UNITES
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)


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





For the
year ended December 31, 2008





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)





Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.   oYes  xNo





Check whether the issuer is not required to file reports pursuant to
Section 13 or 15 (d) of the Exchange Act.  xYes  oNo




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-K or any
amendment to this Form 10-K.  o





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




Large Accelerated
      Filer
            o
            
            Accelerated
      Filer
            oNon-Accelerated
      Filer
              (Do not
      check if a smaller reporting company)
            o
            
            Smaller
      Reporting Company
            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
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the issuer as of March 26, 2009: $565,638.63
(at a closing price of $0.03 per share).





As of
March 26, 2009, 42,751,735 shares of the Company’s, $.0001 par value common
stock were outstanding.







TABLE OF CONTENTS





PART I
                                        
                                        
                                        PageItem 1.
                                        Description of Business
                                        1Item 1A.
                                        Risk Factors
                                        6Item 1B.
                                        Unresolved Staff Comments
                                        10Item 2.
                                        Properties
                                        11Item 3.
                                        Legal Proceedings
                                        12Item 4.
                                        Submission of Matters to a Vote of Security
      Holders
                                        13PART IIItem 5.
                                        Market for Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                        13Item 6.
                                        Selected Financial Data
                                        13Item 7.
                                        Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                                        14Item 7A.
                                        Quantitative and Qualitative Disclosures about Market
      Risk
                                        24Item 8.
                                        Financial Statements and Supplementary Data
                                        24Item 9.
                                        Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosures
                                        24Item 9A(T)
                                        Controls and Procedures
                                        24Item 9B.
                                        Other Information
                                        26PART IIIItem 10.
                                        Directors, Executive Officers and Corporate
      Governance
                                        26Item 11.
                                        Executive Compensation
                                        29Item 12.
                                        Security Ownership of Certain Beneficial Owners and Management,
      and Related Stockholder Matters
                                        31Item 13.
                                        Certain Relationships and Related
    Transactions
                                        34Item 14.
                                        Principal Accountant Fees and Services
                                        34PART IVItem 15
                                        Exhibits and Reports on Form 8-K
                                        36SIGNATURES
                                        
                                        
                                        38INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                        F-1


-i-
 Table of Contents





DISCLOSURE
CONCERNING FORWARD-LOOKING STATEMENTS





This Form
10-K 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-K 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





ITEM1.
            DESCRIPTION
      OF BUSINESS





Company
Overview, Intent to Go Private and Plan of Operations





World
Racing Group, Inc., formerly DIRT Motor Sports, Inc. (the “Company,” “we,” “us,”
“our”), is incorporated in Delaware.  Our executive offices are
located at 7575 West Winds Blvd. Suite D, Concord, North Carolina
28027.





We are a
leading marketer and promoter of motor sports entertainment in the United
States.  Our motorsports subsidiaries operate six dirt motor sports
tracks (four are owned and two facilities are under short term lease agreements)
in New York, Pennsylvania and Florida.  We own and operate the premier
sanctioning bodies in dirt motor sports:  the World of Outlaws Sprint
Car Series; the World of Outlaws Late Models Series: Advance Auto Parts Super
DIRTcar Series; DIRTcar Racing formerly known as DIRT MotorSports and United
Midwestern Promoters (UMP DIRTcar) which includes weekly event sanctions and
regional series in the Northeast, Midwest and West.  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 125 tracks across the United
States and Canada in 2009.


-1-
 Table of Contents




On
February 17, 2009, we announced that our Board of Directors and a majority of
our stockholders had approved a 1-for-101 reverse stock split of our common
stock (the “Reverse Split”).  The intended effect of the Reverse Split
is to reduce the number of record holders of our common stock to fewer than 300
so that we will be eligible to terminate the public registration of our common
stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Provided that the Reverse Stock Split has the intended effect, we will
file to deregister our common stock with the Securities and Exchange Commission
(the "Commission") and to terminate the listing of shares of our common stock on
the Over the Counter Bulletin Board.  In such case, we will no longer
be required to file periodic reports with the Commission. When the Reverse Split
becomes effective, stockholders that hold fewer than 101 shares of common stock
will receive a cash payment of $0.10 per pre-split share. Additionally, as the
Company will not be issuing fractional shares, stockholders will also receive a
cash payment of $0.10 per pre-split share if their pre-split holdings would not
result in the issuance of whole shares.   The Company filed a
preliminary Information Statement with the Commission and expects to distribute
a definitive Information Statement to all holders of our common stock in the
near future. The Reverse Split will not be affected prior to the 20th day
following the distribution of the definitive Information Statement to
stockholders. However, the Company reserves the right not to proceed with the
Reverse Split in the discretion of its Board of Directors.





The
Reverse Split is not expected to affect our current business plan or operations,
except for the anticipated cost and management time savings associated with the
termination of our obligations as a public company.  Management also
anticipates that we will be able to more successfully compete for sponsorship,
advertising and other revenue generating opportunities as a private company,
which remains our principal focus.  Our plan of operations for the
remainder of 2009 also includes continuing to streamline our operations, and
grow our ticket and merchandise sales, sanction, membership and license fees,
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
approaching 100 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 fifteen 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.





Motor
sport events are generally heavily promoted, with a number of supporting events
surrounding each main race event. Examples of supporting events include:
secondary races, qualifying time trials, practice sessions, driver autograph
sessions, automobile and product expositions, catered parties, and other racing
related events designed to maximize the spectator’s overall entertainment
experience and enhance value to sponsors.


-2-
 Table of Contents


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 DIRTcar Racing are the best
known.  Until recently the sponsorship for dirt track racing consisted
primarily of local, regional and industry manufacturer 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 and advertising fees; (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
touring series sanctioning and event fees for our touring series range from
$2,500 to $25,000 per event day depending on several variables, including: size
of race, race venue, revenue sharing with the track owner or promoter, race
purses and other prizes. Sanction fees for weekly events and regional tours may
range from $100 to $2,500.





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 “ACME” 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 Armor All is the "Official Car
Care Product 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
UNOH").


-3-
 Table of Contents


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.  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 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 broadcast 28 hours of original programming
on SPEED Television.  In 2009, we expect to broadcast a minimum of 18
hours of World of Outlaws racing on SPEED Television.





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.





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 $80 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.


-4-
 Table of Contents


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 and United
Midwestern Promoters (UMP)





DIRT
Motorsports New York was founded in the mid 1970’s, and UMP in
1980.  Together now under the DIRTcar Racing banner, they have been
combined to create the largest circle track motorsports sanction body in the
United States.  Each year, DIRTcar sanctioned races are held at
approximately 125 DIRTcar affiliated tracks situated throughout the U.S. and
Canada, with nearly 5,000 feature events being held under the DIRTcar
sanction.





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.





With the
successful acquisition of the premier national dirt late model touring series in
2004, the series name was changed to the World of Outlaws Late Model Series,
leveraging the World of Outlaws brand and giving the company the enviable
position of controlling the elite level of sprint car and late model racing in
the U.S.





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.





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


-5-
 Table of Contents




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, 2008, we had 57 full-time employees
working at our various locations and 122 part-time employees.  None of
the employees belong to a labor union.  We believe relations with our
employees are satisfactory.





ITEM1A.
            RISK
      FACTORS





An investment in our common stock is
subject to many risks. You should carefully consider the risks described below,
together with all of the other information included in this Annual Report on
Form 10-K, including the financial statements and the related notes, before you
decide whether to invest in our common stock. Our business, operating results
and financial condition could be harmed by any of the following risks. The
trading price of our common stock could decline due to any of these risks, and
you could lose all or part of your investment.





We
will 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, 2008, our aggregate net loss
is approximately $86.3 million and we have a deficit net worth of $9.2 million.
Our cash position was $0.9 million at December 31, 2008, and is
decreasing.  We expect the net losses and negative cash flow to
continue into 2009.  As a result, we will need to raise additional
capital prior to the end of 2009. 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 2008 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.




Recent
decreases in discretionary consumer spending may negatively affect our
revenue.


-6-
 Table of Contents




Attendance
at motor sports events is dependent on discretionary spending by consumers,
which may be adversely affected by general economic conditions. The country is
currently in one of the worst recession in years, coupled with the collapse of
the world's financial industry and the U.S. housing markets, As a result,
consumers have drastically reduced their spending beginning in the second half
of 2008. With this recent and significant deterioration of economic conditions
in the U.S. and elsewhere, there has been considerable pressure on consumer
demand, and the resulting impact on consumer spending has had and may continue
to have a material adverse effect on attendance at motor sports
events.  Consumer demand may also be impacted by other external
factors such as war, terrorism, geopolitical uncertainties, public health
issues, natural disasters and other business interruptions. The impact of these
external factors is difficult to predict, and one or more of the factors could
adversely impact our business.




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





We have
not operated at a profit since inception, and there can be no assurance that we
will be able to achieve or maintain profitability.  Our ability to
attain profitability and positive cash flow is dependent upon a number of
factors, including an improvement in overall economic conditions, as well as 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.





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, including the current economic recession; 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 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.




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


-7-
 Table of Contents




As of
March 26, 2009, our executive officers, directors and principal stockholders
together beneficially own approximately 55% 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.





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.




If we go private, our stockholders
may not have access to current information regarding the
Company.




Our
Board of Directors and a majority of our stockholders have approved a 1-for-101
reverse stock split of our common stock (the “Reverse Split”).  The
intended effect of the Reverse Split is to reduce the number of record holders
of our common stock to fewer than 300 so that we will be eligible to terminate
the public registration of our common stock under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Provided that the Reverse Stock Split has
the intended effect, we will file to deregister our common stock with
 the Securities and ExchangeCommission 
(the "Commission")  and to terminate the


-8-
 Table of Contents




listing
of shares of our common stock on the Over the Counter Bulletin Board
(“OTCBB”).  In such case, we will no longer be required to file
periodic reports with the Commission. As a result, and assuming consummation of
the Reverse Split, our stockholders may not have access to current financial or
other information regarding the Company that would otherwise be available to
stockholders in the event we were required to file periodic and other reports
with the Commission under the Exchange Act.





