or our independent registered public accountants are
unable to provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively
impacted.





Item 2.
            Description
      of Property





The
following table sets forth current information relating to each of our track
facilities:





Track
      Name
            
            Location
            
            Approximate
      number of grandstand seats
            
            Approximate
              acreage
            
            Track
              lengthCayuga
      County Fairgrounds
            
            Weedsport,
      New York
            
            3,000
            
            80
            
            3/8
      mileRolling
      Wheels Raceway
            
            Elbridge,
      New York
            
            5,500
            
            90
            
            5/8
      mileLernerville
      Speedway
            
            Sarver,
      Pennsylvania
            
            8,000
            
            112
            
            1/2
      mileVolusia
      County Speedway
            
            Barberville,
      Florida
            
            6,500
            
            90
            
            1/2
      mile





In October 2007, we granted mortgagestotaling $6.0 million  forLernerville Speedway and Volusia County
Speedway.  We also granted a mortgage in the amountof $3.1 million for CayugaCounty Fairgrounds and Rolling Wheels Raceway,
collectively.  The foregoing mortgages were granted to secure the
repayment of our outstanding Senior Notes in the aggregate principal amount of
$12,000,000.





Cayuga
County Fairgrounds





The
Cayuga County Fairgrounds property in Weedsport, New York includes a 3/8 mile
dirt track with grandstand seating capacity for 3,000 and an observation deck
with capacity for 200.





The
property also includes a 4,400 square foot Hall of Fame and Classic Car Museum
holding vintage and classic race and muscle cars.  The museum also
houses the Hall of Fame, honoring past successful drivers in the northeast area.
A gift shop, video screening room and workshop/garage are also included in the
museum facility.





The
approximately 80 acres include a horse stable, an adjoining show ring, a cattle
barn, a six-bay maintenance garage, six concessions buildings, a guest
bathroom/shower facility, a driver bathroom/shower facility, a pit shack, an
officials’ tower with four VIP suites, a ticket office, a 3,500 square foot
warehouse, a 400 square foot first aid station, and a parking area and camping
area. In addition, the property includes a multi-use facility housing a video
production studio, a conference room and fair offices and a 2,500 square foot
main office building.





Rolling
Wheels Race Track





The
Rolling Wheels Race Track property in Elbridge, New York includes a 5/8 mile
dirt track with grandstand seating capacity for 5,500 and an observation deck
with capacity for 400.  The facility includes eight luxury skyboxes, a
VIP pavilion, an officials’ tower, three concessions buildings, an infield
building, modern restroom facilities, and an office/ticket booth. The track and
associated property covers approximately 90 acres with room for parking and a
drive-in camping area overlooking the speedway.





-9-
 Table of Contents


Lernerville
Speedway





The
Lernerville Speedway property in Sarver, Pennsylvania includes a 1/2 mile dirt
track with grandstand seating capacity for 8,000 and a VIP skybox with capacity
for 50.  The facility includes an official’s tower, three concessions
buildings, an infield building, two restroom facilities and four ticket
booths.   The associated property covers approximately 112 acres
with room for parking and includes two single-family dwellings, at 1,440 and
1,960 sq. foot, respectively.  One of these is currently leased on a
month-to-month basis and the other is used for staff housing for events promoted
by the Company.  Additionally, the property includes a 7,600 square
foot storage building and a 5,800 square foot warehouse with approximately 20%
of this used as office space.





Volusia
County Speedway





The
Volusia County Speedway property in Barberville, Florida includes a 1/2 mile
dirt track with grandstand seating capacity for 6,500 and a VIP skybox with
capacity for 30.  The facility includes an official’s tower, three
concessions, an infield building, restroom facilities and four ticket
booths.  The associated property covers approximately 90 acres with
room for parking and a camping area.  Additionally, the property
includes a dirt track for go-cart racing.  In addition, the property
includes a 1,000 square foot garage.





Corporate
Office





Our
corporate office is located in Concord, North Carolina, and includes
approximately 9,000 square feet of office and 7,000 square feet of warehouse
space.  Lease payments are $9,492 per month through March 31, 2008,
escalating to $9,682 on April 1, 2008, $9,876 on April 1, 2009, $10,073 on April
1, 2010 and $10,275 beginning April 1, 2011 through lease termination, in May
2012.   The management of all merchandising activities, video
production management, accounting and corporate management are conducted from
the corporate offices.  Additionally, all operations management,
including race and technical operations, marketing and media/public relations
activities are conducted from the Concord, North Carolina facility.





UMP
DIRTcar Office





The UMP
office located in Evansville, Indiana is leased on a one-year term, $500 per
month for approximately 480 square feet of office space.  All regional
UMP DIRTcar operations management activities are conducted from this
facility.





Leased
Racing Facilities





In
addition to its owned racing facilities, we lease 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.





We believe that our properties are adequate to support
our current operations and that adequate additional properties or office space
is available to support projected growth in our operations over the next 12
months.





Item 3.
            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 us 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 us 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.  We answered RTA’s complaint denying
all claims, and intend 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.





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.


-10-
 Table of Contents





Item 4.
            Submission
      of Matters to a Vote of Security
Holders





On January 22, 2008, we held our annual meeting of
stockholders.  At this meeting, the following matters were voted upon
and approved by our stockholders:




·
            each of Messrs. Carter, Hussey, Agajanian, and
      Rumsey, the nominees for the Board of Directors, was elected by a vote of
      21,431,875 FOR and 572,704 WITHHELD;·
            the proposal to ratify the appointment of Murrell,
      Hall, McIntosh & Co., PLLP  as our independent auditors for
      the fiscal year ended December 31, 2007 was approved by a vote of
      22,004,570 FOR and 10 AGAINST, and 40 shares
    ABSTAINED;·
            the amendment to our Certificate of Incorporation
      to authorize the Board of Directors, in its sole and absolute discretion
      without further action of the stockholders, to implement a reverse stock
      split of the our common stock at a ratio of not less than 1-for-3 and not
      greater than 1-for-10 at any time prior to December 31, 2009, was approved
      by a vote of 16,087,553 FOR and 3,237,226 AGAINST, and 2,679,481 shares
      ABSTAINED; and·
            the amendment to our Certificate of Incorporation
      to change our name from “DIRT Motor Sports, Inc.” to “World Racing Group,
      Inc.” was approved by a vote of 21,998,523  FOR and 5,606
      AGAINST, and 130 shares
ABSTAINED.




PART II





Item 5.
            Market
      for Registrant’s Common Equity,  and Related Stockholder Matters
      and Small Business Purchases of Equity
  Securities





Our
common stock is quoted in the Over the Counter Bulletin Board (OTCBB) under the
symbol WRGI.OB.  The range of high and low bid quotations for our
common stock for each quarter within our last two fiscal years and most recent
quarter, as reported by the OTCBB, was as follows:





Quarterly
      Common Stock Price Ranges2007
            
            2006Quarter
            
            High
            
            
            Low
            
            
            High
            
            
            Low1st
            
            $
            2.57
            
            
            $
            1.62
            
            
            $
            5.90
            
            
            $
            3.302nd
            
            
            2.05
            
            
            
            0.86
            
            
            
            4.20
            
            
            
            3.003rd
            
            
            1.25
            
            
            
            0.40
            
            
            
            3.78
            
            
            
            2.354th
            
            
            0.85
            
            
            
            0.30
            
            
            
            3.07
            
            
            
            2.10





The above
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily represent actual transactions.  As
of March 31, 2008, there were 32.1 million shares of our common stock
outstanding held by approximately 452 stockholders of record.





Dividend
Policy





We have
never declared or paid any cash dividends on our common stock.  We do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.  Further, so long as our Senior Notes remain outstanding, we
may not pay any dividend on our common stock unless we have first paid all
amounts due under the terms of the Senior Notes.





Item 6.
            Management’s
      Discussion and Analysis





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 beginningonpage F2of
thisAnnual Report.This Form 10-KSB 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-KSB 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.  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, including general economic and business
conditions, the business opportunities (or lack thereof) that may be presented
to and pursued byus, 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.  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.


-11-
 Table of Contents





We were a
development stage company until February 4, 2004. Thus, no ongoing operations
were conducted and no revenues were generated during the period ended September
30, 2003. Operating expenses incurred were general and administrative expenses
associated with maintaining the Company while the aforementioned acquisitions
were pursued.





Quantitative
and Qualitative Disclosures About Market Risk





Our
business is currently principally in the United States. As a result, our
financial results are not affected by factors such as changes in foreign
currency exchange rates or economic conditions in foreign markets. We do not
engage in hedging transactions to reduce our exposure to changes in currency
exchange rates, although if the geographical scope of our business broadens, we
may do so in the future.





Our
exposure to risk for changes in interest rates relates primarily to our
investments in short-term financial instruments.  Investments in both
fixed rate and floating rate interest earning instruments carry some interest
rate risk.  The fair value of fixed rate securities may fall due to a
rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall.  Partly as a result of this, our
future interest income may fall short of expectations due to changes in interest
rates or we may suffer losses in principal if we are forced to sell securities
that have fallen in estimated fair value due to changes in interest
rates.  However, as substantially all of our cash equivalents consist
of bank deposits and short-term money market instruments, we do not expect any
material change with respect to our net income as a result of an interest rate
change.





Our
exposure to interest rate changes related to borrowing has been limited by the
use of fixed rate borrowings, and we believe the effect, if any, or reasonably
possible near-term changes in interest rates on our financial position, results
of operations and cash flows should not be material.





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





In 2006,
we scheduled 79 World of Outlaw Sprint Series races, 40 World of Outlaw Late
Model Series races, 32 Advance Auto Parts Big Block Modified events, and over
200 other major racing events in our other regional and touring racing
series.   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.  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.





The
concentration of racing events in any particular quarter, and the growth in our
operations with attendant increases in overhead expenses, reduces 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 primarily geographically 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 the year ended December 31, 2007 and
2006





Our total
revenues increased to $19.6 million in 2007 from $15.1 million in
2006.  Race sanctioning and event fees revenue increased to $8.2
million in 2007 from $4.7 million in 2006.  This increase is due to an
increase in the number of sanctioned events and fees per event in 2007 compared
to 2006.  In 2007 we completed 76 World of Outlaw Sprint Series
sanctioned events at non-owned facilities and five events at our facilities. In
2006 we completed 66 World of Outlaws Sprint Series sanctioned events at
non-affiliated facilities and five events at our facilities.   In
2007 we completed 56 World of Outlaw Late Model Series events and in 2006 we
completed 34.





During
2007 we generated $7.3 million in track operations, ticket and concession sales
as compared to $6.9 million in 2006. These revenues are generated at events held
at our owned or operated racetracks. The increase is due to the addition of
several multi-day events at our owned racetracks during June 2007 and an
increase in attendance at our weekly events, offset in part by a decrease in the
number of nightly events that we held at leased facilities in
2007.  Our racing season at our Florida race track begins in February
of each year and the season in New York and Pennsylvania begins in late March or
early April of each year and ends in late September or early October but is
dependent upon the weather in each region.  We expect our track
operations, ticket and concession sales to increase in 2008 compared to 2007 as
a result of an increase in the number of events scheduled.





Our
sponsorship and advertising revenues increased to $3.5 million in 2007 from $2.5
million in 2006.  This increase is due to sponsorship and advertising
revenues for advertising within our television broadcasts which began to air in
May 2007 and aired through November 2007. Sales of merchandise decreased to
$505,218 in 2007 from $754,592 in 2006 due to new third party arrangements to
outsource our product sales at events other than at our World of Outlaw Sprint
Series races.  We expect that our net operating cash generated from
these new arrangements will increase due to the substantially lower costs
associated with these arrangements; however these arrangements will result in
decreased gross revenues recorded.





-12-
 Table of Contents


Operating
Expenses.





Our total
operating expenses increased slightly to $30.4 million in 2007 from $30.0
million in 2006.  The increase is due to the increase in the number of
events held during the year as well as increased expenditures incurred to
produce and air our television broadcasts.  We have offset this
increase in part by reducing other operating expenses.