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, especially in the event the Reverse
Split is consummated, resulting in the termination of the listing of shares of
our common stock on the OTCBB.  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 OTCBB, 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 OTCBB 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 26, 2009, we had approximately 42.8 million shares of common stock
outstanding.  In addition, as of March 26, 2009, our Series E
Preferred Stock was convertible into 50.0 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
$0.4 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.


-9-
 Table of Contents




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, 2011 (Senior Notes) are
outstanding, we may not pay any dividend on our common stock and 10% Cumulative
Perpetual Series A Preferred Stock (“Series A Shares”).





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 was first applied to our
Annual Report for the year ended December 31, 2007 and 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 our
Annual Report for our fiscal year ending December 31, 2009, unless otherwise
extended by the SEC.  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.




We
completed the design, documentation and implementation of our internal controls
over financial reporting. We believe that we have purposely designed our
controls to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. However,
the Company was not in compliance with Section 404 of the Sarbanes-Oxley Act of
2002, as of December 31, 2008, and management cannot state whether or not our
internal controls over financial reporting are effective. We began testing our
controls by utilizing the framework set forth in the report entitled “Internal
Control – Integrated Framework” published by the Committee of Sponsoring
Organizations of the Treadway Commission, known as “COSO,” as a basis to
evaluate the effectiveness of our internal controls over financial reporting,
but did not complete the detailed testing of all our controls by December 31,
2008. or as of the date of this report.


ITEM1B.
            UNRESOLVED
      STAFF COMMENTS


-10-
 Table of Contents




Not
Applicable




ITEM2.
            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 mortgages totaling $6.0
million for Lernerville Speedway and Volusia County Speedway.  We also
granted a mortgage in the amount of $3.1 million for Cayuga County 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 $15,000,000.





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.





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 officials’ 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.


-11-
 Table of Contents


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 $9,876, escalating to $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.





Leased
Racing Facilities





In
addition to its owned racing facilities, we lease two racing facilities, the
Canandaigua Speedway and the Syracuse Fairgrounds Race Track.  Prior
to December 31, 2008 we also leased 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.





In 2007
and 2008 we leased The Orange County Fair Speedway at a rate of $115,000 per
year.  The track is located in Middletown, New York. As of December
31, 2008, we no longer lease this facility.





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.





ITEM3.
            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 discovery phase of the case concluded on
January 30, 2009.  The Court has set a schedule for briefing motions
for summary judgment.  In the event that the case is not disposed of
on a motion for summary judgment, the Court will set a schedule for expert
discovery.  We cannot express with any certainty at this time an
opinion as to the outcome of this matter.


-12-
 Table of Contents





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.





ITEM4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.




PART
II





ITEM
      5.
            MARKET
      FOR COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND ISSUER
      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 Ranges2008
                          
                          2007Quarter
                          
                          High
                          
                          
                          Low
                          
                          
                          High
                          
                          
                          Low1st
                          
                          $
                          0.52
                          
                          
                          $
                          0.22
                          
                          
                          $
                          2.57
                          
                          
                          $
                          1.622nd
                          
                          
                          0.40
                          
                          
                          
                          0.10
                          
                          
                          
                          2.05
                          
                          
                          
                          0.863rd
                          
                          
                          0.15
                          
                          
                          
                          0.03
                          
                          
                          
                          1.25
                          
                          
                          
                          0.404th
                          
                          
                          0.10
                          
                          
                          
                          0.01
                          
                          
                          
                          0.85
                          
                          
                          
                          0.30





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 26, 2009, there were 42,751,735 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 and Series A Shares
remain outstanding, we may not pay any dividend on our common
stock.





ITEM
      6.
            SELECTED
      FINANCIAL DATA





Not
Applicable


-13-
 Table of Contents




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Forward
Looking Statements





The following Management’s Discussion and Analysis is
intended to assist the reader in understanding our results of operations and
financial condition.  Management’s Discussion and Analysis is provided
as a supplement to, and should be read in conjunction with, our audited
consolidated financial statements beginning on page F-1 of this Annual
Report.This Form 10-K 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-K 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 by us, our performance on our current contracts and our success
in obtaining new contracts, our ability to attract and retain qualified
employees, and other factors, many of which are beyond our
control.  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.





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.


-14-
 Table of Contents


Results
of Operations – Impact of Seasonality, Weather and General Economic Conditions
on Quarterly Results





In 2007,
we scheduled 84 World of Outlaw Sprint Series races, 56 World of Outlaw Late
Model Series races, 27 Advance Auto Parts Big Block Modified events, and over
200 other major racing events in our other regional and touring racing
series.  In 2008, we scheduled 80 World of Outlaw Sprint Series races
and completed 66 races; scheduled 50 World of Outlaw Late Model Series races and
completed 43 races; and scheduled 26 Advance Auto Parts Big Block Modified
events, and over 150 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, 2008 and
2007





Our total
revenues increased to $23.4 million in 2008 from $19.6 million in
2007.  Race sanctioning and event fees revenue increased to $8.9
million in 2008 from $8.2 million in 2007.  This increase is due to an
increase in the number of sanctioned events and fees per event in 2008 compared
to 2007.  In 2008 we completed 59 World of Outlaw Sprint Series
sanctioned events at non-owned facilities and seven events at our facilities. In
2007 we completed 76 World of Outlaws Sprint Series sanctioned events at
non-affiliated facilities and five events at our facilities.   In
2008 we completed 43 World of Outlaw Late Model Series events and in 2007 we
completed 56.





During
2008 and 2007 we generated $7.3 million in track operations, ticket and
concession sales.  These revenues are generated at events held at our
owned or operated racetracks. We added several multi-day events at our owned
racetracks during June 2008 and increased attendance at our weekly
events.  The increase in revenue resulting from these factors was
offset in part by a decrease in the number of nightly events that we held at
leased facilities in 2008.  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.  While no assurances can be given, due to the challenging
general economic environment, we expect our track operations, ticket and
concession sales to increase only marginally in 2009 compared to
2008.





Our
sponsorship and advertising revenues increased to $6.4 million in 2008 from $3.5
million in 2007.  This increase is due to the addition of several
major sponsors including a title sponsor for the World of Outlaws Sprint Car
Series. Sales of merchandise decreased slightly to $490,000 in 2008 from
$505,000 in 2007 due to a decrease in the number of events held due to inclement
weather offset by an increase in the sales per event held. We expect that our
net operating cash generated from sales of merchandise to increase due to
continued increases in sales per event and the number of events held in
2009.


-15-
 Table of Contents





Operating
Expenses.





Our total
operating expenses increased to $32.5 million in 2008 from $30.4 million in
2007.  The increase is due to an increase in costs associated with
fulfilling the Company’s additional sponsorship contracts, operating expenses
for events that were delayed or cancelled due to inclement weather, and legal
and professional fees incurred in connection with the defense of litigation
pending against the Company.  These increases have been offset 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 $23.7 million
in 2008 from $22.8 million in 2007.  This increase is due to increased
prizes and awards at additional events held in 2008 that were not held in 2007,
offset in part by decreases in television programming and production costs of
$0.5 million.  These increases were also offset in part by (i)
decreases in personnel, contract labor cost and other costs at our events at our
speedways and certain of our racing series, and (ii) decreases in certain prize
and purse fund amounts for 2008 as compared to 2007.





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 increased to $2.9 million in
2008 from $1.7 million in 2007, principally due to increased professional fees,
commissions paid to outside agencies for sponsorship revenue generated and
increased fulfillment costs associated with additional sponsors in
2008.





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 2008.  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
increased to $3.2 million in 2008 from $2.7 million in 2007 as a result of
increases in legal and other professional fees incurred to defend the civil
antitrust proceeding brought against the Company by Specialty Tires of America,
Inc. and Race Tires America, Inc., a division of Specialty Tires of America,
Inc. In 2008 we incurred $1.3 million in legal and other professional fees.
These increases were offset in part by decreases in personnel costs, travel and
other administrative expenses.





Non-Cash Stock
Compensation.  We incurred non-cash stock compensation expenses
of $1.4 million in 2008 and $2.2 million in 2007.  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 decreased
slightly to approximately $0.7 million in 2008 from $0.8 million  in
2007 due to many assets from the initial purchase of the World of Outlaws and
DIRT MotorSports being fully depreciated offset in part by the addition of
equipment and leasehold and track improvements during 2008.


-16-
 Table of Contents




Net Interest
Expense.  Interest expense increased to $3.9 million in 2008
from $2.0 million in 2007 due to the accrual of interest on the Senior
Notes.  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 $23.4 million in revenues during the year ended December 31, 2008;
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,
2008 has been from the issuance of notes payable, and Series A
Shares.





During
the year ended December 31, 2008, we used $6.8 million in operating
activities.  The use of cash was primarily the result of a net loss of
$12.9 million, which was offset by depreciation and amortization of $0.7
million, non-cash stock compensation of $1.4 million, non-cash interest expense
and interest paid in kind of $2.5 million and other working capital changes,
primarily accounts payable, accrued liabilities and deferred
revenue.





During
the year ended December 31, 2008, we used $0.5 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, 2008, financing activities provided $6.5 million
primarily through the issuance of $3.7 million in Senior Notes, and $3.5 million
in Series A Shares and 9,975,000 shares of common stock, offset by repayment of
$0.4 million in notes payable and payments of $0.2 million in placement agent
fees.





We
incurred a net loss of $12.9 million for the year ended December 31,
2008.  We had an accumulated deficit of $86.3  million and
had a deficit net worth of $9.2 million as of December 31, 2008, 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.





During December 2008, we issued 350 Series A Shares and
9,975,000 shares of common stock, resulting in gross proceeds to the Company of
$3.5 million.





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. Under the terms of the
Note Purchase Agreement, we issued an additional $3.0 million principal amount
of Senior Notes in May 2008.





The Senior Notes are due March 15, 2011 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 of our assets and
the assets or our 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.


-17-
 Table of Contents





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.





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 non-cash interest expense of $0.9 million,
depreciation and amortization of $0.8 million, non-cash stock compensation of
$2.2 million, a charge related to the impairment of our goodwill and other
working capital changes, primarily accounts payable and accrued
liabilities.





We are
dependent on existing cash resources and external sources of financing to meet
our working capital needs.  Current sources of liquidity will be
insufficient to provide for budgeted and anticipated working capital
requirements through the remainder of 2009.  We will therefore be
required to seek additional financing to satisfy our 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 continue to execute its strategy
of (i) increasing the number of sanctioned events; (ii) leveraging existing
owned and leased tracks to generate ancillary revenue streams; (iii) partnering
with existing promoters to create additional marquis events; and (iv) continuing
to build sponsorship, advertising and related revenue, including license fees
related to the sale of branded merchandise.   In addition, we
plan to consummate the Reverse Split, resulting in the termination of the
Company’s requirement to file periodic and other reports with the Commission
under the Exchange Act.  If consummated, we anticipate savings of
approximately $250,000 to $300,000 per annum. If we are unsuccessful in our
plans, 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.


-18-
 Table of Contents





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





Payment
      Due by Period2013
      andContractual
      obligations
                  
                  Total
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  thereafterOperating
      leases
                  
                  $
                  360,354
                  
                  
                  $
                  142,285
                  
                  
                  $
                  144,694
                  
                  
                  $
                  73,375
                  
                  
                  $
                  -
                  
                  
                  $
                  -Employment
      agreements
                  
                  
                  161,490
                  
                  
                  
                  161,490
                  
                  
                  
                  -
                  
                  
                  
                  -Notes
      payable and accrued interest
                  
                  $
                  26,073,869
                  
                  
                  
                  4,724,228
                  
                  
                  
                  4,620,497
                  
                  
                  
                  16,564,014
                  
                  
                  
                  46,740
                  
                  
                  
                  118,390





Operating
lease expense for 2008 and 2007 was $456,064 and $410,479,
respectively.





Off-Balance Sheet Arrangements





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





Critical Accounting Policies





Our discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements
and accompanying notes, which have been prepared in accordance with accounting
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.


-19-
 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 $61,000 and $240,000 of
total revenues for the years ended December 31, 2008 and 2007.





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.


-20-
 Table of Contents




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, 2008, 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, 2008, we had the following warrants and stock options
outstanding:




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




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




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




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




In
addition, as of December 31, 2008, our Series E Preferred Stock was convertible
into 50.0 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.





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, 2008, we believe there
is no impairment of property and equipment.


-21-
 Table of Contents





New
Accounting Pronouncements





In
September 2006, the FASB issued Statement No. 157,Fair Value Measurements
(SFAS No. 157). SFAS No. 157 addresses how companies should
measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. Management adopted this Statement on January 1, 2007 and the
initial adoption SFAS 157 did not have a material impact on our financial
position, results of operations, or cash flows. In February 2008, the FASB
issued FASB Staff Position FAS 157-2, “Effective Date of FASB Statement No. 157”
(“FSP 157-2”), to partially defer FASB Statement No. 157, “Fair Value
Measurements” (“FAS 157”). FSP 157-2 defers the effective date of FAS 157 for
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), to fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008.  On October 29, 2008
the FASB issued FSP FAS 157-3, "Determining the Fair Value of a Financial Asset
When The Market for That Asset Is Not Active" (FSP FAS 157-3) which clarifies
the application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active.
Management is evaluating the impact of adopting the provisions of FAS 157 as it
relates to non-financial assets and liabilities.





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. The Company will adopt SFAS No. 160 on January 1,
2009.  We do not expect the adoption to have a material impact on our
financial position, results of operations or cash flows.





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. The Company will adopt SFAS No.
160 on January 1, 2009.  We do not expect the adoption to have a
material impact on our financial position, results of operations or cash
flows.


-22-
 Table of Contents





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.  The Company will adopt
SFAS No. 160 on January 1, 2009.  We do not expect the adoption to
have a material impact on our financial position, results of operations or cash
flows.





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, 2008 related to outstanding stock
options was $0.4 million.





The fair
value of each option grant is estimated for disclosure purposes on the date of
grant using the Black-Scholes option-pricing model with the expected lives equal
to the vesting period. The weighted average contractual life of the outstanding
options at December 31, 2008 was 2.1 years.


-23-
 Table of Contents




A summary
of the status of stock options and related activity for the year ended December
31, 2008 is presented below:




Shares
                                    
                                    Weighted Average
                                      Exercise Price
                                      per
      Share
                                    
                                    Weighted Average
                                      Remaining
                                      Contractual Term
                                    
                                    Aggregate
                                      Intrinsic
                                      ValueOptions
      outstanding at December 31, 2007
                                    1,824,000
                                    
                                    $
                                    3.42
                                    
                                    2.1
                                    
                                    $
                                    -Granted
                                    -
                                    
                                    
                                    -Exercised
                                    -
                                    
                                    
                                    -Forfeited/expired/surrendered
                                    (1,404,000)
                                    
                                    
                                    3.26Options
      outstanding at December 31, 2008
                                    420,000
                                    
                                    $
                                    3.95
                                    
                                    2.1
                                    
                                    $
                                    -Options
      exercisable at December 31, 2008
                                    420,000
                                    
                                    $
                                    3.95
                                    
                                    2.1
                                    
                                    $
                                    -




ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS





Not
Applicable.





ITEM8.
            FINANCIAL
      STATEMENTS





The
information required hereunder in this Annual Report on Form 10-K is set forth
in the financial statements and the notes thereto beginning on Page
F-1.





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES





None





ITEM
      9A(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, 2008, 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.


-24-
 Table of Contents




Management’s Report on Internal
Control over Financial Reporting.





Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our internal controls over financial reporting will, in all
instances, prevent all errors and all fraud. A control system, no matter how
well conceived or operated, can only provide reasonable, not absolute, assurance
that the objectives of the control system are met. While our control systems
provide a reasonable assurance level, the design of our control systems reflects
the fact that there are resource constraints, and the benefits of such controls
were considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the financial
reports of the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple errors or mistakes. Additionally, a
control can be circumvented by the individual act of some person, by collusion
of two or more persons, or by management’s override of a specific control. The
design of any system of controls is also based in part on certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.




During
fiscal 2008, under the supervision of our Chief Executive Officer and Chief
Financial Officer, we completed the design, documentation and implementation of
our internal controls over financial reporting. We believe that we have
purposely designed our controls to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. However, the Company was not in compliance with
Section 404 of the Sarbanes-Oxley Act of 2002, as of December 31, 2008, and
management cannot state whether or not our internal controls over financial
reporting are effective. We began testing our controls by utilizing the
framework set forth in the report entitled “Internal Control – Integrated
Framework” published by the Committee of Sponsoring Organizations of the
Treadway Commission, known as “COSO,” as a basis to evaluate the effectiveness
of our internal controls over financial reporting, but did not complete the
detailed testing of all our controls by December 31, 2008, and as of the date of
this report.





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, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.





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 2008, 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.


-25-
 Table of Contents




ITEM9B.
            OTHER
      INFORMATION





On
February 17, 2009, we announced that our Board of Directors and a majority of
our stockholders had approved a 1-for-101 reverse stock split of our common
stock (the “Reverse Split”).  The intended effect of the Reverse Split
is to reduce the number of record holders of our common stock to fewer than 300
so that we will be eligible to terminate the public registration of our common
stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Provided that the Reverse Stock Split has the intended effect, we will
file to deregister our common stock with the Securities and Exchange Commission
(the "Commission") and to terminate the listing of shares of our common stock on
the Over the Counter Bulletin Board.  In such case, we will no longer
be required to file periodic reports with the Commission. When the Reverse Split
becomes effective, stockholders that hold fewer than 101 shares of common stock
will receive a cash payment of $0.10 per pre-split share. Additionally, as the
Company will not be issuing fractional shares, stockholders will also receive a
cash payment of $0.10 per pre-split share if their pre-split holdings would not
result in the issuance of whole shares.   The Company filed a
preliminary Information Statement with the Commission and expects to distribute
a definitive Information Statement to all holders of our common stock in the
near future. The Reverse Split will not be affected prior to the 20th day
following the distribution of the definitive Information Statement to
stockholders. However, the Company reserves the right not to proceed with the
Reverse Split in the discretion of its Board of Directors.





The
Reverse Split is not expected to affect our current business plan or operations,
except for the anticipated cost and management time savings associated with
termination of our obligations as a public company.  Management also
anticipates that we will be able to more successfully compete for sponsorship,
advertising and other revenue generating opportunities as a private company,
which remains our principal focus.  Our plan of operations for the
remainder of 2009 also includes continuing to streamline our operations, and
grow our ticket and merchandise sales, sanction, membership and license fees,
while expanding our position as a premier motor sports entertainment
company.





PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
following table provides information about our executive officers and directors
and their respective ages and positions as of December 31, 2008.  The
directors listed below will serve until our next annual meeting of
stockholders:





Name
            Age
            
            PositionBrian
      M. Carter
            39
            
            Chief
      Executive Officer, Chief Financial Officer and
    DirectorTom
      W. Deery
            54
            
            President
      and Chief Operating OfficerBenjaman
      L. Geisler
            31
            
            Executive
      Vice President and Chief Marketing OfficerRobert
      F. Hussey
            59
            
            Director
      and Chairman of the Board of DirectorsCary
      J. Agajanian
            67
            
            DirectorDaniel
      W. Rumsey
            47
            
            Director




-26-
 Table of Contents




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.