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 $22.8 million
in 2007 from $19.3 million in 2006.  This increase is due to increases
in television programming and production costs of $3.3 million and increased
prizes and awards at additional events held in 2007 that were not held in
2006.  These increases were offset in part by (i) decreases in
personnel, contract labor cost and other costs at our events at Volusia Speedway
and certain of our racing series, and (ii) decreases in certain prize and purse
fund amounts for 2007 as compared to 2006.





Sales and
Marketing.  Sales and marketing expenses principally include
personnel costs, and  expenses incurred by our sales, marketing and
public relations departments.  These expenses include costs incurred
in connection with corporate and event sponsors, professional fees, printing
costs for our advertising publications and fulfillment of our sponsorship
agreements.  Sales and marketing expenses decreased to $1.7 million in
2007 from $1.9 million in 2006, principally due to increased professional fees,
promotion and advertising expenses incurred in the fourth quarter of 2006 to
launch advertising and promotional campaigns for 2007.





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 sprint touring
series events and the cost of goods sold during 2007.  Merchandise
operations and cost of sales in 2006 included all operating expenses related to
the distribution of our merchandise, including mobile store fronts that are
present at all of our touring series events and the cost of goods sold.
Beginning in 2007, we entered into arrangements to outsource the sale of branded
merchandise at each of our touring series events other than at our World of
Outlaws Sprint Series events.  These arrangements generally include
the payment to us of a one-time rights fee and a percentage of sales over
certain volume thresholds. These fees are recorded as sponsorship and
advertising sales.





General and
Administrative.  Our general and administrative expenses
decreased to $2.7 million in 2007 from $3.0 million in 2006 as a result of
decreases in the number of administrative personnel and decreased legal and
professional fees.  These amounts were offset in part by costs
incurred in connection with the relocation of our corporate office from Oklahoma
to North Carolina.





Non-Cash Stock
Compensation.  We incurred non-cash stock compensation expenses
of $2.2 million in 2007 and $2.7 million in 2006.  These
expenses  represent the fair value of warrants and options issued to
employees and non-employees in accordance with SFAS 123R and the fair value of
restricted stock issued to employees.





Depreciation and
Amortization.  Depreciation and amortization expense increased
slightly to approximately $820,000 in 2007 from approximately $774,000 in 2006
due to the addition of equipment and leasehold and track improvements during
2007.





Net Interest
Expense.  Interest expense decreased to $2.0 million in 2007
from $8.0 million in 2006.  Interest expense for 2006 includes the
non-cash amortization of the discounts recorded for the value assigned to
warrants granted in connection with the promissory notes issued during the
fourth quarter of 2005 and in 2006 through the closing of our Series D
financing. At the time of the note conversions in May 2006, any unamortized note
discount was recorded as an increase in interest expense during
2006.  Interest expense for 2007 reflects 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 the shares of common stock that were issued in connection with
the Senior Notes issued during late March through September 30,
2007.





Liquidity
and Capital Resources





We
generated $19.6 million in revenues during the year ended December 31, 2007;
however, we have not yet achieved a profitable level of operations. Our primary
source of funding for our operating deficits during the year ended December 31,
2007 has been from the issuance of notes payable.





During
the year ended December 31, 2007, we used $8.9 million in operating
activities.  The use of cash was primarily the result of a net loss of
$12.7 million, which was offset by depreciation and amortization of $0.8
million, non-cash stock compensation of $2.2 million, non-cash interest expense
of $0.9 million and other working capital changes, primarily accounts payable,
accrued liabilities and deferred revenue.





During
the year ended December 31, 2007, we used $0.4 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 year ended December 31, 2007, financing activities provided $10.4 million
primarily through the issuance of $12.0 million in Senior Notes payable offset
by repayment of $0.7 million in notes payable and payments of $1.0 million in
placement agent fees.


-13-
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We
incurred a net loss of $12.7 million for the year ended December 31,
2007.  We had an accumulated deficit of $73.4 million and had a
deficit net worth of $1.5 million as of December 31, 2007, which raises
substantial doubt about our ability to continue as a going
concern.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.





Between March 23, 2007 and April 3, 2007, we issued five
senior secured demand promissory notes in the aggregate principal amount of $1.0
million, payable on June 30, 2007 (Maturity Date). Interest accrued on the notes
at 8% per annum, until the Maturity Date,
and 12% thereafter.Our
obligations under the notes were secured by all of our assets.  The
outstanding principal amounts and accrued interest on the notes were paid in
fullfrom the proceeds of the Note Financing described below.





On September 28, 2007, we completed the closing of a
secured note financing (Note Financing). At the closing, we issued $12.0 million
principal amount of 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 bridge
notes (Short-Term Notes)that were issued
in 2007. We used approximately $470,000 of
the proceeds to repay certain unsecured indebtedness, approximately $450,000 to
repay the Short-Term Notes, and we've allocated up to $2.4 million to repay
outstanding amounts due on mortgages on Volusia Speedway Park and/or Lernerville
Speedway. Under the terms of the Note Purchase Agreement, we may issue up to an
additional $3.0 million principal amount of Senior Notes.





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 of the Senior Notes, we
prepaid $1,167,347 of interest, representing the first three 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 ofourassets andthe assets orour subsidiaries, including our four race tracks,
pursuant to a security agreement and 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 by and among us, our principal operating subsidiaries, and the
lenders.





The Senior Notes were issued together with 275,000
shares of 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 Note Purchase Agreement contains various standard
and customary covenants, including granting the lenders the right to participate
in all future offerings of securities by us.





On December 14, 2007, wereceived consent agreements from holders of 100% of the
issued and outstanding shares of our Series D Convertible Preferred Stock
(Series D Stock), representing 17,684 shares. Under the terms of the consent
agreement, 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 numberof shares of common stock (Series D Exchange). As a result of
the Series D Exchange, we eliminated
approximately $54.3million in liquidation
preference associated with the Series D Stock, andaccrued dividends, and issued 15.6 million shares of
common stock and 41,164 shares of Series E Convertible Preferred Stock
convertible into 41.1 million shares of common stock.





In connection with the execution of the Consent
Agreement, 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
Warrant Exchange,weissued
approximately 15,648,889shares of common
stock and41,164shares of Series E Convertible Preferred Stock convertible into 41,164,000shares of common stock.





During
the year ended December 31, 2006, we used $9.5 million in operating
activities.  The use of cash was primarily the result of a net loss of
$22.8 million, which was offset by, non-cash interest expense of $7.9 million,
depreciation and amortization of $0.8 million, non-cash stock compensation of
$2.7 million, a charge related to the impairment of our goodwill and other
working capital changes, primarily accounts payable and accrued
liabilities.





During
the year ended December 31, 2006, we used $0.4 million in investing activities
primarily for track improvements.





During
the year ended December 31, 2006, financing activities provided $10.5 million
primarily through the issuance of $12.0 million in preferred stock, and $1.9
million of notes payable, which amounts were offset by repayment of $1.9 million
in notes payable and $1.3 million in other offering costs.





-14-
 Table of Contents


We are
dependent on existing cash resources and external sources of financing to meet
our 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 budgeted and
anticipated working capital requirements.  No assurances can be given
that such capital will be available to us on acceptable terms, if at all. If we are unable to obtain additional financing when
they are needed or if such financing cannot be obtained on terms favorable to us
or if we are 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 we are unsuccessful in our 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 we are 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 we are unable to continue as a going concern.





The
following table summarizes our contractual obligations as of December 31,
2007:





Payment
      Due by Period2012
      andContractual
      obligations
            
            Total
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            thereafterOperating
      leases
            
            $
            777,901
            
            
            $
            277,616
            
            
            $
            139,931
            
            
            $
            142,285
            
            
            $
            144,694
            
            
            $
            73,375Employment
      agreements
            
            
            562,101
            
            
            
            515,601
            
            
            
            46,500
            
            
            
            -
            
            
            
            -
            
            
            
            -Notes
      payable and accrued interest
            
            
            14,335,366
            
            
            
            1,010,161
            
            
            
            360,120
            
            
            
            12,805,337
            
            
            
            29,564
            
            
            
            130,184





Operating
lease expense for the year ended December 31, 2007 and 2006 was $276,397 and
$160,100, respectively.





Off-Balance Sheet Arrangements





As of December 31, 2007, 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
principals generally accepted in the United States.  The significant
accounting policies used by us in preparing our consolidated financial
statements are described in note 3 to our audited consolidated 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
audited consolidated 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.





-15-
 Table of Contents


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.




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 we receive 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 $240,000 and $166,000 of
total revenues for the years ended December 31, 2007 and 2006.





Expense
Recognition and Deferral





Certain
direct expenses pertaining to specific events, including prize and point fund
monies, advertising and other expenses associated with the promotion of our
racing events are 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
December 31, 2007, we had the following warrants and stock options
outstanding:





·
            Placement
      Agent Warrants to purchase 581,266 shares of common stock at exercise
      prices ranging from $2.70 to $5.00·
            Warrants
      to purchase 375,059 shares of common stock at an exercise price of
      $3.00·
            Other
      warrants to purchase 40,000 shares of common stock issued at an exercise
      price  of $3.65·
            Employee
      stock options to purchase 300,000 shares at an exercise price of $2.49 per
      share·
            Employee
      stock options to purchase 45,000 shares at an exercise price of $2.50 per
      share·
            Employee
      stock options to purchase 69,000 shares at an exercise price of $1.70 per
      share·
            Employee
      stock options to purchase 45,000 shares at an exercise price of $2.00 per
      share·
            Employee
      stock options to purchase 300,000 shares at an exercise price of $3.65 per
      share·
            Employee
      stock options to purchase 300,000 shares at an exercise price of $3.75 per
      share·
            Director
      stock options to purchase 375,000 shares at exercise prices ranging from
      $3.00 to $4.75 per share·
            Other
      stock options totaling 390,000 shares at exercise prices ranging from
      $3.00 to $4.50 per share





In
addition, as of December 31, 2007, our Series E Preferred Stock was convertible
into 44.5 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.





-16-


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 December 31, 2007, we believe there
is no impairment of property and equipment.





Purchase
Accounting





We
accounted for its acquisitions of assets in accordance with Statement of
Financial Accounting Standards No. 141, Business Combination(SFAS
No. 141), 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, we compare 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. We have chosen the fourth quarter
of our fiscal year to conduct our 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.


-17-
 Table of Contents





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 our
financial position.





Concentration
of Credit Risk





Due to
the nature of our sponsorship agreements, we could be subject to concentration
of accounts receivable within a limited number of accounts.


As of
December 31, 2007, we had bank deposits in excess of FDIC insurance of $1.4
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).





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 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 is assessing the impact of the adoption of this
Statement.




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.


-18-
 Table of Contents





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 our
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. We are currently assessing the impact of
SFAS 159 on its consolidated financial statements.





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.





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 December 31, 2007 related to outstanding stock
options was $2.0 million.


-19-
 Table of Contents





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 year ended December
31, 2007 is presented below:




Shares
            
            
            Weighted
      Average Exercise PriceOptions
      outstanding at December 31, 2006
            
            
            2,040,000
            
            
            $
            3.54Granted
            
            
            123,000
            
            
            
            1.83Exercised
            
            
            —
            
            
            
            —Forfeited/expired
            
            
            (339,000
            )
            
            
            3.59Options
      outstanding at December 31, 2007
            
            
            1,824,000
            
            
            $
            3.42






Item 7.
            Financial
      Statements





Please
refer to pages F2 through F18.





Item 8.
            Changes
      in and Disagreements on Accounting and Financial
  Disclosure





None





Item 8A(T)
            Controls
      and Procedures





Disclosure Controls and
Procedures.





An
evaluation of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934) was carried out by us under the supervision and with the participation of
our Chief Executive Officer, who serves as our principal executive officer and
our principal financial officer.  Based upon that evaluation, he
concluded that as of December 31, 2007, our disclosure controls and procedures
were effective to ensure (i) that information we are required to disclose in
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and (ii) that such information is accumulated and
communicated to management,  in order to allow timely decisions
regarding required disclosure.




Management’s Report on Internal
Control over Financial Reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the Securities
Exchange Act of 1934.  Our internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial reporting and the preparation of financial
statements for external purposes, in accordance with generally accepted
accounting principles.  Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





Our
management conducted an evaluation of the effectiveness of internal control over
financial reporting using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework.  Based on its evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31,
2007.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this Annual Report.