Benjamin L. 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., MediaNet Technologies Group, 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.


-27-
 Table of Contents





Daniel W.
Rumsey.Mr. Rumsey has served as a member of our Board of
Directors since July 2005, and as Secretary and Special Counsel since July
2007.  He is currently a principal of the Disclosure Law Group, and is
the founder and President of SEC Connect, LLC, an EDGAR filing
agent.  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, and is a director of
XELR8 Holdings, Inc.  From March 2003 to March 2006, Mr. Rumsey held
various other senior executive positions at Azzurra Holding Corporation,
formerly Wave Wireless 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 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.  Mr. Hussey is Chairman of our Audit Committee;
Mr. Agajanian is Chairman of our Compensation Committee and Mr. Rumsey is
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, 2008,
we believe that 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 2008, or written
representations from certain reporting persons.  In addition, each of
our officers and directors failed to timely file a Form 4 required to be filed
with the SEC in March 2008 reporting the termination of their employee stock
options.





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.


-28-
 Table of Contents




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
      11.
            EXECUTIVE
      COMPENSATION





The
following table sets forth certain information about the compensation paid or
accrued during the years ended December 31, 2008 and 2007 to our Chief
Executive Officer and Chief Financial Officer, our President and Chief Operating
Officer, and our Executive Vice President and Chief Marketing Officer, the only
other executive officers whose total compensation exceeded
$100,000.




Name
      and Principal Position
                                              Year
                                              Salary ($)
                                              Stock
                                                Awards
                                                ($)
                                              OptionAwards
                                                ($)
                                              All
      Other
                                                Compensation
                                                ($)
                                              
                                              Total
                                                ($)Brian
      M. Carter
                                                Chief
      Executive Officer, Chief Financial Officer and
    Director
                                              2008
                                              $
                                              198,000
                                              
                                              
                                              $
                                              8,4001
                                              
                                              $
                                              206,4002007
                                              $
                                              182,077
                                              
                                              
                                              $
                                              8,4001
                                              
                                              $
                                              190,477Tom
      W. Deery
                                                President
      and Chief Operating Officer
                                              2008
                                              $
                                              180,000
                                              
                                              
                                              
                                              
                                              
                                              $
                                              180,0002007
                                              $
                                              192,000
                                              
                                              
                                              
                                              
                                              
                                              $
                                              192,000Benjaman
      L. Geisler
                                                Executive
      Vice President and Chief Marketing Officer
                                              2008
                                              $
                                              180,000
                                              
                                              
                                              
                                              
                                              
                                              $
                                              180,0002007
                                              $
                                              180,000
                                              
                                              
                                              
                                              
                                              
                                              $
                                              180,000





1Amount represents an automobile allowance paid to Mr.
Carter.




Narrative Disclosure to Summary CompensationTable





During 2008, 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 provisions and
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.


-29-
 Table of Contents




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
                  ($)Daniel
      W. Rumsey(1)
                
                $
                30,000
                
                
                $
                65,000
                
                
                $
                95,000Robert
      Hussey
                
                $
                42,500
                
                
                
                -
                
                
                $
                42,500Cary
      Agajanian
                
                $
                15,000
                
                
                
                -
                
                
                $
                15,000




(1)
            Mr.
      Rumsey was paid $5,000 per month in connection with his service as
      Corporate Secretary and Special Counsel during
      2008.





Narrative
Disclosure to Director Compensation Table





Each
director (other than the Chairman) receives $30,000 per year paid quarterly, or
$7,500 for quarterly meetings attended, 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.





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 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.


-30-
 Table of Contents




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.





ITEM
      12.
            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, 2009 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.


-31-
 Table of Contents





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, 2009 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 42,521,734 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
      andNature
      ofBeneficial
Owner
                            
                            
                            Percentof
      Class5%
      Stockholders:Common
                            Vicis
      Capital Master Fund  (2)
                            
                            
                            13,890,465
                            
                            
                            
                            32.67
                            %Common
                            SDS
      Capital Group SPC, Ltd. (3)
                            
                            
                            3,152,942
                            
                            
                            
                            7.41Common
                            Trellus
      Management Company, LLC (4)
                            
                            
                            2,512,500
                            
                            
                            
                            5.91Common
                            Matador
      Inc. (5)
                            
                            
                            3,511,206
                            
                            
                            
                            8.26Executive Officers and
      Directors:Common
                            Brian
      M. Carter
                            
                            
                            300,000
                            
                            
                            
                            *Common
                            Tom
      W. Deery
                            
                            
                            150,000
                            
                            
                            
                            1.1Common
                            Benjamin
      L. Geisler
                            
                            
                            150,000
                            
                            
                            
                            *Common
                            Robert
      F. Hussey
                            
                            
                            *
                            
                            
                            
                            *Common
                            Daniel
      W. Rumsey
                            
                            
                            *
                            
                            
                            
                            *Common
                            Cary
      J. Agajanian
                            
                            
                            *
                            
                            
                            
                            *Common
                            Directors
      and executive officers as a group (6 persons)
                            
                            
                            600,000
                            
                            
                            
                            1.41*
      Less than 1%




(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 Vicis Capital Master Fund is 445 Park Avenue, 16th
      Floor, New York, NY, 10022.(3)
              The
      business address of SDS Capital Group SPC, Ltd. Is c/o Ogier Fiduciary
      Services, 113 Sourth Church Street, P.O. Box 1234GT, George Town, Grand
      Cayman.(4)
              The
      business address of Trellus Management Company, LLC is 350 Madison Avenue,
      9th
      Floor, New York, NY 10017.(5)
              The
      business address of Matador Inc. is 225 E. 63rd
      Street, No. 4M, New York, NY
10065.


-32-
 Table of Contents





EQUITY COMPENSATION PLAN INFORMATION





The following is certain information about our equity
compensation plans as of December 31, 2008:





(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
                            
                            
                            420,000
                            
                            
                            $
                            3.95
                            
                            
                            
                            2,565,000Equity compensation plans not approved by security
      holders
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
                            
                            
                            420,000
                            
                            
                            $
                            3.95
                            
                            
                            
                            2,565,000




2004 Long Term Incentive Plan





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.


-33-
 Table of Contents




Stock Options Issued to Directors and
Officers





A description of the stock options issued to our
directors and officers is set forth in Item 10 above under the caption
“Employment Agreements.”In
connection with a restructuring of certain of the Company’s equity securities,
management agreed to surrender their outstanding options on March 28,
2008.





ITEM13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





During
2008 and 2007, 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 $370,000 during 2008 and $380,000
during 2007.





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 Messrs. Carter and Rumsey, 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.





ITEM14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Audit
Fees





We paid
$75,662 and $66,261 in audit fees during the years ended December 31, 2008 and
2007, respectively to Eide Bailly LLP, and its predecessor, Murrell, Hall,
McIntosh & Co., PLLP (“Eide Bailly”).





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, 2008 and 2007, we paid $10,258 and $12,296,
respectively to Eide Bailly 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, 2008 and 2007.


-34-
 Table of Contents


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 Eide Bailly in fiscal 2008 and 2007. 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.





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 PCAOB
Rule 3526, and will receive the written disclosures and letters as required by
professional auditing standards, 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-K for each fiscal year for
filing with the Securities and Exchange Commission.


-35-
 Table of Contents




ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES





The
following documents are filed as part of this report:


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-K filed with
      the Commission on January 3, 2005).3.3
              
              Certificate of Designation of the Relative Rights
      and Preferences of the 10% Cumulative Perpetual Series A Preferred Stock
      (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report
      on Form 8-K filed with the Commission on December 30, 2008).3.4
              
              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).3.5
              
              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).3.6
              
              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).3.7
              
              Certificate of Designation of the Relative Rights
      and Preferences of the Series E-1 Convertible Preferred Stock.
      (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report
      on Form 8-K filed with the Commission on December 30,
      2008).4.1
              
              Form
      of Series D  Convertible Preferred Stock Purchase
      Agreement, dated as of May 16, 2006, by and among Dirt Motor Sports, Inc.,
      a Delaware corporation, and the purchasers set 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).4.2
              
              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).4.3
              
              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).4.4
              
              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).4.5
              
              Form of Series A Preferred Purchase Agreement,
      dated as of December 31, 2008, by and among the Company and the purchasers
      set forth therein.  (Incorporated by reference to Exhibit 10.1
      to the Company’s Current Report on Form 8-K filed with the Commission on
      January 20, 2009).





-36-
 Table of Contents


10.1
              
              Employment Agreement, dated effective 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
              
              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).10.3
              
              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).10.4
              
              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)..10.5
              
              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).10.6
              
              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).10.7
              
              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).10.8
              
              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).10.9
              
              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).10.10
              
              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*





31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Brian M. Carter
  *





32.1
            Section
      1350 Certification of Brian M. Carter
*





*Filed
      herewith




-37-
 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)By:  /s/
                Brian
      M. Carter
                
                Date:  March
      31, 2009Chief
      Executive Officer, 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, 2009Cary
      Agajanian, DirectorBy:  /s/
                      Daniel
      W. Rumsey
                      
                      Date:  March
      31, 2009Daniel
      W. Rumsey, DirectorBy:  /s/
                      Robert
      F. Hussey
                      
                      Date:  March
      31, 2009Robert
      F. Hussey, DirectorBy:  /s/
                      Brian
      M. Carter
                      
                      Date:  March
      31, 2009Brian
      M. Carter, Director





-38-
 Table of Contents


INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
 PageReport of Eide Bailly LLP
                        F-2Consolidated Balance Sheet at December 31,
    2008
                        F-3Consolidated Statement of Operations for the year ended
      December 31, 2008
                        F-4Consolidated Statements of Stockholder’s Equity (Deficit) and
      Comprehensive Loss for the years ended December 31, 2007 and
      2008
                        F-5Consolidated Statement of Cash Flows for the years ended
      December 31, 2007 and 2008
                        F-6Notes to Consolidated Financial
    Statements
                        F-7




F-1


REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





We have
audited the accompanying consolidated balance sheets of World Racing Group, Inc.
(the “Company”) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ deficit, 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. The financial statements as of December 31, 2007, were audited by
Murrell, Hall, McIntosh & Co., PLLP, who joined Eide Bailly LLP on August 1,
2008, and whose report dated March 31, 2008, expressed an unqualified opinion on
those statements.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company has determined that it is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting.  Our audits 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 audits provide 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, 2008 and 2007, and the consolidated results of
its operations and its 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, 2008 and 2007 and has negative working capital and
stockholders’ deficit as of December 31, 2008.  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, 2008. 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.








/s/
            Eide
      Bailly
      LLPEide Bailly
      LLP






Oklahoma
City, Oklahoma


March
27, 2009


F-2
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATEDBALANCE SHEETS


December
31, 2008 and December 31, 2007


ASSETS
                    
                    2008
                    
                    
                    2007Current
      assetsCash
      and cash equivalents
                    
                    $
                    886,245
                    
                    
                    $
                    1,668,611Accounts
      receivable — trade, net of allowance of $385,000 in 2008 and $70,000 in
      2007
                    
                    
                    416,466
                    
                    
                    
                    317,678Inventory
                    
                    
                    34,943
                    
                    
                    
                    10,252Prepaid
      interest, secured notes
                    
                    
                    -
                    
                    
                    
                    721,424Prepaid
      expenses and other current assets
                    
                    
                    163,748
                    
                    
                    
                    746,982Total
      current assets
                    
                    
                    1,501,402
                    
                    
                    
                    3,464,947Land,
      buildings and equipment, net
                    
                    
                    10,094,930
                    
                    
                    
                    10,300,476Trademarks
                    
                    
                    100,000
                    
                    
                    
                    100,000Goodwill,
      net of impairment of $10,320,537 in 2008 and 2007
                    
                    
                    —
                    
                    
                    
                    —Other
      assets, net of amortization of $700,670 in 2008 and $209,598 in
      2007
                    
                    
                    661,387
                    
                    
                    
                    593,685Total
      assets
                    
                    $
                    12,357,719
                    
                    
                    $
                    14,459,108LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable
                    
                    $
                    1,081,814
                    
                    
                    $
                    620,973Accrued
      liabilities
                    
                    
                    1,276,476
                    
                    
                    
                    1,125,404Deferred
      revenues
                    
                    
                    213,561
                    
                    
                    
                    421,438Notes
      payable
                    
                    
                    2,061,145
                    
                    
                    
                    689,208Total
      current liabilities
                    
                    
                    4,632,996
                    
                    
                    
                    2,857,023Notes
      payable, net of discount of $1,545,080 in 2008 and $2,515,966 in
      2007
                    
                    
                    16,974,022
                    
                    
                    
                    13,091,045Total
      liabilities
                    
                    
                    21,607,018
                    
                    
                    
                    15,948,068Stockholders'
      Equity (Deficit)Series
      A preferred stock, $0.01 par value, liquidation preference: $10,000 per
      share; 1,500 shares authorized; 350 shares issued and outstanding at
      December 31, 2008
                    
                    
                    3,500,000
                    
                    
                    
                    —Series
      E preferred stock, $0.01 par value; 50,000 shares
      authorized;  50,000 and 44,859 shares  issued and
      outstanding at December 31, 2008 and  December 31, 2007,
      respectively
                    
                    
                    500
                    
                    
                    
                    449Common
      stock, $0.0001 par value; 100,000,000 shares authorized; 42,751,735 and
      32,147,879  shares issued and outstanding at December 31, 2008
      and December 31, 2007, respectively
                    
                    
                    4,275
                    
                    
                    
                    3,215Additional
      paid-in capital
                    
                    
                    73,567,817
                    
                    
                    
                    71,883,978Accumulated
      deficit
                    
                    
                    (86,321,891
                    )
                    
                    
                    (73,376,602
                    )Total
      stockholders' equity (deficit)
                    
                    
                    (9,249,299
                    )
                    
                    
                    (1,488,960
                    )Total
      liabilities and stockholders' equity
                    
                    $
                    12,357,719
                    
                    
                    $
                    14,459,108





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


F-3
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED
STATEMENTSOF OPERATIONS


For
the Year Ended December 31, 2008 and 2007





2008
                  
                  
                  2007RevenuesRace
      sanctioning and event fees
                  
                  $
                  8,910,076
                  
                  
                  $
                  8,171,839Admission
      fees and ticket sales
                  
                  
                  7,346,905
                  
                  
                  
                  7,306,950Sponsorship
      and advertising revenue
                  
                  
                  6,406,543
                  
                  
                  
                  3,547,226Merchandise
      sales
                  
                  
                  490,005
                  
                  
                  
                  505,218Other
      revenue
                  
                  
                  240,578
                  
                  
                  
                  111,380Total
      revenues
                  
                  
                  23,394,107
                  
                  
                  
                  19,642,613Operating
      expensesTrack
      and event operations
                  
                  
                  23,723,563
                  
                  
                  
                  22,781,683Sales
      and marketing
                  
                  
                  2,917,915
                  
                  
                  
                  1,657,905Merchandise
      operations and cost of  sales
                  
                  
                  509,446
                  
                  
                  
                  275,812General
      and administrative
                  
                  
                  3,197,294
                  
                  
                  
                  2,653,528Non-cash
      stock compensation
                  
                  
                  1,392,380
                  
                  
                  
                  2,170,802Depreciation
      and amortization
                  
                  
                  742,361
                  
                  
                  
                  819,758Total
      operating expenses
                  
                  
                  32,482,959
                  
                  
                  
                  30,359,488Loss
      from operations
                  
                  
                  (9,088,852
                  )
                  
                  
                  (10,716,875
                  )Other
      (expenses) incomeInterest
      expense, net
                  
                  
                  (3,856,437
                  )
                  
                  
                  (1,933,764
                  )Total,
      other expense
                  
                  
                  (3,856,437
                  )
                  
                  
                  (1,933,764
                  )Net
      (Loss)
                  
                  $
                  (12,945,289
                  )
                  
                  $
                  (12,650,639
                  )Dividends
      on preferred stock:Non-cash,
      Issuance of common stock
                  
                  
                  (109,725
                  )
                  
                  
                  -Stated
      dividends, Series D
                  
                  
                  -
                  
                  
                  
                  (1,267,435
                  )Net
      loss applicable to common stock
                  
                  $
                  (13,055,014
                  )
                  
                  $
                  (13,918,074
                  )Net
      loss applicable to common stockper
      common share — Basic and diluted
                  
                  $
                  (0.40
                  )
                  
                  $
                  (0.89
                  )Weighted
      average common shares outstanding—    Basic
      and diluted
                  
                  
                  32,616,675
                  
                  
                  
                  15,608,748


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


F-4
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED
STATEMENT OFSTOCKHOLDERS’ DEFICIT


For
the Two Years ended December 31, 2008





Preferred Stock
                                                
                                                Common StockShares
                                                
                                                Amounts
                                                
                                                Shares
                                                
                                                Amounts
                                                
                                                AdditionalPaid-in
      Capital
                                                
                                                Accumulated
      (Deficit)
                                                
                                                TotalBalance,
      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
                                                
                                                41,485
                                                
                                                
                                                415
                                                
                                                
                                                15,648,889
                                                
                                                
                                                1,565
                                                
                                                
                                                54,317,761
                                                
                                                
                                                —
                                                
                                                
                                                54,319,741Net
      loss
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                (12,650,639
                                                )
                                                
                                                (12,650,639
                                                )Balance,
      December 31, 2007
                                                
                                                44,859
                                                
                                                $
                                                449
                                                
                                                
                                                32,147,879
                                                
                                                $
                                                3,215
                                                
                                                $
                                                71,883,978
                                                
                                                $
                                                (73,376,602
                                                )
                                                $
                                                (1,488,960
                                                )Value
      assigned to stock options, restricted stock and
                                                  warrants,
      non-cash compensation expense
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                330,000
                                                
                                                
                                                33
                                                
                                                
                                                1,302,728
                                                
                                                
                                                —
                                                
                                                
                                                1,302,761Value
      assigned to preferred stock, notes payable
                                                
                                                825
                                                
                                                
                                                8
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                206,242
                                                
                                                
                                                —
                                                
                                                
                                                206,250Restricted
      stock issued in exchange for services
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                96,000
                                                
                                                
                                                10
                                                
                                                
                                                28,790
                                                
                                                
                                                —
                                                
                                                
                                                28,800Restricted
      stock issued in exchange for warrants
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                202,856
                                                
                                                
                                                20
                                                
                                                
                                                60,799
                                                
                                                
                                                —
                                                
                                                
                                                60,819Issuance
      of Series E preferred stock
                                                
                                                4,316
                                                
                                                
                                                43
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                86,277
                                                
                                                
                                                —
                                                
                                                
                                                86,320Issuance
      of Series A preferred and common stock
                                                
                                                350
                                                
                                                
                                                3,390,275
                                                
                                                
                                                9,975,000
                                                
                                                
                                                997
                                                
                                                
                                                108,728
                                                
                                                
                                                —
                                                
                                                
                                                3,500,000Dividend,
      Initial issuance of common stock
                                                
                                                
                                                
                                                
                                                109,725
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                (109,725
                                                )
                                                
                                                —
                                                
                                                
                                                —Net
      loss
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                
                                                (12,945,289
                                                )
                                                
                                                (12,945,289
                                                )Balance,
      December 31, 2008
                                                
                                                50,350
                                                
                                                $
                                                3,500,500
                                                
                                                
                                                42,751,735
                                                
                                                $
                                                4,275
                                                
                                                $
                                                73,567,817
                                                
                                                $
                                                (86,321,891
                                                )
                                                $
                                                (9,249,299
                                                )





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


F-5
 Table of Contents


WORLD
RACING GROUP, INC.