Changes
in Internal Control Over Financial Reporting




There
have not been any changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act )
that occurred during the fiscal quarter ended December 31, 2007 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.


-20-
 Table of Contents


This
report shall not be deemed to be filed for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liabilities of that
section, and is not incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general
incorporation language in such filing.





During
our last fiscal quarter of 2007, there was no change in our internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.





Item 8B.
            Other
      Information





None





PART III





Item 9.
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act





The
following table provides information about our executive officers and directors
and their respective ages and positions as of December 31, 2007.  The
directors listed below will serve until our next annual meeting of
stockholders:





Name
            Age
            
            PositionBrian
      M. Carter
            38
            
            Chief
      Executive Officer, Chief Financial Officer and
    DirectorTom
      W. Deery
            53
            
            President
      and Chief Operating OfficerBenjaman
      L. Geisler
            30
            
            Executive
      Vice President and Chief Marketing OfficerRobert
      F. Hussey
            58
            
            Director
      and Chairman of the Board of DirectorsCary
      J. Agajanian
            66
            
            DirectorDaniel
      W. Rumsey
            46
            
            Director





Brian M. Carter, Chief
Executive Officer, Chief Financial Officer and Director. Mr. Carter has
served as the Company’s Chief Executive Officer since November 15, 2007, has
served as the Company’s Chief Financial Officer since February 1, 2005, and
as a Director since November 29, 2007. Prior to joining the Company, he served
as the Vice President and Chief Financial Officer of Prescient Applied
Intelligence, Inc. (“Prescient”) and served on Prescient’s Board of Directors
from December 23, 2003 until March 2006. From November 2000 until January
2002 he was Prescient’s Vice President of Finance, and from June 1999 to
November 2000 he was Controller of Prescient. From January 1991 through June
1999 he held various positions with Deloitte & Touche LLP, most
recently as Senior Manager. Mr. Carter received his B.B.A. in finance and
accounting from Texas A&M University.





Tom W. Deery, President and
Chief Operating Officer. Mr. Deery has served as the Company’s President
since March 1, 2006, and served as the Company’s acting Chief Executive
Officer from May 19, 2006 to November 15, 2007. From November 2002 until
joining the Company, Mr. Deery was the Senior Vice President, Motorsports
for Rand Sports and Entertainment Insurance. From March 2001 to November 2002,
Mr. Deery was founder and President of Deery Sports Management, a national
motorsports consulting and management firm. From 1996 until forming Deery Sports
Management, Mr. Deery served as Vice President of NASCAR weekly series and
regional touring. Mr. Deery has a deep background in facility management
and ownership. Mr. Deery holds a Bachelors of Science degree in Business and
Economics from the University of Wisconsin — Platteville.





BenjamanL. Geisler, Executive Vice
President and Chief Marketing Officer. Mr. Geisler has served as the
Company’s Executive Vice President and Chief Marketing Officer since November
15, 2007, and served as Executive Vice President of Operations from
March 1, 2006 to November 15, 2007. From June 1997 until joining the
Company, Mr. Geisler was employed in various capacities with Next
Marketing, Inc. (“Next”), where he most recently served as Senior Vice
President.  Next is a privately held sports and event marketing firm
heavily focused on motorsports. Mr. Geisler joined Next with the sole
purpose of extending the firm’s motorsports reach beyond its open-wheel
background into the NASCAR arena. During his tenure at Next, Mr. Geisler
was responsible for managing or placing over $100 million in sponsorship
and activation spending, while establishing Next as a leader in both the NASCAR
and event marketing arenas. Mr. Geisler holds a Bachelor of Arts degree in
Communications & Commerce though a joint program among the College of
Arts and Sciences of the University of Pennsylvania, Philadelphia, the Annenberg
School of Communications, and the Wharton School of Business.





Robert F. Hussey.
Mr. Hussey was appointed to our Board of Directors in August 2006, and was
elected Chairman in November 2007.  He currently serves on the Board
of Directors of Axcess International, Inc. and Digital Lightwave, Inc.
Mr. Hussey served as the Interim President and CEO of Digital Lightwave,
Inc. from February 2005 to March 2006. From 2001 to 2005 Mr. Hussey was the
Chief Operating Officer and Director of H.C. Wainwright & Co., Inc.
Mr. Hussey has an extensive operational and financial background.
Mr. Hussey holds a BSBA Finance from Georgetown University and an MBA in
International Finance from George Washington University.





Cary J.
Agajanian.  Mr. Agajanian was appointed to our Board of
Directors in August 2006.  Mr. Agajanian is the founder and
currently is a principal of Motorsports Management International, a
multi-faceted company that is an industry leader in the areas of motorsports
event representation, corporate consulting, and sponsorship
negotiation.  For the past 10 years, Mr. Agajanian has
served on Motorsports boards such as the Automobile Competition Committee of the
United States (ACCUS), the American Motorcyclist Association (AMA,
Vice-Chairman), the United States Auto Club (USAC), and the Sports Car Clubs of
America (SCCA).  Mr. Agajanian is also the Managing Partner of
Agajanian, McFall, Weiss, Tetreault and Crist, a law firm specializing in the
sports, leisure and entertainment, and hospitals and medical profession
industries.


-21-





Daniel W.
Rumsey.Mr. Rumsey has served as a member of our Board of
Directors since July 2005.  He is currently the Executive Chairman of
the Board of Directors and Interim Chief Financial Officer of Prescient Applied
Intelligence, Inc.  Mr. Rumsey is also the President and Chief
Executive Officer of Azzurra Holding Corporation, a public company that recently
emerged from protection under Chapter 11 of the U.S. Bankruptcy
Code.  From March 2003 to March 2006, Mr. Rumsey held various other
senior executive positions at Azzurra Holding
Corporation.    From 2000 to 2002, Mr. Rumsey was Vice
President and General Counsel of Knowledge Kids Network, Inc., a multi-media
education company. Prior to joining Knowledge Kids Network, Inc., Mr. Rumsey was
the President and General Counsel of Aspen Learning Systems and NextSchool,
Inc., which he joined in February 1997. Mr. Rumsey sold Aspen Learning Systems
and NextSchool to Knowledge Kids Network in 1999. Mr. Rumsey has an extensive
legal and finance background, dating back to 1987 when he served as a staff
attorney in the SEC’s Division of Corporation Finance.   Mr. Rumsey
serves on the Board of Directors of Prescient Applied Intelligence, Inc., XELR8
Holdings, Inc. and Azzurra Holding Corporation Mr. Rumsey received his
J.D. from the University of Denver College of Law in 1985, and his B.S. from the
University of Denver in 1983.





Board
Committees





We have
an Audit Committee, a Compensation Committee, and a Nominating and Corporate
Governance Committee.  On October 28, 2006, Mr. Hussey was appointed
Chairman of our Audit Committee; Mr. Agajanian was appointed Chairman of our
Compensation Committee and Mr. Rumsey was appointed Chairman of our Nominating
and Corporate Governance Committee. The Audit Committee is primarily responsible
for reviewing the services performed by our independent auditors, evaluating our
accounting policies and our system of internal controls. Mr. Hussey is an
“audit committee financial expert” as defined in Item 407(d)(5) of
Regulation S-B under the Exchange Act. The Compensation Committee is
primarily responsible for reviewing and approving our salary and benefits
policies (including stock options), including compensation of executive
officers.





Compliance
with Section 16 (a) of the Exchange Act





Section
16(a) of the Securities Exchange Act of 1934, as amended (Exchange Act),
requires our officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange Commission
(SEC). Such persons are required by the SEC regulation to furnish us with copies
of all Section 16(a) forms they file. During the period ended December 31, 2007
we believe that our officers, directors and persons who own more than 10% of a
registered class of our equity securities have timely filed all reports required
by Section 16(a) of the Exchange Act. In making this disclosure, we have relied
solely on our review of the copies of such forms received by us with respect to
fiscal 2007, or written representations from certain reporting
persons.





Code
of Ethics




We
maintain policies and procedures that represent both the code of ethics for the
principal executive officer, principal financial officer, and principal
accounting officer under SEC rules. The code applies to all directors, officers,
and employees.




The code
is posted on our internet site and is available free of charge on request to our
Secretary at the Company's address. Any amendment of the code will be promptly
posted on our website at http://www.worldracinggroup.com.




A
committee of the Board of Directors will review any issues under the code
involving an executive officer or director and will report its findings to the
Board. We do not envision that any waivers of the code will be granted, but
should a waiver occur for an executive officer or director, it will also be
promptly disclosed on our website.





Item 10.
            Executive
      Compensation





The
following table sets forth certain information about the compensation paid or
accrued during the years ended December 31, 2007 and 2006 to our Chief
Executive Officer and Chief Financial Officer, our President and Chief Operating
Officer, our Executive Vice President and Chief Marketing Officer, and our
former Chief Marketing Officer, the only other executive officers whose total
compensation exceeded $100,000.




-22-
 Table of Contents




Name
      and Principal Position
            
            Year
            Salary
              ($)
            Stock
              Awards*
              ($)
            Option
      Awards**
              ($)
            All Other Compensation
              ($)
            Total
              ($)Brian
      M. Carter
              Chief Executive Officer, Chief Financial Officer and
      Director
            
            2007
              2006
            $182,077
              $180,000
            -
              $1,134,000(1)
            -
              -
            $8,400
              $8,400
            $190,477
              $1,322,400Tom
      W. Deery(2)
              President
      and Chief Operating Officer
            
            2007
              2006
            $192,000
              $156,462
            -
              $373,500(2)
            -
              $300,
      398(2)
            -
              -
            $192,000
              $830,360Benjaman
      L. Geisler
              Executive
      Vice President and Chief Marketing Officer
            
            2007
              2006
            $180,000
              $154,846
            -
              $615,000(3)
            -
              $615,719(3)
            -
              -
            $180,000
              $1,385,565Robert
      L. Butcher(4)
              Former
      Chief Marketing Officer``
            
            2007
              2006
            $180,000
              $154,846
            -
              $615,000
            -
              $615,719
            -
              $15,000
            $180,000
              $1,400,565




*     The
assumptions used in calculating the value of the option awards are located in
Note 3 of our Consolidated Financial Statements.





**  The
assumptions used in calculating the value of the stock awards are located in
Note 3 of our Consolidated Financial Statements.





(1)
            
            In
      connection with entering into the employment agreement described below,
      Mr. Carter was granted options to purchase 300,000 shares of common stock
      at the market price on the date of grant. Options to acquire 75,000 shares
      became immediately exercisable, and the remainder becomes exercisable in
      three installments of 75,000 shares on the anniversary of the grant date
      in 2006, 2007 and 2008.   Additionally, in July 2006, Mr.
      Carter was granted 300,000 shares of common stock.  Such shares
      are restricted in their sale or transfer until February 1,
      2009.(2)
            
            In
      connection with entering into the employment agreement described below,
      Mr. Deery was granted options to purchase 300,000 shares of common stock
      at the market price on the date of grant.  Options to acquire
      75,000 shares became immediately exercisable, and the remainder becomes
      exercisable in three installments of 75,000 shares on the anniversary of
      the grant date in 2007, 2008 and 2009.   Additionally, Mr.
      Deery was granted 150,000 shares of common stock.  Such shares
      are restricted in their sale or transfer until January 1,
      2009.(3)
            
            In
      connection with entering into the employment agreement described below,
      Mr. Geisler was granted options to purchase 300,000 shares of common stock
      at the market price on the date of grant.  Options to acquire
      75,000 shares became immediately exercisable, and the remainder became
      exercisable in three installments of 75,000 shares on the anniversary of
      the grant date in 2007, 2008 and 2009.  Additionally, Mr.
      Geisler was granted 150,000 shares of common stock.  Such shares
      are restricted in their sale or transfer until January 1,
      2009.(4)
            
            Mr.
      Butcher’s employment was terminated in November 2007.  In
      connection with entering into the employment agreement described below,
      Mr. Butcher was granted options to purchase 300,000 shares of common stock
      at the market price on the date of grant.  Options to acquire
      75,000 shares became immediately exercisable, and the remainder became
      exercisable in three installments of 75,000 shares on the anniversary of
      the grant date in 2007, 2008 and 2009.   Additionally, Mr.
      Butcher was granted 150,000 shares of common stock.  Such shares
      were restricted in their sale or transfer until January 1,
      2009.  In connection with Mr. Butcher’s termination of
      employment, all of his options have terminated, and all restricted shares
      of common stock have immediately
vested.





OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2007





The
following table generally sets forth the number of outstanding equity awards
that have not been earned or vested or that have not been exercised for each of
the named executive officers as of December 31, 2007.  No other equity
awards otherwise reportable in this table have been granted to any of our named
executive officers.




-23-
 Table of Contents




Option
      Awards
            
            Stock
      AwardsNumber
      of Securities Underlying Unexercised Options (#)Exercisable
            
            Unexercisable
            
            Option
      Exercise
              Price
              ($)
            
            Option
      Expiration
              Date
            
            Number
      of Shares or Units of Stock That Have Not Vested (#)
            
            Market
      Value of Shares or Units of Stock That Have Not Vested ($)(1)Tom
      W. Deery
            
            150,000
            
            150,000(2)
            
            $2.49
            
            06/30/2011
            
            150,000(2)
            
            $90,000Brian
      M. Carter
            
            300,000
            
            -
            
            $3.65
            
            02/01/2010
            
            300,000(3)
            
            $180,000Benjaman
      L. Geisler
            
            225,000
            
            75,000(4)
            
            $3.75
            
            02/25/2011
            
            150,000(4)
            
            $90,000Robert
      L. Butcher
            
            225,000
            
            75,000(4)
            
            $3.75
            
            02/25/2011
            
            150,000(4)
            
            $90,000




(1)
            
            Based
      on $.60 per share, the last sales price of our common stock on December
      31, 2007, as reported by the OTCBB.(2)
            
            Mr.
      Deery’s unexercisable options vest in two installments of 75,000 shares
      annually on August 20, 2008 and 2009, and his unvested shares vest on
      January 1, 2009.(3)
            
            Mr.
      Carter’s unvested shares vest on January 1, 2009.(4)
            
            Messrs.
      Geisler’s and Mr. Butcher’ unexercisable options vest on March 1, 2009,
      and their unvested shares vest on January 1,
  2009.





Narrative Disclosure to Summary Compensation and
Outstanding Equity Awards Tables





During 2007, we had a written employment agreement with
each of our named executive officers. These agreements, which vary in term,
provide for, among other things, a base salary, discretionary bonus and the
issuance of stock options or restricted stock.  Each of the employment
agreements contains standard and customary confidentiality
provisionsand provides for severance payments to the executive
officer in certain circumstances.  For a more complete description of
the options, restricted stock and other terms contained in these agreements,
please see “Employment Agreements” below.





DIRECTOR
COMPENSATION





The
following table sets forth information concerning the compensation of our
directors during the last completed fiscal year:




Name
            
            Fees Earned or
              Paid in Cash
              ($)
            
            
            All
      Other
              Compensation
              ($)
            
            
            Total
              ($)Harvey
      Schiller(1)
            
            
            18,000
            
            
            
            -
            
            
            
            18,000Daniel
      W. Rumsey(2)
            
            
            22,500
            
            
            
            55,000
            
            
            
            77,500Robert
      Hussey
            
            
            22,500
            
            
            
            -
            
            
            
            22,500Cary
      Agajanian
            
            
            22,500
            
            
            
            -
            
            
            
            22,500




(1)
            
            Dr.
      Schiller resigned from our Board of Directors on November 28,
      2007.(2)
            
            Mr.
      Rumsey was paid $5,000 per month in connection with his service as
      Corporate Secretary and Special Counsel during 2007.  As of
      December 31, 2007, Mr. Rumsey owned an option to purchase 75,000 shares of
      common stock.





-24-
 Table of Contents


Narrative
Disclosure to Director Compensation Table





Each
director receives $30,000 per year paid quarterly, and the chairman receives
$35,000 per year paid quarterly. These amounts assume that each director is a
member of a committee and a chairman of a committee of the Board of
Directors.  Annual compensation is reduced by $4,000 annually if a
director is not a member of a committee and $10,000 annually if a director is
not a chairman of a committee.  Each non-employee director receives
75,000 shares of restricted stock at the time of their initial election, which
vests in equal installments over three years.   Additionally,
annually, on or promptly following the date that we file our Annual Report on
Form 10-KSB, each director shall be issued options to purchase 25,000 shares of
common stock at the fair market value on the date of grant.  Directors
are also reimbursed for reasonable travel expenses related to such director’s
attendance at Board of Directors and committee meetings.   We did
not issue options or restricted stock  to directors in 2006 or
2007.





Employment
Contracts





On
February 1, 2005, we entered into a three year employment agreement with
Mr. Carter pursuant to which we agreed to employ Mr. Carter as Chief
Financial Officer at an annual salary of $180,000. In connection with the employment agreement, we issued
to Mr. Carter options to purchase 300,000 shares of common stock at an exercise
price of $3.65 per share.  Options to acquire 75,000 shares became
immediately exercisable, and the remainder becomes exercisable in three
installments of 75,000 shares on the anniversary of the grant date in 2006, 2007
and 2008. We also issued to Mr. Carter 300,000 shares of restricted common
stock, which cannot be sold or transferred until February 1, 2009. Mr. Carter’s employment agreement
was renewed for a one year term beginning on February 1, 2008 under which Mr.
Carter will be employed as Chief Executive Officer and Chief Financial Officer
an annual salary of $198,000.  The agreement will automatically renew
for successive one year terms unless either terminates the agreement at the end
of the the current term, by ninety days prior written notice. If we terminate
the agreement without cause, or Mr. Carter terminates the agreement due to
a constructive termination, as defined in the agreement, prior to the end of its
then current term, then Mr. Carter shall, for the remainder of the then
current term, continue to receive the salary provided for under the agreement as
if the agreement had not been terminated.





On
February 20, 2006, we entered into a consulting agreement with
Mr. Deery, pursuant to which Mr. Deery served as our Interim President
in consideration of $15,000 per month during the term of the agreement,
50,000 options of our common stock at a price of $4.00 per share, and
50,000 common shares of our restricted common stock. The initial term of
the agreement is six months with subsequent three month renewal periods at our
discretion.  On August 20, 2006, we entered into a two year
employment agreement with Mr. Deery pursuant to which we agreed to employ
Mr. Deery as our President and Acting Chief Executive Officer in
consideration for an annual salary of $192,000, formulaic incentive
compensation, discretionary incentive compensation, 300,000 options to purchase
common stock at an exercise price of $2.49 per share, and
150,000 shares of restricted common stock. The restricted shares issued in
connection with the previous consulting agreement were surrendered unvested and
unexercised as part of this employment agreement. After the two year term, the
employment agreement will automatically renew for one, one year term unless
either terminates the agreement at the end of the initial term, by sixty days
prior written notice. If we terminate the agreement without cause, or
Mr. Deery terminates the agreement with good reason, as defined in the
agreement, prior to the end of its then current term, then Mr. Deery shall,
for the greater of six months or remainder of the then current term, continue to
receive the salary provided for under the agreement as if the agreement had not
been terminated.   In connection with the realignment of our
management in November 2007, Mr. Deery serves as our President and Chief
Operating Officer, in consideration for an annual salary of
$180,000.





On
February 20, 2006, we entered into three year employment agreement with
Mr. Geisler pursuant to which we agreed to employ Mr. Geisler as our
Executive Vice President of Operations whereby he shall receive an annual salary
of $180,000, formulaic incentive compensation, discretionary incentive
compensation, 300,000 options to purchase common stock at an exercise price of
$3.75 per share, and 150,000 shares of restricted common stock. After
the three year term, the employment agreement will automatically renew for
successive one year terms unless either terminates the agreement at the end of
the then current term, by ninety days prior written notice. If we terminate the
agreement without cause, or Mr. Geisler terminates the agreement due
to a constructive termination, as defined in the agreement, prior to the end of
its then current term, then Mr. Geisler shall, for the remainder of the
then current term, continue to receive the salary provided for under the
agreement as if the agreement had not been terminated.





On
February 20, 2006, we entered into a three year employment agreement with
Mr. Butcher pursuant to which we agreed to employ Mr. Butcher as our
Executive Vice President and Chief Marketing Officer whereby he was entitled to
receive an annual salary of $180,000, formulaic incentive compensation,
discretionary incentive compensation, 300,000 options to purchase common stock
at an exercise price of $3.75 per share, and 150,000 shares of
restricted common stock. After the three year term, the employment agreement
automatically renewed for successive one year terms unless either terminates the
agreement at the end of the then current term, by ninety days prior written
notice. If we terminated the agreement without cause, or Mr. Butcher
terminated the agreement due to a constructive termination, as defined in the
agreement, prior to the end of its then current term, then Mr. Butcher was
entitled to continue to receive his salary provided for under the agreement as
if the agreement had not been terminated.  On November 15, 2007, we
entered into an agreement with Mr. Butcher terminating his employment agreement,
in consideration for the payment to him of $135,000, payable in bi-weekly
installments through July 25, 2008.  In addition, the agreement
provides for (i) the issuance of 100,000 shares of restricted common stock, (ii)
the cancellation of all options previously granted to Mr. Butcher, (iii)
immediate vesting of the 150,000 shares of restricted common stock previously
issued to Mr. Butcher, and (iv) the continuation of health and related benefits
to Mr. Butcher until the earlier to occur of February 20, 2009, or the date that
he is able to obtain employment providing for similar benefits.


-25-
 Table of Contents





Item 11.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters





The
following table sets forth information known to us with respect to beneficial
ownership of our common stock as of March 31, 2008 by:




•
            each
      person, or group of affiliated persons, known by us to own beneficially
      more than 5% of our outstanding common stock;•
            each
      of our directors;•
            each
      of our named executive officers; and•
            all
      of our current executive officers and directors as a
  group.




Beneficial
ownership is determined in accordance with the rules of the SEC. Shares of
common stock subject to options, warrants or other derivative instruments, such
as convertible preferred stock, currently exercisable or exercisable within 60
days of March 31, 2008 are deemed to be outstanding for calculating the
percentage of outstanding shares of the person holding these options, warrants
or other derivative instruments, but are not deemed outstanding for calculating
the percentage of any other person. Percentage of beneficial ownership is based
upon 32,148,002 shares of common stock outstanding. To our knowledge,
except as set forth in the footnotes to this table and subject to applicable
community property laws, each person named in the table below has sole voting
and investment power with respect to the shares set forth opposite such person’s
name.  Except as otherwise indicated, the address of each person is
7575 West Winds Boulevard, Suite D, Concord, North Carolina 28027.