CONSOLIDATED
STATEMENTS OFCASH FLOWS


For
the Year Ended December 31, 2008 and 2007





2008
                                
                                
                                2007Cash
      flows from operating activities:Net
      (loss)
                                
                                $
                                (12,945,289
                                )
                                
                                $
                                (12,650,639
                                )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization
                                
                                
                                742,361
                                
                                
                                
                                819,758Non-cash
      interest expense, notes payable
                                
                                
                                1,473,456
                                
                                
                                
                                944,364Interest,
      paid in kind
                                
                                
                                1,035,401
                                
                                
                                
                                -Non-cash,
      stock issued in exchange for services and warrant exchange
                                
                                
                                89,619Non-cash
      stock compensation
                                
                                
                                1,302,761
                                
                                
                                
                                2,170,802Allowance for doubtful accounts
                                
                                
                                315,000
                                
                                
                                
                                70,000Increase
      (decrease) in cash for changes in:Accounts
      receivable
                                
                                
                                (413,788
                                )
                                
                                
                                (164,613
                                )Inventory
                                
                                
                                (24,691
                                )
                                
                                
                                99,825Prepaid
      expenses and other current assets
                                
                                
                                1,304,658
                                
                                
                                
                                (765,260
                                )Other
      non-current assets and long term prepaid expenses
                                
                                
                                (67,702
                                )
                                
                                
                                193,139Accounts
      payable
                                
                                
                                460,841
                                
                                
                                
                                146,192Accrued
      liabilities
                                
                                
                                151,072
                                
                                
                                
                                (22,345
                                )Deferred
      revenue
                                
                                
                                (207,877
                                )
                                
                                
                                292,014Net
      cash (used in) operating activities
                                
                                
                                (6,784,178
                                )
                                
                                
                                (8,866,763
                                )Cash
      flows from investing activities:Purchase
      of property, contract rights, trademarks and goodwill
                                
                                
                                (536,815
                                )
                                
                                
                                (377,539
                                )Net
      cash (used in) investing activities
                                
                                
                                (536,815
                                )
                                
                                
                                (377,539
                                )Cash
      flows from financing activities:Payments
      on notes payable
                                
                                
                                (447,298
                                )
                                
                                
                                (1,100,800
                                )Payments
      of placement agent fees and other issuance costs
                                
                                
                                (210,000
                                )
                                
                                
                                (968,517
                                )Proceeds
      from issuance of Preferred and Common Stock
                                
                                
                                3,500,000Proceeds
      from issuance of notes payable
                                
                                
                                3,695,925
                                
                                
                                
                                12,450,000Net
      cash provided by financing activities
                                
                                
                                6,538,627
                                
                                
                                
                                10,380,683Net
      increase (decrease) in cash and cash equivalents
                                
                                
                                (782,366
                                )
                                
                                
                                1,136,381Cash
      and cash equivalents, beginning of period
                                
                                
                                1,668,611
                                
                                
                                
                                532,230Cash
      and cash equivalents, end of period
                                
                                $
                                886,245
                                
                                
                                $
                                1,668,611Cash
      payments for interest
                                
                                $
                                412,201
                                
                                
                                $
                                1,007,467Supplemental
      schedule of non-cash activities:Purchase
      of vehicles and equipment through the issuance of notes
                                
                                $
                                -
                                
                                
                                $
                                232,300Issuance
      of secured notes payable for interest
                                
                                $
                                1,035,401
                                
                                
                                $
                                -Non-cash
      revenues and expenses, barter agreements
                                
                                $
                                61,073
                                
                                
                                $
                                240,000Stated
      dividends, Series D preferred stock, payable in common
    shares
                                
                                $
                                -
                                
                                
                                $
                                1,267,435Value
      assigned to Series E preferred stock issued in connection withsecured
      notes  payable
                                
                                $
                                206,250
                                
                                
                                $
                                762,000Issuance
      of common shares, secured note financing
                                
                                $
                                -
                                
                                
                                $
                                717,750Issuance
      of Series E preferred stock, secured note financing
                                
                                $
                                86,320
                                
                                
                                $
                                1,262,250Short
      term notes exchanged for secured notes
                                
                                $
                                -
                                
                                
                                $
                                2,350,000Issuance of common shares, Series A financing
                                
                                $
                                109,725
                                
                                
                                
                                -Issuance
      of common shares, notes payable
                                
                                $
                                -
                                
                                
                                $
                                1,382,563




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


F-6
 Table of Contents




World
Racing Group, Inc.


Notes
to Consolidated FinancialStatements


December
31, 2008 and 2007





NOTE
      1
            THE
      COMPANY





Company
Overview.





We are a
leading marketer and promoter of motor sports entertainment in the United
States.  Our motorsports subsidiaries operate six dirt motor sports
tracks (four are owned and two facilities are under short term lease agreements)
in New York, Pennsylvania and Florida.  We own and operate the premier
sanctioning bodies in dirt motor sports:  the World of Outlaws Sprint
Car Series; the World of Outlaws Late Models Series: Advance Auto Parts Super
DIRTcar Series; DIRTcar Racing formerly known as DIRT MotorSports and United
Midwestern Promoters (UMP DIRTcar) which includes weekly event sanctions and
regional series in the Northeast, Midwest and West.  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 125 tracks across the United
States and Canada in 2009.





Plan
to Go Private.





On
February 17, 2009, we announced that our Board of Directors and a majority of
our stockholders had approved a 1-for-101 reverse stock split of our common
stock (the “Reverse Split”).  The intended effect of the Reverse Split
is to reduce the number of record holders of our common stock to fewer than 300
so that we will be eligible to terminate the public registration of our common
stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Provided that the Reverse Stock Split has the intended effect, we will
file to deregister our common stock with the Securities and Exchange Commission
(the "Commission") and to terminate the listing of shares of our common stock on
the Over the Counter Bulletin Board.  In such case, we will no longer
be required to file periodic reports with the Commission. When the Reverse Split
becomes effective, stockholders that hold fewer than 101 shares of common stock
will receive a cash payment of $0.10 per pre-split share. Additionally, as the
Company will not be issuing fractional shares, stockholders will also receive a
cash payment of $0.10 per pre-split share if their pre-split holdings would not
result in the issuance of whole shares.   The Company filed a
preliminary Information Statement with the Commission and expects to distribute
a definitive Information Statement to all holders of our common stock in the
near future. The Reverse Split will not be affected prior to the 20th day
following the distribution of the definitive Information Statement to
stockholders. However, the Company reserves the right not to proceed with the
Reverse Split in the discretion of its Board of Directors.





Plan
of Operations.





The
Reverse Split is not expected to affect our current business plan or operations,
except for the anticipated cost and management time savings associated with
termination of our obligations as a public company.  Management also
anticipates that we will be able to more successfully compete for sponsorship,
advertising and other revenue generating opportunities as a private company,
which remains our principal focus.  Our plan of operations for the
remainder of 2009 also includes continuing to streamline our operations, and
grow our ticket and merchandise sales, sanction, membership and license fees,
while expanding our position as a premier motor sports entertainment
company.


F-7
 Table of Contents




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 $12.9
million for the year ended December 31, 2008.  The Company has an
accumulated deficit of $86.3 million and has a deficit net worth of $9.2 million
as of December 31, 2008, which raises substantial doubt about the Company’s
ability to continue as a going concern.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.





Specialty
Tires of America, Inc. and Race Tires America, Inc., a division of Specialty
Tires of America, Inc. (RTA), brought a civil action against 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 discovery phase of the case concluded on
January 30, 2009.  The Court has set a schedule for briefing motions
for summary judgment.  In the event that the case is not disposed of
on a motion for summary judgment, the Court will set a schedule for expert
discovery.  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.  Current sources of
liquidity may be insufficient to provide for budgeted and anticipated working
capital requirements through the remainder of 2009.  The Company may
therefore be required to seek additional financing to satisfy its working
capital requirements. No assurances can be given that such capital will be
available to the Company on acceptable terms, if at all. If the Company is unable to obtain additional financing
when they are needed or if such financing cannot be obtained on terms favorable
to the Company or if it is unable to renegotiate existing financing facilities,
the Company may be required to delay or scale back its operations, which could
delay development and adversely affect its ability to generate future
revenues.





To attain
profitable operations, management’s plan is to execute its strategy of (i)
increasing the number of sanctioned events; (ii) leveraging existing owned and
leased tracks to generate ancillary revenue streams; (iii) partnering with
existing promoters to create additional marquis events; and (iv) continuing to
build sponsorship, advertising and related revenue, including license fees
related to the sale of branded merchandise.   In addition, the
Company plans to consummate the Reverse Split, resulting in the termination of
the Company’s requirement to file periodic and other reports with the Commission
under the Exchange Act.  If consummated, the Company anticipates
savings of approximately $250,000 to $300,000 per annum. If it is unsuccessful
in its plans, the Company 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


F-8
 Table of Contents





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 $61,000 and $240,000 of
total revenues for the years ended December 31, 2008 and 2007
respectively.


F-9




Presentation
of Sales Taxes
  The
Company has customers in states and municipalities in which those governmental
units impose a sales tax on certain sales. The Company collects those sales
taxes from its customers and remits the entire amount to the various
governmental units. The Company’s accounting policy is to exclude the tax
collected and remitted from revenue and operating expenses.


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.  Advertising expense totaled $357,624 and $523,245 for the
years ended December 31, 2008 and 2007 respectively.




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, 2008 and 2007, the net loss
per share applicable to common stock has been computed by dividing the net loss
by the weighted average number of common shares outstanding.


December
      312008
                    
                    
                    2007Net
      (Loss)
                    
                    $
                    (12,945,289
                    )
                    
                    $
                    (12,650,639
                    )Net
      loss applicable to common stock
                    
                    $
                    (13,055,014
                    )
                    
                    $
                    (13,918,074
                    )Net
      loss applicable to common stockper
      common share —Basic
      and diluted
                    
                    $
                    (0.40
                    )
                    
                    $
                    (0.89
                    )Weighted
      average common shares outstanding —Basic
      and diluted
                    
                    
                    32,616,675
                    
                    
                    
                    15,608,748





In
addition, as of December 31, 2008, the Company’s Series E preferred stock was
convertible into 50.0 million shares of common stock and the Company had
warrants outstanding to purchase 0.6 million shares of common stock and options
to purchase 0.4 million shares of common stock None of these were included in
the computation of diluted EPS because the Company had a net loss and all
potential issuance of common stock would have been anti-dilutive.


F-10
 Table of Contents


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


Shares
                        
                        
                        Weighted
                          Average
                          Exercise
      Price
                        
                        
                        Weighted Average Contractual Life(years)Placement
      agent warrants
                        
                        
                        275,803
                        
                        
                        $
                        2.99
                        
                        
                        
                        2.5Other
      warrants
                        
                        
                        275,059
                        
                        
                        $
                        3.00
                        
                        
                        
                        3.1Stock
      options
                        
                        
                        420,000
                        
                        
                        $
                        3.95
                        
                        
                        
                        2.1Total
      warrants and stock options outstanding
                        
                        
                        970,862
                        
                        
                        $
                        3.41
                        
                        
                        
                        2.5




Fair
Value of Financial Instruments
  The
fair value of a financial instrument is generally defined as the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced liquidation sale. Quoted market prices are
generally not available for the Company’s financial instruments. Accordingly,
fair values are based on judgments regarding anticipated cash flows, future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates involve
uncertainties and matters of judgment, and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
  The
carrying amount of cash and cash equivalents, receivables,
payables, short-term debt and other current assets and liabilities approximates
fair value because of the short maturity and/or frequent repricing of those
instruments.
  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.
 F-11
 Table of Contents


Accounts
Receivable




Accounts Receivable are
reported net of allowance for doubtful accounts summarized as
follows:


2008
                  
                  
                  2007Balance,
      beginning of year
                  
                  $
                  70,000
                  
                  
                  $
                  -Bad
      debt expense
                  
                  $
                  354,000
                  
                  
                  $
                  141,000Actual
      write-offs, net of specific accounts received
                  
                  $
                  (39,000
                  )
                  
                  $
                  (71,000
                  )Balance,
      end of year
                  
                  
                  385,000
                  
                  
                  
                  70,000




Due to the nature of our
receivables, we evaluate certain large customer accounts individually and
reserve for 100% of all other accounts greater than 90 days past
due.




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.





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. F-12
 Table of Contents





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, 2008, the Company had bank deposits in
excess of FDIC insurance of approximately $0.7 million.


F-13
 Table of Contents




New
Accounting Pronouncements





In
September 2006, the FASB issued Statement No. 157,Fair Value Measurements
(SFAS No. 157). SFAS No. 157 addresses how companies should
measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. Management adopted this Statement on January 1, 2007 and the
initial adoption SFAS 157 did not have a material impact on our financial
position, results of operations, or cash flows. In February 2008, the FASB
issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No.
157 (“FSP 157-2”), to partially defer FASB Statement No. 157, Fair Value Measurements (“FAS
157”). FSP 157-2 defers the effective date of FAS 157 for nonfinancial assets
and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
to fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008.  On October 29, 2008 the FASB issued FSP FAS 157-3,
Determining the Fair Value of
a Financial Asset When The Market for That Asset Is Not Active (FSP FAS
157-3) which clarifies the application of SFAS 157 in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. Management is evaluating the impact of adopting the provisions of
FAS 157 as it relates to non-financial assets and liabilities.





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. The Company will adopt SFAS No. 160 on January 1,
2009.  We do not expect the adoption to have a material impact on our
financial position, results of operations or cash flows.





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. The Company will adopt SFAS No.
160 on January 1, 2009.  We do not expect the adoption to have a
material impact on our financial position, results of operations or cash
flows.


F-14
 Table of Contents




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.  The Company will adopt
SFAS No. 160 on January 1, 2009.  We do not expect the adoption to
have a material impact on our financial position, results of operations or cash
flows.





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).





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, no options were granted in
2008:


Expected
      volatility
                
                
                58
                %Expected
      life in years
                
                
                4.0Weighted
      average risk free interest rate
                
                
                4.66
                %


F-15
 Table of Contents





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.





A summary
of the status of stock options and related activity for the year ended
December 31, 2008 is presented below:




Shares
                          
                          Weighted
      Average Exercise Price per Share
                          
                          Weighted Average
      Remaining Contractual Term
                          
                          Aggregate
      Intrinsic ValueOptions
      outstanding at December 31, 2007
                          1,824,000
                          
                          $
                          3.42
                          
                          2.1
                          
                          $
                          -Granted
                          -
                          
                          
                          -Exercised
                          -
                          
                          
                          -Forfeited/expired/surrendered
                          (1,404,000)
                          
                          
                          3.26Options
      outstanding at December 31, 2008
                          420,000
                          
                          $
                          3.95
                          
                          2.1
                          
                          $
                          -Options
      exercisable at December 31, 2008
                          420,000
                          
                          $
                          3.95
                          
                          2.1
                          
                          $
                          -





A summary
of the status of stock purchase warrants and related activity for the year ended
December 31, 2008 is presented below:
 Shares
                        
                        Weighted
                          Average
                          Exercise Price
                          per
      Share
                        
                        Weighted
                          Average
                          Remaining
                          Contractual Term
                        
                        Aggregate
                          Intrinsic
                          ValueWarrants
      outstanding at December 31, 2007
                        
                        996,325
                        
                        $
                        3.28
                        
                        3.4
                        
                        $
                        -Granted
                        
                        -
                        
                        
                        -Exercised
                        
                        -
                        
                        
                        -Forfeited/expired/surrendered
                        
                        (445,463)
                        
                        
                        3.05Warrants
      outstanding at December 31, 2008
                        
                        550,862
                        
                        $
                        2.99
                        
                        2.8
                        
                        $
                        -Warrants  exercisable
      at December 31, 2008
                        
                        550,862
                        
                        $
                        2.99
                        
                        2.8
                        
                        $
                        -
  F-16




Unrecognized
compensation expense as of December 31, 2008 related to outstanding stock
options and restricted stock grants were $0.4 million.





NOTE
      4
            PROPERTY
      AND EQUIPMENT





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


2008
                  
                  
                  2007
                  
                  
                  Depreciable
      LifeLand
                  
                  $
                  6,916,338
                  
                  
                  $
                  6,916,338
                  
                  
                  
                  N/ABuildings
      and grandstands
                  
                  
                  3,509,384
                  
                  
                  
                  3,444,624
                  
                  
                  7 -
      40 yearsTransportation
      equipment
                  
                  
                  1,910,409
                  
                  
                  
                  1,669,309
                  
                  
                  5 -
      7 yearsOffice
      furniture and equipment
                  
                  
                  867,599
                  
                  
                  
                  743,663
                  
                  
                  3 -
      7 years13,203,730
                  
                  
                  
                  12,773,934Less
      accumulated depreciation
                  
                  
                  (3,108,800
                  )
                  
                  
                  (2,473,458
                  )Property
      and equipment, net
                  
                  $
                  10,094,930
                  
                  
                  $
                  10,300,476





Depreciation
is computed on a straight-line basis. Depreciation expense for the years ended
December 31, 2008 and 2007 was $671,251 and $756,996, 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. F-17
 Table of Contents





NOTE
      6
            ACCRUED
      LIABILITIES





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


December
      31,
                
                
                December
      31,2008
                
                
                2007Points
      fund
                
                $
                557,394
                
                
                $
                587,875Interest
                
                
                298,333
                
                
                
                84,378Salaries,
      wages and other compensation and benefits
                
                
                154,608
                
                
                
                170,263Sales
      taxes
                
                
                69,104
                
                
                
                64,548Professional
      fees
                
                
                192,000
                
                
                
                79,639Acquisition
      liabilities
                
                
                -
                
                
                
                15,000Other
      accrued liabilities
                
                
                5,037
                
                
                
                123,701Total
      Accrued Liabilities
                
                $
                1,276,476
                
                
                $
                1,125,404





NOTE
      7
            DEFERRED
      REVENUE





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


December
      31,
                
                
                December
      31,2008
                
                
                2007Sanction
      fee advances
                
                $
                140,463
                
                
                $
                123,017Season
      ticket  sales, advance ticket sales
                
                
                32,718
                
                
                
                98,416Membership
      prepayments
                
                
                11,280
                
                
                
                19,095Sponsorship
      prepayments
                
                
                29,100
                
                
                
                180,910Total
      Deferred Revenue
                
                $
                213,561
                
                
                $
                421,438


F-18
 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.  As
of December 31, 2008, $200,000 is available under the line of
credit.





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





The
Senior Notes, as amended, are due March 15, 2011 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 has been paid 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.


F-19
 Table of Contents





The
Senior Notes were issued together with 275,000 shares of common stock, $.0001
par value per share, 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.





On May
14, 2008, the Company issued $3.0 million in additional Senior Notes due March
15, 2011.  The Senior Notes were issued to existing Senior Note
Holders and were issued under the terms of a Note Purchase Agreement, dated
September 27, 2007 which allowed for the issuance of up to $15.0 million in
Secured Notes.  The Senior Notes accrue interest at the rate of 12.5%
per annum payable quarterly on each of December 15, March 15, June 15 and
September 15. Commencing September 15, 2008, interest due under the Senior Notes
is payable at our option in cash or additional Senior Notes that will accrue
interest at 13.5% per annum. The Company has paid interest due September 15,
2008 and December 15, 2008 in additional Senior Notes. 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 shares of our Series E Preferred
stock for each $1.0 million principal amount of Senior Notes purchased. We
issued an aggregate of 825 shares of Series E Preferred Stock in May 2008. The
fair value of the Series E Preferred Stock was recorded as an increase in
additional paid in capital and was recorded as a discount to the
Senior Notes payable and will be recognized as interest expense through the
maturity date of the Secured Notes.