Title
      of Class
            Name and Address of Beneficial Owner
      (1)
            
            Amount
      and Nature
              of
      Beneficial Owner
            
            
            Percent
      of Class(%)5%
      Stockholders:Common
            SXJE,
      LLC (2)
            
            
            2,741,672
            
            
            
            
            
            8.5Common
            VICIS
      Capital Master Fund (3)
            
            
            2,074,995
            
            
            
            
            
            6.5Common
            Basso
      Capital Management(4)
            
            
            2,013,602
            
            
            
            
            
            6.3Executive Officers and
    Directors:Common
            Brian
      M. Carter
            
            
            525,000
            (5)
            
            
            
            
            
            1.6Common
            Tom
      W. Deery
            
            
            345,000
            (6)
            
            
            
            
            
            1.1Common
            Benjaman
      L. Geisler
            
            
            300,000
            (7)
            
            
            
            
            
            *Common
            Robert
      F. Hussey
            
            
            75,000
            (8)
            
            
            
            
            
            *Common
            Daniel
      W. Rumsey
            
            
            75,000
            (9)
            
            
            
            
            
            *Common
            Cary
      J. Agajanian
            
            
            75,000
            (10)
            
            
            
            
            
            *Common
            Directors
      and executive officers as a group (6 persons)
            
            
            1,395,000
            
            
            
            
            
            
            4.2




(1)
            
            Unless
      otherwise indicated, the business address for each of the directors and
      officers is 7575 West Winds Blvd, Suite D, Concord, NC
    28027.(2)
            
            The
      business address of SXJE LLC is 2400 Byron Circle, Lansing, Michigan
      48912.(3)
            
            The
      business address of VICIS Capital Master Fund is 126 E. 56th Street, 7th
      Floor, New York, NY, 10022.(4)
            
            The
      business address of Basso Capital Management is 1266 East Main Street,
      Stamford, CT 06902.(5)
            
            Includes
      options to purchase 225,000 shares of common stock at $3.65 which are
      currently exercisable and 300,000 shares of restricted
    stock.(6)
            
            Includes
      150,000 shares of restricted stock granted to Mr. Deery in connection with
      his employment agreement and options to purchase 150,000 shares of common
      stock at $2.49 which are currently exercisable.(7)
            
            Includes
      150,000 shares of restricted stock granted to Mr. Geisler in connection
      with his employment agreement and options to purchase 150,000 shares of
      common stock at $3.75, which are currently exercisable.(8)
            
            Includes
      options to purchase 75,000 shares of common stock at an exercise price of
      $3.00 which are currently exercisable.(9)
            
            Includes
      options to purchase 75,000 shares of common stock at $4.75 which are
      currently exercisable.(10)
            
            Includes
      options to purchase 75,000 shares of common stock at 3.78 which are
      currently exercisable.*
            
            Less
      than 1.0%




-26-
 Table of Contents


EQUITY COMPENSATION PLAN INFORMATION





The following is certain information about our equity
compensation plans as of December 31, 2007:





(a)
            
            (b)
            
            (c)Number of securities to be
      issued upon exercise of outstanding options, warrants and
      rights
            
            Weighted –average exercise price of outstanding
      options, warrants and rights
            
            Number of securities remaining available for
      future issuance under equity compensation plans (excluding securities
      reflected in column (a)Equity compensation plans approved by security
      holders
            2,559,000
            
            $2.44
            
            1,391,000Equity compensation plans not approved by security
      holders
            -
            
            -
            
            -Total
            2,559,000
            
            $2.44
            
            1,391,000





Our 2004
Long Term Incentive Plan (as amended) was adopted on July 30, 2004 (2004
Plan).  The 2004 Plan continues in effect for a term of ten years,
unless sooner terminated.  -An aggregate of 3,500,000 shares of common
stock has been reserved for issuance under the 2004 Plan.  The 2004
Plan provides for the grant of stock options, stock appreciation rights, and
awards of shares of common stocks containing certain restrictions, dividend
equivalents or other stock based awards (Plan Awards), to selected employees,
consultants and directors (Participant).  During any calendar year, no
Participant may be granted Plan Awards that may be settled by delivery of more
than 400,000 shares of common stock.





The
Compensation Committee administers the 2004 Plan.  The Compensation
Committee has full authority, subject to the provisions of the 2004 Plan, to
determine Participants of Plan Awards, the number of shares of common stock
represented by each Plan Award, and the time or times at which Plan Awards shall
be adopted.    The Compensation Committee is also authorized
to prescribe the terms, conditions and restrictions of each Plan Award, and to
amend the terms, conditions and restrictions of Plan Awards, subject to
applicable legal restrictions and the consent of Plan Award recipients;
provided, however, stock options granted under the 2004 Plan shall not be
exercisable after expiration of ten years from the date such stock option is
granted.





Qualified,
or incentive stock options, and non-qualified stock options may be granted under
the 2004 Plan.  The exercise price for any incentive stock granted
under the 2004 Plan shall not be less than 100% of the fair market value per
share on the date of grant of such stock option.  The exercise price
of any non-qualified stock option granted under the 2004 Plan shall be such
amount as the Compensation Committee may determine.





As
described under the caption “Narrative Disclosure to Director Compensation”
above, upon election to the Board of Directors, each non-employee director
receives 75,000 shares of restricted common stock, and annually receives an
option to purchase 25,000 shares of our common stock.





Item 12.
            Certain
      Relationships, Related Transactions, and Director
    Independence





During
2007 and 2006, we obtained our business liability, event liability, participant
accident, automobile and commercial property and casualty insurance from a
company in which Tom W. Deery, our President and Chief Operating Officer was
previously employed.  Mr. Deery resigned as an officer of the
insurance company prior to becoming employed by us.  Premiums paid for
the aforementioned insurance coverage totaled $380,000 during 2007 and $320,000
during 2006.





Prior to March 31, 2006, we utilized travel services
including the use of an aircraft owned by Paul Kruger, our former Chief
Executive Officer. We no longer utilize these travel services. Additionally, we
rented office space for our corporate offices in Norman, Oklahoma, on a
month-to-month basis, from an entity controlled by Mr. Kruger.  We no
longer utilize this property for our corporate offices.





On May 16, 2006, certain holders of our Series D
Convertible Preferred Stock and other parties acquired an aggregate of 2,844,705
shares of common stock from Mr.  Kruger and 100,000 shares were
obtained from Mr. Kruger’s children. Mr. Kruger also entered into a warrant and
stock option cancellation agreement and a mutual release agreement, pursuant to
which Mr. Kruger surrendered warrants and options to purchase an aggregate of
500,000 shares of our common stock and Mr. Kruger resigned as our Chairman and
Chief Executive Officer. Mr. Kruger and his children, entered into a
lock-up/leak out agreement with respect to their remaining common
shares.


-27-
 Table of Contents








Director Independence





Our Board of Directors currently consists of Robert
Hussey, Daniel W. Rumsey,Brian M. Carter
and Cary J. Agajanian.  In
applying the definition of “independent director” established by Nasdaq, the
Board has determined that, other than Mr. Carter, each of the members of our
Board of Directors is independent.





We maintain separately designated audit, compensation,
and nominating and corporate governance committees.  In applying the
independence standards to the audit, compensation and nominating and corporate
governance committees established by Nasdaq, we have determined that Daniel W.
Rumsey, who is a member of our audit committee, does not meet the independence
standard for audit committee members.





Item 13.
            Exhibits





The
following documents are filed as part of this report:





2.1
            
            Membership
      Interests Purchase Agreement, dated as of November 30, 2004, by and
      among United Midwestern Promoters Motorsports, LLC, National Speedways of
      Iowa, Inc., Track Enterprises, Inc., Ken Schrader Racing, Inc., Lebanon
      Valley Auto Racing Corp., and Boundless Motor Sports Racing, Inc.
      (Incorporated by reference to Exhibit 2.1 of the Company’s Current
      Report on Form 8-K filed with the Commission on December 6,
      2004).3.1
            
            Certificate
      of Incorporation (Incorporated by reference to Exhibit 3.1 to the
      Company’s Registration Statement on Form SB-2, Registration No.
      333-134577, filed with the Commission on May 31, 2006.3.2
            
            Amended
      and Restated Bylaws  (Incorporated by reference to
      Exhibit 3.2 of the Company’s Annual Report on Form 10-KSB filed with
      the Commission on January 3, 2005).3.3
            
            Certificate of Designation of the Relative Rights
      and Preferences of the Series A Convertible Preferred Stock (Incorporated
      by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K
      filed with the Commission on August 4, 2004).3.4
            
            Certificate
      of Designation of the Relative Rights and Preferences of the Series B
      Convertible Preferred Stock. (Incorporated by reference to
      Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with
      the Commission on March 2, 2005).3.5
            
            Certificate of Designation of the Relative Rights
      and Preferences of the Series C Convertible Preferred Stock. (Incorporated
      by reference to Exhibit 4.6 of the Company’s Current Report onForm8-K filed with the Commission on March 2,
      2005).3.6
            
            Certificate of Designation of the Relative Rights
      and Preferences of the Series D Convertible Preferred Stock. (Incorporated
      by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K
      filed with the Commission on May 23, 2006).3.7
            
            Certificate of Designation of the Relative Rights
      and Preferences of the Series E Convertible Preferred Stock. (Incorporated
      by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
      filed with the Commission on October 2, 2007).3.8
            
            Certificate of Amendment to Certificate of
      Incorporation, effective January 29, 2008 (Incorporated by reference to
      Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the
      Commission on January 31, 2008).4.1
            
            Series B Convertible Preferred Stock Purchase
      Agreement dated as of February 25, 2005, by and among Boundless Motor
      Sports Racing, Inc., a Colorado corporation, and the purchasers set forth
      therein. (Incorporated by reference to Exhibit 4.1 of the Company’s
      Current Report on Form 8-K filed with the Commission on March 2,
      2005).4.2
            
            Form
      of Series B Warrant. (Incorporated by reference to Exhibit 4.3
      of the Company’s Current Report on Form 8-K filed with the Commission on
      March 2, 2005).4.3
            
            Registration
      Rights Agreement dated as of February 25, 2005, by and among
      Boundless Motor Sports Racing, Inc., a Colorado corporation, and the
      purchasers set forth therein. (Incorporated by reference to
      Exhibit 4.4 of the Company’s Current Report on Form 8-K filed with
      the Commission on March 2, 2005).4.4
            
            Series C
      Convertible Preferred Stock Purchase Agreement, dated as of
      February 25, 2005, by and among Boundless Motor Sports Racing, Inc.,
      a Colorado corporation, and the purchasers set forth therein.
      (Incorporated by reference to Exhibit 4.5 of the Company’s Current
      Report on Form 8-K filed with the Commission on March 2,
      2005).





-28-
 Table of Contents





4.5
            
            Certificate
      of Designation of the Relative Rights and Preferences of the Series C
      Convertible Preferred Stock. (Incorporated by reference to
      Exhibit 4.6 of the Company’s Current Report on Form 8-K filed with
      the Commission on March 2, 2005).4.6
            
            Form
      of Series C Warrant. (Incorporated by reference to Exhibit 4.7
      of the Company’s Current Report on Form 8-K filed with the Commission on
      March 2, 2005).4.7
            
            Registration
      Rights Agreement, dated as of February 25, 2005, by and among Boundless
      irt Motor Sports Racing, Inc., a Colorado corporation, and the purchasers
      set forth therein. Incorporated by reference to Exhibit 4.8 of the
      Company’s Current Report on Form 8-K filed with the Commission on
      March 2,, 2005).4.8
            
            Form
      of Series A Warrant (Incorporated by reference to Exhibit 4.3 to the
      Company’s Current Report on Form 8-K filed with the Commission on
      August 4, 2004).4.9
            
            Form
      of Series D  Convertible Preferred Stock Purchase
      Agreement, dated as of May 16, 2006, by and among Dirt Motor Sports, Inc.,
      a Delaware corporation, and the purchasers set forth
      therein.  (Incorporated by reference to Exhibit 4.1 to the
      Company’s Current Report on Form 8-K filed with the Commission on
      May 23, 2006).4.10
            
            Form
      of Series D Warrant.  (Incorporated by reference to Exhibit
      4.3 to the Company’s Current Report on Form 8-K filed with the
      Commission on May 23, 2006).4.11
            
            Form
      of Series B Convertible Preferred Exchange Agreement, dated as of
      May 16, 2006, by and among Dirt Motor Sports, Inc., a Delaware
      corporation, and the holders set forth therein. (Incorporated by reference
      to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed
      with the Commission on May 23, 2006).4.12
            
            Form of Series C Convertible Preferred Exchange
      Agreement, dated as of May 16, 2006, by and among Dirt Motor Sports, Inc.,
      a Delaware corporation, and the holders set forth therein. (Incorporated
      by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K
      filed with the Commission on May 23, 2006).4.13
            
            Form
      of Warrant Exchange Agreement dated as of May 16, 2006, by and among
      Dirt Motor Sports, Inc., a Delaware corporation, North Sound Legacy
      Institutional Fund LLC, a Delaware limited liability company, and North
      Sound Legacy International Fund Ltd, a British Virgin Islands corporation.
      (Incorporated by reference to as Exhibit 4.6 to the Company’s Current
      Report on Form 8-K filed with the Commission on May 23,
      2006).4.14
            
            Form
      of Warrant Exchange Agreement dated as of May 16, 2006, by and among
      Dirt Motor Sports, Inc., a Delaware corporation, and Royal Bank of Canada.
      (Incorporated by reference to Exhibit 4.7 to the Company’s Current
      Report on Form 8-K filed with the Commission on May 23,
      2006).4.15
            
            Form of Registration Rights Agreement dated as of
      May 16, 2006. (Incorporated by reference to Exhibit 4.8 to the Company’s
      Current Report on Form 8-K filed with the Commission on May 23,
      2006).4.16
            
            Form of Mutual Release Agreement, dated as of May
      19, 2006, by and between Dirt Motor Sports, Inc., a Delaware corporation,
      and Mr. Paul A. Kruger. (Incorporated by reference to Exhibit 4.9 to the
      Company’s Current Report on Form 8-K filed with the Commission on May 23,
      2006).4.17
            
            Form of Lock-Up by between Dirt Motor Sports,
      Inc., a Delaware corporation and Paul A. Kruger. (Incorporated by
      reference to Exhibit 4.10 to the Company’s Current Report on Form 8-K
      filed with the Commission on May 23, 2006).10.1
            
            Employment Agreement, dated August 20, 2006, by
      and between DIRT Motor Sports, Inc. and Thomas Deery (Incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed with the Commission on August 18, 2006).10.2
            
            Employment
      Agreement, dated February 20, 2006, by and between DIRT Motor Sports, Inc.
      and Benjaman L. Geisler. (filed as Exhibit 10.2 to the Company’s
      Current Report on Form 8-K filed with the Commission on March 2,
      2006).10.3
            
            Form
      of Senior Secured Promissory Demand Note (Incorporated by reference to
      Exhibit 10.01 to the Company’s Current Report on Form 8-K filed with
      the Commission on April 10, 2007).10.4
            
            Form
      of Note Purchase Agreement, dated September
      28, 2007, by and between the Company and the Lenders (Incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed with the Commission on October 2,
    2007).