In
October 2008, the Company received executed consents from the Required Lenders,
as defined in the purchase agreement to amend the purchase agreement and Senior
Notes.  Pursuant to Section 11(c) of the Note Purchase Agreement, the
Required Lenders, have agreed to modify the Notes by extending the Maturity Date
of the Senior notes from March 15, 2010 to March 15, 2011 and amend the Note
Purchase Agreement by deleting Section 9(e) in its entirety and replacing it
with “Intentionally Omitted.” As consideration for obtaining the consents, the
Company issued 4,316 shares of Series E Convertible Preferred Stock to all Notes
Holders on a pro-rata basis. The issuance of the Series E Convertible Stock was
recorded in the fourth quarter of 2008. The amended maturity date of the Secured
Notes is used throughout this report.


F-20
 Table of Contents




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





·
            $16.0  million
      of Senior Notes due March 15, 2011, as amended, 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 which
      was due 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.  The Company is currently negotiating a restructuring of all
      payments due under the terms of the Lernerville note, including the
      $500,000 payment due November 7, 2008.  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 principal balance on this note was
      $1,498,245 as of December 31, 2008.  This note is secured
      by a mortgage on the real property, and security agreement covering the
      other assets acquired from Volusia Speedway.·
            $706,602
      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, 2009 through 2013 and thereafter are:





2009
              
              $
              2,061,1452010
              
              
              2,257,0282011
              
              
              16,073,4882012
              
              
              33,1172013
              
              
              50,923Thereafter
              
              
              104,546$
              20,580,247Less:  Note
      Discount
              
              
              (1,545,080
              )$
              19,035,167


F-21
 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 interest due upon maturity on November 7,
      2010.  The Company is currently negotiating a restructuring of all
      payments due under the terms of the Lernerville note, including the
      $500,000 payment due November 7, 2008. 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.





NOTE
      9
            STOCKHOLDERS’
      EQUITY





On December 14, 2007, the Company received 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, pursuant to which each holder received 3,000 shares of common stock for
each share of Series D Stock held by such holder, or shares of Series E
Convertible Preferred Stock, convertible into an equivalent number of shares of
common stock (Series D Exchange). In connection with the execution of the
Consent 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 Series D Exchange and Warrant Exchange, we eliminated approximately $54.3
million in liquidation preference associated with the Series D Stock, and
accrued dividends, and issued 15.7 million shares of common stock and 41,485
shares of Series E Convertible Preferred Stock convertible into 41.5 million
shares 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.





In 2008
the Company designated a new Series E-1 Convertible Preferred
Stock.  The Series E-1 Convertible Preferred Stock shall rank prior to
the Company’s Common Stock and pari passu to the Company’s Series E Convertible
Preferred Stock and has a par value of $0.01 per share for purposes of
liquidation preference.  The maximum number of shares of Series E-1
Preferred Stock shall be 50,000 shares.  The Series E-1 Preferred
Stock has no voting rights other than as a class as related to the ownership of
Series E-1 Preferred Stock.  Each share of Series E-1 Preferred Stock
is convertible into 1,000 shares of Common Stock.  No dividends are
payable to the holders of the Series E-1 Preferred Stock. No Series E-1 Shares
are outstanding at December 31, 2008.


F-22
 Table of Contents





On
December 31, 2008 (the “Initial Closing”), the Company issued 350 shares of our
10% Cumulative Perpetual Series A Preferred Stock (“Series A Shares”) for
$10,000 per Series A Share (the “Series A Financing”), resulting in gross
proceeds to the Company of $3.5 million.  At the Initial Closing,
28,500 shares of our common stock were issued for each Series A Share purchased,
resulting in the issuance of 9,975,000 shares of common stock in the
aggregate.  Under the terms of the Preferred Purchase Agreement, we
may issue additional Series A Shares for $10,000 per share, resulting in
additional gross proceeds to the Company of $6.5 million.  Under the
terms of the Preferred Purchase Agreement, Series A Shares purchased at
subsequent closings will include 2,850 shares of the Company’s Series E-1
Preferred Stock, convertible into 28,500 shares of common stock, for each Series
A Share purchased.





Upon
liquidation, the Series A Shares shall rank senior to the Company’s common stock
the Series E Shares, and the Series E-1 Shares.  Under the terms of
the Certificate of Designation of the Relative Rights and Preferences of the
Series A Shares, the Company is prohibited from creating any series of equity
securities that by their terms rank senior or pari-passu to the Series A Shares,
without the affirmative vote or consent of the holders of at least three-fourths
of the issued and outstanding Series A Shares.  Holders of Series A
Shares are entitled to receive, on each Series A Share, cumulative cash
dividends at a per annum rate of 10% on the (i) the amount of $10,000 per Series
A Share and (ii) the amount of accrued and unpaid dividends on each Series A
Share.    Other than as provided by applicable Delaware law,
and except with respect to transactions upon which the Series A Shares shall be
entitled to vote separately as a class, holders of Series A Shares have no
voting rights.  The Company has the right to redeem the Series A
Shares at a redemption price equal to the sum of $10,000 per Series A Share and
the accrued and unpaid dividends thereon.





NOTE
      10
            RELATED PARTY TRANSACTIONS





During
2008 and 2007, 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 $370,000 during 2008 and $380,000
during 2007.





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, 2008 and December 31, 2007 are as
follows:





At
December 31, 2008, the Company had net operating loss carry forwards of
approximately $62.5 million for federal income tax purposes.


F-23
 Table of Contents




Deferred
tax assets and liabilities are comprised of the following as of December 31,
2008 and December 31, 2007:




December
    31,2008
                    
                    
                    2007Deferred
      income tax assetsTax
      effect of impairment of goodwill in excess of amounts amortized for income
      tax reporting
      purposes
                    
                    $
                    1,501,000
                    
                    
                    $
                    1,655,000Tax
      effect of net operating loss carry forward
                    
                    
                    24,043,000
                    
                    
                    
                    20,005,000Tax
      effect of stock based compensation
                    
                    
                    2,416,000
                    
                    
                    
                    1,879,000Deferred
      income tax liabilitiesTax
      effect of tax depreciation in excess of book depreciation
                    
                    
                    (368,000
                    )
                    
                    
                    (292,000
                    )$
                    27,592,000
                    
                    
                    $
                    23,247,000Valuation
      allowance
                    
                    
                    (27,592,000
                    )
                    
                    
                    (23,247,000
                    )Net
      deferred tax asset
                    
                    $
                    -
                    
                    
                    $
                    -





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, 2008 and December 31, 2007 are as follows:




December
    31,2008
                  
                  
                  2007Income
      tax benefit – Federal
                  
                  $
                  4,401,000
                  
                  
                  $
                  4,301,000Income
      tax benefit – State
                  
                  
                  583,000
                  
                  
                  
                  569,000Permanent
      differences, non-cash interest expense
                  
                  
                  (639,000
                  )
                  
                  
                  (363,000Less
      valuation allowance
                  
                  
                  (4,345,000
                  )
                  
                  
                  (4,507,000
                  )Income
      tax provision
                  
                  $
                  -
                  
                  
                  $
                  -





At
December 31, 2008, 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
                      
                      $
                      428,0002024
                      
                      
                      4,625,0002025
                      
                      
                      14,120,0002026
                      
                      
                      3,735,0002027
                      
                      
                      18,950,0002028
                      
                      
                      10,102,0002029
                      
                      
                      10,491,000Total net operating loss
      carryforwards
                      
                      $
                      62,451,000





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.


F-24
 Table of Contents





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, 2008.  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.




The
Company has not filed in several state jurisdictions where it may be required to
file.  Due to the history of losses, the Company does not believe any
income taxes would be due if such filings are requried and were
made.





NOTE
      12
            COMMITMENTS





In
addition to its owned racing facilities, the Company leases two racing
facilities, the Canandaigua Speedway and the Syracuse Fairgrounds Race
Track.  Prior to December 31, 2008 the Company also leased 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 was leased on an annual basis at a rate of $115,000
per year.  The track is located in Middletown, New York. We no longer
lease or operate this speedway.





Our
corporate offices are located in Concord, North Carolina, and are consist of
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
                
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                ThereafterOperating
      leases
                
                $
                360,354
                
                
                $
                142,285
                
                
                $
                144,694
                
                
                $
                73,375
                
                
                
                -
                
                
                
                -





Operating
lease expense for 2008 and 2007 was $456,064 and $410,479,
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, 2008 was
$161,490.


F-25
 Table of Contents


NOTE
      13
            LITIGATION
      AND CONTINGENCIES





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 discovery phase of the case concluded on
January 30, 2009.  The Court has set a schedule for briefing motions
for summary judgment.  In the event that the case is not disposed of
on a motion for summary judgment, the Court will set a schedule for expert
discovery.  As such, we cannot express with any certainty at this time
an opinion as to the outcome of this matter.




The
Company is currently negotiating a restructuring of the $2,340,000 note payable
issued in connection with the purchase of Lernerville Speedway (the “Lernerville
Note”).  The Lernerville Note bears interest at 10% annually payable
each November.  The balance is due in a $500,000 installment that was
due on November 7, 2008, a $900,000 installment on November 7, 2009 and the
remaining balance and unpaid interest due upon maturity on November 7,
2010.  In the event the Company is unable to negotiate a restructuring of
the Lernerville Note, the holder of such Lernerville Note may bring suit to
collect all amounts due under the terms of the Lernerville Note.  All
amounts due under the terms of the Lernerville Note are secured by the
Lernerville Speedway.





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.