-29-
 Table of Contents





10.5
            
            Form of Promissory Note, dated September 28, 2007,
      made by the Company payable to the Lenders (Incorporated by reference to
      Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      Commission on October 2, 2007)..10.6
            
            Form of Security Agreement, dated September 28,
      2007, by and among the Company, Carter & Miracle Concessions, LLC, and
      the Lenders (Incorporated by reference to Exhibit 10.3 to the Company’s
      Current Report on Form 8-K filed with the Commission on October 2,
      2007).10.7
            
            Form of Subsidiary Guaranty, dated September 28,
      2007, by and among the Company, Boundless Racing, Inc., Carter &
      Miracle Concessions, LLC, Volusia Operations, LLC, and the Lenders
      (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report
      on Form 8-K filed with the Commission on October 2, 2007).10.8
            
            Pennsylvania Form of Mortgage and Security
      Agreement, dated September 28, 2007, by and among the Company and the
      Lenders (Incorporated by reference to Exhibit 10.5 to the Company’s
      Current Report on Form 8-K filed with the Commission on October 2,
      2007).10.9
            
            New York Form of Mortgage and Security Agreement,
      dated September 28, 2007, by and among the Company and the Lenders
      (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report
      on Form 8-K filed with the Commission on October 2, 2007).10.10
            
            Florida Form of Mortgage and Security Agreement,
      dated September 28, 2007, by and among the Company and the Lenders
      (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report
      on Form 8-K filed with the Commission on October 2, 2007).10.11
            
            Form
      of Consent (Incorporated by reference to Exhibit 10.1to the Company’s
      Current Report on Form 8-K filed with the Commission on December 19,
      2007).





23.1
            Consent
      of Independent Auditors*





31
            Rule
      13a-14(a)/15d-14(a) Certification of Brian M. Carter
  *





32
            Section
      1350 Certification of Brian M. Carter
*





*Filed
      herewith





Item 14.
            Principal
      Accountant Fees and Services





Audit
Fees





We paid
$66,261and $96,659 in audit fees during the years ended December 31, 2007 and
2006, respectively to Murrell, Hall, McIntosh & Co., PLLP
(“MHM”).





Audit
Related Fees





There
were no fees billed for audit-related services not disclosed in “Audit Fees”
above.





Tax
Fees





In the
years ended December 31, 2007 and 2006, we paid $12,296 and $15,778,
respectively to MHM for tax preparation fees.


All
Other Fees





No other
fees were billed for services rendered by our principal accountants for the
years ended December 31, 2007 and 2006.





Compatibility
of Certain Fees with Independent Accountants’ Independence





The Audit
Committee has established its pre-approval policies and procedures, pursuant to
which the Audit Committee approved the foregoing audit and permissible non-audit
services provided by Murrell, Hall, McIntosh & Co., PLLP in fiscal 2007 and
2006. Such procedures govern the ways in which the Audit Committee pre-approves
audit and various categories of non-audit services that the auditor provides to
the Company.  Services which have not received pre-approval must
receive specific approval of the Audit Committee. The Audit Committee is to be
informed of each such engagement in a timely manner, and such procedures do not
include delegation of the Audit Committee’s responsibilities to
management.


-30-
 Table of Contents





Reports of the Audit Committee





On an
annual basis the Audit Committee will review and discuss our most recent audited
financial statements with management, and will discuss with our independent
registered public accounting firm the matters required to be discussed by SAS
114, as modified or supplemented, and will receive the written disclosures and
letters as required by Independence Standards Board Standard No. 1, as
modified or supplemented, and will discuss with our independent registered
public accounting firm its independence. Based on these reviews and discussions,
the Audit Committee will then make its recommendation to the Board of Directors
related to the inclusion of the audited financial statements in our Annual
Report on Form 10-KSB for each fiscal year for filing with the Securities and
Exchange Commission.





-31-
 Table of Contents


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.








World
      Racing Group, Inc.
                    (Registrant)Date: 
      March 31, 2008
                  By:
                  /s/  /s/
      Brian M. CarterBrian
      M. CarterChief
      Executive and Chief Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.








By:
            /s/
            Cary
      J. Agajanian
            
            Date:
            March
      31, 2008Cary
      Agajanian, DirectorBy:
            /s/
            Daniel
      W. Rumsey
            
            Date:
            March
      31, 2008Daniel
      W. Rumsey, DirectorBy:
            /s/
            Robert
      F. Hussey
            
            Date:
            March
      31, 2008Robert
      F. Hussey, DirectorBy:
            /s/
            Brian
      M. Carter
            
            Date:
            March
      31, 2008Brian
      M. Carter, Director








-32-
 Table of Contents


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS








Report of the Independent Registered Public
      Accounting Firm
            F2Consolidated Balance Sheets as of December 31, 2007 and
      2006
            F3Consolidated Statements of Operations for the Years Ended
      December 31, 2007 and 2006
            F4Consolidated Statements of Stockholders' Deficit for
      the Years ended December 31, 2007 and 2006
            F5Consolidated Statements of Cash Flows for the Years
      ended December 31, 2007 and 2006
            F6Notes to Consolidated Financial Statements
            F7







F1
 Table of Contents














REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





We
have audited the accompanying consolidated balance sheets of World Racing Group,
Inc. (the “Company”), Inc. as of December 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.





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





In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of World
Racing Group, Inc. as of December 31, 2007 and 2006, and the consolidated
results of their operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.





The
accompanying financial statements have been prepared assuming that World Racing
Group, Inc. will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred significant net losses during the
years ended December 31, 2007 and 2006 and has negative working capital and
stockholders’ deficit as of December 31, 2007.  World Racing Group,
Inc. has also been named as a defendant in a civil action case where the
plaintiff is claiming in excess of $91.2 million in monetary damages. The
Company disputes this claim and has not recorded any liability related to this
claim as of December 31, 2007. An adverse outcome regarding this litigation
could have a materially adverse effect on the Company’s ability to continue as a
going concern. These matters, among others as discussed in Note 2 to the
financial statements, raise substantial doubt about the ability of World Racing
Group, Inc. to continue as a going concern.  Management's plans in
regard to these matters are described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





Murrell,
Hall, McIntosh & Co., PLLP


Oklahoma
City, Oklahoma


March 31,
2008








F2
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED BALANCE SHEETS


December
31, 2007 and December 31, 2006





December
      31,
              2007
            
            
            December
      31,
              2006ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            1,668,611
            
            
            $
            532,230Accounts
      receivable — trade, net of allowance for doubtful accounts of$70,000 in 2007
            
            
            317,678
            
            
            
            223,065Inventory
            
            
            10,252
            
            
            
            110,077Prepaid
      interest, secured notes
            
            
            721,424
            
            
            
            —Prepaid
      expenses and other current assets
            
            
            746,982
            
            
            
            330,943Total
      current assets
            
            
            3,464,947
            
            
            
            1,196,315Land,
      buildings and equipment, net
            
            
            10,300,476
            
            
            
            10,447,633Trademarks
            
            
            100,000
            
            
            
            100,000Goodwill,
      net of impairment of $10,320,537 in 2007 and 2006
            
            
            —
            
            
            
            —Prepaid
      Expenses –  long term
            
            
            —
            
            
            
            166,667Other
      assets, net of amortization of $209,598 in 2007 and $55,331 in
      2006
            
            
            593,685
            
            
            
            140,122Total
      assets
            
            $
            14,459,108
            
            
            $
            12,050,737LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable
            
            $
            620,973
            
            
            $
            474,781Accrued
      liabilities
            
            
            1,125,404
            
            
            
            1,147,749Deferred
      revenues
            
            
            421,438
            
            
            
            129,424Notes
      payable
            
            
            689,208
            
            
            
            713,008Total
      current liabilities
            
            
            2,857,023
            
            
            
            2,464,962Notes
      payable, net of discount of $2,515,966 in 2007 and $0 in
    2006
            
            
            13,091,045
            
            
            
            4,001,711Total
      liabilities
            
            
            15,948,068
            
            
            
            6,466,673Stockholders'
      Equity (Deficit)Series
      D Preferred stock, $0.01 par value; 20,000 shares authorized;
              17,875
      shares issued and outstanding at December 31, 2006
            
            
            —
            
            
            
            53,624,538Series
      E Preferred stock, $0.01 par value; 50,000 shares authorized;
              44,538
      shares issued and outstanding at December 31, 2007
            
            
            445
            
            
            
            —Common
      stock, $0.0001 par value; 100,000,000 shares authorized;
      32,147,879
              and
      14,374,496 shares issued and outstanding at December 31, 2007
      and
              December
      31, 2006, respectively
            
            
            3,215
            
            
            
            1,438Additional
      paid-in capital
            
            
            71,883,982
            
            
            
            12,684,051Accumulated
      deficit
            
            
            (73,376,602
            )
            
            
            (60,725,963
            )Total
      stockholders' equity (deficit)
            
            
            (1,488,960
            )
            
            
            5,584,064Total
      liabilities and stockholders' equity
            
            $
            14,459,108
            
            
            $
            12,050,737


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








F3
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED
STATEMENTS OFOPERATIONS


For
the Years Ended December 31, 2007 and 2006





2007
            
            
            2006RevenuesRace
      sanctioning and event fees
            
            $
            8,171,839
            
            
            $
            4,717,662Admission
      fees and ticket sales
            
            
            7,306,950
            
            
            
            6,897,834Sponsorship
      and advertising revenue
            
            
            3,547,226
            
            
            
            2,500,313Merchandise
      sales
            
            
            505,218
            
            
            
            754,592Other
      revenue
            
            
            111,380
            
            
            
            273,739Total
      revenues
            
            $
            19,642,613
            
            
            $
            15,144,140Operating
      expensesTrack
      and event operations
            
            
            22,781,683
            
            
            
            19,301,329Sales
      and marketing
            
            
            1,657,905
            
            
            
            1,883,094Merchandise
      operations and cost of sales
            
            
            275,812
            
            
            
            823,560General
      and administrative
            
            
            2,653,528
            
            
            
            3,022,117Non-cash
      stock compensation
            
            
            2,170,802
            
            
            
            2,710,658Goodwill
      impairment
            
            
            -
            
            
            
            1,508,440Depreciation
      and amortization
            
            
            819,758
            
            
            
            774,130Total
      operating expenses
            
            
            30,359,488
            
            
            
            30,023,328Loss
      from operations
            
            
            (10,716,875
            )
            
            
            (14,879,188
            )Other
      (Expenses) IncomeInterest
      income
            
            
            --
            
            
            
            92,119Interest
      expense
            
            
            (1,933,764
            )
            
            
            (8,021,605
            )Total
      Other Expense
            
            
            (1,933,764
            )
            
            
            (7,929,486
            )Net
      (Loss)
            
            $
            (12,650,639
            )
            
            $
            (22,808,674
            )Dividends
      on preferred stock:Stated dividends, Series D
      Preferred Stock
            
            
            (1,267,435
            )
            
            
            -Exchange of warrants for Series
      C preferred stock
            
            
            -
            
            
            
            (1,326,335
            )Exchange of warrants for Series
      C preferred stock
            
            
            -
            
            
            
            (1,250,000
            )Net
      loss applicable to common stock
            
            $
            (13,918,074
            )
            
            $
            (25,385,009
            )Net
      loss applicable to common stock
              per
      common share —
              Basic
      and diluted
            
            $
            (0.89
            )
            
            $
            (1.92
            )Weighted
      average common shares outstanding —
              Basic
      and diluted
            
            
            15,608,748
            
            
            
            13,246,875





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





F4
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED
STATEMENT OFSTOCKHOLDERS'DEFICIT


As
of December 31, 2007




Preferred
      Stock
                
                Common
      Stock
                
                Paid-in
                
                AccumulatedShares
                
                Amounts
                
                Shares
                
                Amounts
                
                Capital
                
                (Deficit)
                
                TotalBalance,
      December 31, 2005
                
                
                9,383
                
                26,898,456
                
                
                11,720,555
                
                $
                1,172
                
                $
                9,727,830
                
                $
                (37,917,289
                )
                $
                (1,289,831
                )Value
      assigned to warrants issued in connection with the issuance of notes
      payable
                
                
                —
                
                —
                
                
                —
                
                
                —
                
                
                1,715,113
                
                
                —
                
                
                1,715,113Value assigned to stock options
      issued
                
                
                —
                
                —
                
                
                —
                
                
                —
                
                
                1,695,347
                
                
                —
                
                
                1,695,347Exchange
      of Notes payable and accrued interestinto
      Series B preferred stock
                
                
                460
                
                1,381,356
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,381,356Exchange
      of Series B & C preferred stock forSeries
      D preferred stock:Retirement
      of Series B&C preferred stock
                
                
                (9,843
                )
                (28,279,812
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (28,279,812
                )Issuance
      of Series D preferred stock
                
                
                9,843
                
                28,279,812
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                28,279,812Dividends
      on Series D Preferred Stock:Increase
      in liquidation preference upon  conversion
                
                
                —
                
                1,250,000
                
                
                —
                
                
                —
                
                
                (1,250,000
                )
                
                —
                
                
                —Series
      D Preferred Stock Issuance Cost
                
                
                —
                
                —
                
                
                —
                
                
                —
                
                
                (1,326,335
                )
                
                —
                
                
                (1,326,335
                )Exchange
      of Notes payable and accrued interestinto
      Series D preferred stock
                
                
                4,401
                
                13,201,777
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                13,201,777Issuance
      of Series D preferred stock
                
                
                4,000
                
                12,000,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                12,000,000Series
      D conversions to common stock
                
                
                (369
                )
                (1,107,051
                )
                
                369,017
                
                
                37
                
                
                1,107,014
                
                
                —
                
                
                —Issuance
      of restricted stock
                
                
                —
                
                —
                
                
                825,000
                
                
                83
                
                
                1,015,228
                
                
                —
                
                
                1,015,311Common
      Stock issued in warrant exchange
                
                
                —
                
                —
                
                
                1,459,924
                
                
                146
                
                
                (146
                )
                
                —
                
                
                —Net
      loss
                
                
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (22,808,674
                )
                
                (22,808,674
                )Balance,
      December 31, 2006
                
                
                17,875
                
                53,624,538
                
                
                14,374,496
                
                $
                1,438
                
                $
                12,684,051
                
                $
                (60,725,963
                )
                $
                5,584,064Value assigned to stock options,
      non-cash compensationexpense
                
                __
                
                —
                
                
                —
                
                
                —
                
                
                2,139,751
                
                
                —
                
                
                2,139,751Value
      assigned to common stock issued, notes payable
                
                
                —
                
                —
                
                
                1,828,750
                
                
                183
                
                
                1,382,380
                
                
                —
                
                
                1,382,563Value
      assigned to preferred stock issued, notes payable
                
                
                2,104
                
                21
                
                
                —
                
                
                —
                
                
                1,262,229
                
                
                —
                
                
                1,262,250Restricted
      stock issued in exchange for services
                
                
                —
                
                —
                
                
                105,000
                
                
                10
                
                
                31,041
                
                
                —
                
                
                31,051Preferred
      stock issued, placement agent fees
                
                
                1,270
                
                13
                
                
                —
                
                
                —
                
                
                761,987
                
                
                —
                
                
                762,000Series
      D conversions to common stock
                
                
                (191
                )
                (572,232
                )
                
                190,744
                
                
                19
                
                
                572,213
                
                
                —
                
                
                —Stated
      dividends, Series D preferred stock
                
                
                --
                
                1,267,435
                
                
                —
                
                
                —
                
                
                (1,267,435
                )
                
                —
                
                
                —Series
      D exchange:Series
      D, shares exchanged
                
                
                (17,684
                )
                (54,319,741
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (54,319,741
                )Issuance
      of Series E and common stock
                
                
                41,164
                
                411
                
                
                15,648,889
                
                
                1,565
                
                
                54,317,765
                
                
                —
                
                
                54,319,741Net
      loss
                
                
                —
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (12,650,639
                )
                
                (12,650,639
                )Balance,
      December 31, 2007
                
                
                44,538
                
                445
                
                
                32,147,879
                
                $
                3,215
                
                $
                71,883,982
                
                $
                (73,376,602
                )
                $
                (1,488,960
                )




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




F5
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For
the Years Ended December 31, 2007 and 2006





2007
            
            
            2006Cash
      flows from operating activities:Net
      (loss)
            
            $
            (12,650,639
            )
            
            $
            (22,808,674
            )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization
            
            
            819,758
            
            
            
            774,130Non-cash
      interest expense, notes payable
            
            
            944,364
            
            
            
            7,930,582Non-cash
      stock compensation
            
            
            2,170,802
            
            
            
            2,710,658Impairment
      of goodwill
            
            
            -
            
            
            
            1,508,440Increase
      (decrease) in cash for changes in:Accounts
      receivable
            
            
            (94,613
            )
            
            
            (42,437
            )Inventory
            
            
            99,825
            
            
            
            21,979Prepaid
      expenses and other current assets
            
            
            (765,260
            )
            
            
            145,360Other
      non-current assets and long term prepaid expenses
            
            
            193,139
            
            
            
            271,171Accounts
      payable
            
            
            146,192
            
            
            
            (714,390
            )Accrued
      liabilities
            
            
            (22,345
            )
            
            
            661,042Deferred
      revenue
            
            
            292,014
            
            
            
            43,476Net
      cash (used in) operating activities
            
            
            (8,866,763
            )
            
            
            (9,498,663
            )Cash
      flows from investing activities:Purchase
      of property, contract rights, trademarks and goodwill
            
            
            (377,539
            )
            
            
            (440,469
            )Net
      cash (used in) investing activities
            
            
            (377,539
            )
            
            
            (440,469
            )Cash
      flows from financing activities:Cash
      overdraft
            
            
            -
            
            
            
            (253,232
            )Issuance
      of Preferred stock for cash
            
            
            -
            
            
            
            12,000,000Cost
      of stock issuance
            
            
            -
            
            
            
            (1,326,335
            )Payments
      of placement agent fees and other issuance costs
            
            
            (968,517
            )
            
            
            -Payments
      on notes payable
            
            
            (1,100,800
            )
            
            
            (1,910,927
            )Proceeds
      from issuance of notes payable
            
            
            12,450,000
            
            
            
            1,943,211Net
      cash provided by financing activities
            
            
            10,380,683
            
            
            
            10,452,717Net
      increase in cash and cash equivalents
            
            
            1,136,381
            
            
            
            513,585Cash
      and cash equivalents, beginning of period
            
            
            532,230
            
            
            
            18,645Cash
      and cash equivalents, end of period
            
            $
            1,668,611
            
            
            $
            532,230Supplemental
      schedule of non-cash activities:Exchange
      of warrants for Series E Preferred Stock
            
            $
            762,000
            
            
            $
            —Conversion
      of Convertible Preferred Stock: Series B&C to Series D
            
            $
            —
            
            
            $
            28,279,812Conversion
      of notes payable into Series D Preferred Stock
            
            $
            —
            
            
            $
            13,201,777Cash
      payments for interest
            
            $
            1,007,467
            
            
            $
            428,855Issuance
      of warrants with promissory notes
            
            $
            —
            
            
            $
            1,715,113Issuance
      of common shares, secured note financing
            
            $
            717,750
            
            
            $
            —Purchase
      of property through the issuance of notes
            
            $
            232,300
            
            
            $
            —Issuance
      of Series E Preferred Shares, secured note financing
            
            $
            1,262,250
            
            
            $
            —Short
      term notes exchanged for secured notes
            
            $
            2,350,000
            
            
            $
            —Dividends,
      Series D Preferred Stock, exchanged for Series E Preferred
            
            $
            1,267,435
            
            
            $
            —Non-cash
      revenue, barter agreements
            
            $
            240,000
            
            
            $
            166,000








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


























F6
 Table of Contents




World
Racing Group, Inc.


Notes
to Consolidated Financial Statements


December
31, 2007 and 2006








NOTE
      1
            THE
      COMPANY





Nature
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, the Company began operating under the name DIRT MotorSports and in July
2005, the Company reincorporated in Delaware and changed the Company’s name from
“Boundless Motor Sports Racing, Inc.” to “DIRT Motor Sports, Inc.” The Company
changed its name to World Racing Group, Inc. in January 2008.





We are a
leading marketer and promoter of motor sports entertainment in the United
States.  Our motorsports subsidiaries operate 7 dirt motorsports
tracks (four are owned and three facilities are under short term lease
agreements) in New York, Pennsylvania and Florida.  We own and operate
four of the premier sanctioning bodies in dirt motorsports:  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, and we expect to sanction races at
nearly 200 tracks across the United States and Canada in 2007.





In 2008,
we intend to focus on streamlining our operations, and growing our ticket and
merchandising sales, sanctioning, membership and license fees, as well as our
sponsorship and advertising revenue, while expanding our position as a premier
motor sports entertainment company.





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. As shown in
the consolidated financial statements, the Company incurred a net loss of $12.7
million for the year ended December 31, 2007.  The Company has an
accumulated deficit of $73.4 million and has a deficit net worth of $1.5 million
as of December 31, 2007, 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.  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.





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
isunable to obtain additional financing
when they are needed or if such financing cannot be obtained on terms favorable to us or if the Company isunable 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


F7
 Table of Contents


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.





NOTE
      3
            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 $240,000 and $166,000 of
total revenues for the years ended December 31, 2007 and 2006
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.




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 years ended December 31, 2007 and 2006, 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.


F8




December
      312007
            
            
            
            2006Net
      (Loss)
            
            $
            (12,650,639
            )
            
            $
            (22,808,674
            )Net
      loss applicable to common stock
            
            $
            (13,918,074
            )
            
            $
            (25,385,009
            )Net
      loss applicable to common stockper
      common share —
              Basic
      and diluted
            
            $
            (0.89
            )
            
            $
            (1.92
            )Weighted
      average common shares outstanding —
              Basic
      and diluted
            
            
            15,608,748
            
            
            
            13,246,875





In
addition, as of December 31, 2007, the Company’s Series E Preferred Stock was
convertible into 44.5 million shares of common stock and the Company had
warrants outstanding to purchase 1.0 million common shares and options to
purchase 1.8 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.





In
addition, as of December 31, 2006, the Company’s Series D Preferred Stock was
convertible into 17.9 million shares of common stock and the Company had
warrants outstanding to purchase 5.2 million common shares and options to
purchase 2.0 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 December 31, 2007.  These
warrants and stock options were not considered in computing diluted earnings per
share as their effect would be anti-dilutive:





Shares
            
            
            WeightedAverage
              Exercise Price
            
            
            Weighted
      Average Contractual Life(years)Placement
      agent warrants
            
            
            581,266
            
            
            $
            2.99
            
            
            
            3.5UMP
      acquisition warrants
            
            
            40,000
            
            
            $
            3.65
            
            
            
            0.8Other
      Warrants
            
            
            375,059
            
            
            $
            3.00
            
            
            
            3.6Stock
      options
            
            
            1,824,000
            
            
            $
            3.42
            
            
            
            3.2Total
      warrants and stock options outstanding
            
            
            2,820,325
            
            
            $
            3.28
            
            
            
            3.3





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.





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.


F9
 Table of Contents





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 December 31, 2007, the Company had bank deposits in
excess of FDIC insurance of approximately $1.4 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.





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. The Company files tax returns in the United States and
various state jurisdictions.  The Company’s


F10
 Table of Contents


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 is assessing the impact of the adoption of this
Statement.




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. The Company is currently assessing the
impact of SFAS 159 on its consolidated financial statements.





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.





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.


F11
 Table of Contents


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 were $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 for
the year ended December 31, 2007:





Expected
      volatility
            58%Expected
      life in years
            4.0Weighted
      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.





A summary
of the status of stock options and related activity for the year ended
December 31, 2007 is presented below:




Shares
            
            
            WeightedAverageExercise Price
              per
      Share
            
            
            WeightedAverageRemaining
              Contractural
      Term
            
            
            AggregateIntrinsic
              ValueOptions
      outstanding at December 31, 2006
            
            
            2,040,000
            
            
            $
            3.54
            
            
            
            3.7
            
            
            $
            -Granted
            
            
            123,000
            
            
            
            1.83Exercised
            
            
            (339,000
            )
            
            
            3.59Options
      outstanding at December 31, 2007
            
            
            1,824,000
            
            
            $
            3.42
            
            
            
            3.2
            
            
            $
            -Options
      exercisable at December 31, 2007
            
            
            1,130,000
            
            
            $
            3.64
            
            
            
            2.7
            
            
            $
            -




Unrecognized
compensation expense as of December 31, 2007 related to outstanding stock
options and restricted stock grants were $2.0 million.


F12
 Table of Contents





NOTE
      4
            PROPERTY
      AND EQUIPMENT





Property
and equipment consisted of the following at December 31, 2007 and
2006:





2007
            
            
            2006
            
            
            Depreciable
      LifeLand
            
            $
            6,916,338
            
            
            $
            6,916,338
            
            
            
            N/ABuildings
      and grandstands
            
            
            3,444,624
            
            
            
            3,288,759
            
            
            7 -
      40 yearsTransportation
      equipment
            
            
            1,669,309
            
            
            
            1,491,179
            
            
            5 -
      7 yearsOffice
      furniture and equipment
            
            
            743,663
            
            
            
            467,819
            
            
            3 -
      7 years12,773,934
            
            
            
            12,164,095Less
      accumulated depreciation
            
            
            (2,473,458
            )
            
            
            (1,716,462
            )Property
      and equipment, net
            
            $
            10,300,476
            
            
            $
            10,447,633




Depreciation
is computed on a straight-line basis. Depreciation expense for the years ended
December 31, 2007 and 2006 was $756,996 and $698,166, respectively.





NOTE
      5
            GOODWILL
      AND OTHER INTANGIBLE ASSETS





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.





NOTE
      6
            ACCRUED
      LIABILITIES





Accrued
liabilities at December 31, 2007 and 2006 consisted of the
following:





December
      31,
            
            
            December
      31,2007
            
            
            2006Points
      fund
            
            $
            587,875
            
            
            $
            453,150Interest
            
            
            84,378
            
            
            
            74,913Salaries,
      wages and other compensation and benefits
            
            
            170,263
            
            
            
            195,770Sales
      taxes
            
            
            64,548
            
            
            
            158,728Office
      closure and relocation
            
            
            79,639
            
            
            
            114,611Acquisition
      liabilities
            
            
            15,000
            
            
            
            42,532Other
      accrued liabilities
            
            
            123,701
            
            
            
            108,045Total
      Accrued Liabilities
            
            $
            1,125,404
            
            
            $
            1,147,749





NOTE
      7
            DEFERRED
      REVENUE





Deferred
revenues at December 31, 2007 and 2006 consisted of the following:





December
      31,
            
            
            December
      31,2007
            
            
            2006Sanction
      fee advances
            
            $
            123,017
            
            
            $
            12,958Season
      ticket  sales, advance ticket sales
            
            
            98,416
            
            
            
            107,816Membership
      prepayments
            
            
            19,095
            
            
            
            -Sponsorship
      prepayments
            
            
            180,910
            
            
            
            8,650$
            421,438
            
            
            $
            129,424





F13
 Table of Contents


NOTE
      8
            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. The short-term notes
bear interest at 8% per year and were secured by the assets of the
Company.  The proceeds from these 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 (the "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 (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.





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.





F14
 Table of Contents


Notes
payable at December 31, 2007 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
      $1,681,927 as of December 31, 2007.  This note is secured by a
      mortgage on the real property, and security agreement covering the other
      assets acquired from Volusia Speedway.·
            $274,291
      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:





2008
            
            $
            689,2082009
            
            
            1,106,7322010
            
            
            14,361,4502011
            
            
            18,2922012
      and thereafter
            
            
            120,637$
            16,296,219Less:  Note
      Discount
            
            
            (2,515,966
            )$
            13,780,253





Notes
payable at December 31, 2006 consisted of the following:





·
            $92,000
      note payable issued in connection with the purchase of Lernerville
      Speedway, which is due in one installment of $110,000, including accrued
      interest, on May 30, 2007.  This note is secured by a mortgage
      on the Lernerville Speedway Facility.·
            $2,340,000
      notes payable issued in connection with the purchase of Lernerville
      Speedway, bearing interest at 7% payable annually each November. The
      balance is due upon maturity on March 15, 2009.  This note is
      secured by a mortgage on the Lernerville Speedway
  Facility.·
            $2,000,000
      note payable issued in connection with the purchase of Volusia Speedway,
      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
      $1,759,191 as of December 31, 2006.  This note is secured by a
      mortgage on the real property, and security agreement covering the other
      assets acquired from Volusia Speedway.·
            $423,000
      note payable to an individual bearing interest at 8% and payable on or
      before June 15, 2007.·
            $100,528
      in various vehicle notes payable, bearing interest at 6.25% and due in
      monthly installments of principal and interest through February
      2011.





NOTE
      9
            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.


F15
 Table of Contents





The
Company also issued 4,400 shares of Series D and 1,320,178 Series D
Warrants in pursuant to the 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 Companyreceived consent agreements from holders of 100% of the
issued and outstanding shares of our Series D Convertible Preferred Stock
(Series D Stock), representing 17,684 shares. Under the terms of the consent
agreement, 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 numberof shares of common stock (Series D Exchange). As a result of
the Series D Exchange, we eliminated
approximately $54.3million in liquidation
preference associated with the Series D Stock, and accrued dividends, and
issued15.7 millionshares of common stock and41,164shares of
Series E Convertible Preferred Stock convertible into41.2 millionshares
of common stock.





In connection with the execution of the Consent
Agreement, 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
Warrant Exchange,the Companyissued
approximately 15,648,889shares of common
stock and41,164shares of Series E Convertible Preferred Stock convertible into 41,164,000shares of common stock.





The
Company’s Series E Convertible Preferred Stock shall rank prior to the Company’s
Common Stock and has a par value of $0.01 per share for purposes of liquidation
preference.  The maximum number of shares of Series E Preferred Stock
shall be 50,000 shares.  The Series E Preferred Stock has no voting
rights other than as a class as related to the ownership of Series E Preferred
Stock.  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
      10
            RELATED
      PARTY TRANSACTIONS





The
Company rented office space for its corporate offices in Norman, Oklahoma, on a
month-to-month basis through April 2006, from an entity controlled by its former
CEO.  During the years ended December 31, 2006, the Company incurred
$102,969 of rent expense for these offices.  On May 1, 2006, the
Company moved into office space not owned by its former CEO.





During
2007 and 2006, the Company obtained its business liability, event liability,
participant accident, automobile and commercial property and casualty insurance
from a Company in which Tom W. Deery, the Company’s Chief Operating Officer was
previously employed.  Mr. Deery resigned as an officer of the
insurance company prior to becoming an employee of the
Company.  Premiums paid for the aforementioned insurance coverage
during 2007 and 2006 totaled $380,000 and $320,000, respectively.





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.





The tax
effects of temporary differences giving rise to deferred tax assets and
liabilities at December 31, 2007 and December 31, 2006 are as
follows:





At
December 31, 2007, the Company had net operating loss carry forwards of
approximately $45.0 million for federal income tax purposes.





Deferred
tax assets and liabilities are comprised of the following as of December 31,
2007 and December 31, 2006:




December 31,2007
            
            
            2006Deferred
      income tax assetsTax
      effect of impairment of goodwill in excess of amountsamortized
      for income tax reporting purposes
            
            $
            3,361,000
            
            
            $
            3,512,000Tax
      effect of net operating loss carry forward
            
            
            17,338,000
            
            
            
            13,432,000Tax
      effect of stock based compensation
            
            
            1,879,000
            
            
            
            1,044,000Deferred
      income tax liabilitiesTax
      effect of tax depreciation in excess of book depreciation
            
            
            (252,000
            )
            
            
            (168,000
            )$
            22,326,000
            
            
            $
            17,820,000Valuation
      allowance
            
            
            (22,326,000
            )
            
            
            (17,820,000
            )Net
      deferred tax asset
            
            $
            -
            
            
            $
            -





F16
 Table of Contents


A
reconciliation of the difference between the expected tax benefit at the U.S.
federal statutory rate and the Company's of effective tax benefit for the year
ended December 31, 2007 and December 31, 2006 are as follows:




December 31,2007
            
            
            2006Income
      tax benefit – Federal
            
            $
            4,301,000
            
            
            $
            7,755,000Income
      tax benefit – State
            
            
            569,000
            
            
            
            1,026,000Permanent
      differences, non-cash interest expense
            
            
            (363,000
            )
            
            
            (3,203,000Less
      valuation allowance
            
            
            (4,507,000
            )
            
            
            (5,578,000
            )Income
      tax provision
            
            $
            -
            
            
            $
            -





At
December 31, 2007, the Company had available unused net operating loss
carryforwards that may be applied against future taxable income and that expire
as follows:





Year of Expiration
            
            Amount2023
            
            $
            475,0002024
            
            
            5,025,0002025
            
            
            14,256,0002026
            
            
            15,132,0002027
            
            
            10,146,000Total net operating loss
      carryforwards
            
            $
            45,034,000





In June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) No. 48,Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109 . FIN 48 provides guidance for recognizing and measuring
uncertain tax positions, as defined in SFAS 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. FIN 48 was
effective for fiscal years beginning after December 15, 2006.




The
Company adopted the provisions of FIN 48 on January 1, 2007. The company
recognizes interest and penalties related to unrecognized tax benefits in income
tax expense. The Company does not believe it has any material unrealized tax
benefits at December 31, 2007.  The Company files income tax returns in the
U.S. federal jurisdiction and various state and local jurisdictions. The company
is no longer subject to U.S. federal, state and local income tax examinations by
tax authorities for years prior to 2003.





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.


F17
 Table of Contents


Our
corporate office was located in Norman, Oklahoma until March 2007.  It
was leased on a month-to-month basis, $4,664 per month for approximately 3,855
square feet of office space.  We have 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 PeriodTotal
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            ThereafterOperating
      leases
            
            $
            777,901
            
            
            $
            277,616
            
            
            $
            139,931
            
            
            $
            142,285
            
            
            $
            144,694
            
            
            $
            73,375





Operating
lease expense for 2007 and 2006 was $276,397 and $160,100,
respectively.





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 December 31, 2006 was $1.5
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.  As such, the Company cannot express with any certainty at this
time an opinion as to the outcome of this matter.





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.


F18