UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




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




For
the quarterly period ended March 31, 2009




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




For
the transition period from 
to





0-18045


Commission
File Number





World
Racing Group, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            
            90-0284113(State
      of incorporation)
            
            (IRS
      Employer Identification No.)





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


(Address
of principal executive offices)





(704)
795-7223


(Issuer’s
telephone number, including area code)





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yes [X] No [  ]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 Yes [X]
No [  ]


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





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









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





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





As of May
15, 2009, the issuer had 42,751,735 outstanding shares of Common
Stock.







TABLE OFCONTENTS











PART I
              FINANCIAL INFORMATION
              1Item 1.
              Financial Statements
              1Condensed Consolidated Balance Sheets – March 31, 2009 and
      December 31, 2008
              1Condensed Consolidated Statements of Operations for the
      Three Months Ended March 31, 2009 and 2008
              2Condensed Consolidated Statements of Stockholders' Deficit
      for the Three Months Ended March 31, 2009
              3Condensed Consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2009 and 2008
              4Notes to Condensed Consolidated Financial
      Statements
              5Item 2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              22Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risk
              31Item 4T.
              Controls and Procedures
              31PART II
              OTHER INFORMATION
              32Item 1.
              Legal Proceedings
              32Item 6.
              Exhibits
              33Signatures
              
              34





-i-
 Table of Contents


PARTI


FINANCIAL
INFORMATION





ITEM  1.   FINANCIALSTATEMENTS





WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATEDBALANCE SHEETS


March
31, 2009 and December 31, 2008


March
      31,
                        2009
                        (Unaudited)
                      
                      
                      December
      31,
                        2008
                        (audited)ASSETSCurrent
      assetsCash and cash equivalents
                      
                      $
                      1,685,606
                      
                      
                      $
                      886,245Accounts
      receivable – trade, net
      of allowance of $385,000 in 2009 and 2008
                      
                      
                      824,173
                      
                      
                      
                      416,466Inventory
                      
                      
                      91,997
                      
                      
                      
                      34,943Prepaid
      expenses and other current assets
                      
                      
                      172,406
                      
                      
                      
                      163,748Total
      current assets
                      
                      
                      2,774,182
                      
                      
                      
                      1,501,402Land,
      buildings and equipment, net
                      
                      
                      9,969,338
                      
                      
                      
                      10,094,930Trademarks
                      
                      
                      100,000
                      
                      
                      
                      100,000Other
      assets, net of amortization of $827,063 in 2009 and $700,670 in
      2008
                      
                      
                      534,994
                      
                      
                      
                      661,387Total
      assets
                      
                      $
                      13,378,514
                      
                      
                      $
                      12,357,719LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable
                      
                      $
                      1,203,401
                      
                      
                      $
                      1,081,814Accrued
      liabilities
                      
                      
                      895,925
                      
                      
                      
                      1,276,476Deferred
      revenues
                      
                      
                      1,046,068
                      
                      
                      
                      213,561Notes
      payable, current portion
                      
                      
                      896,181
                      
                      
                      
                      2,061,145Total
      current liabilities
                      
                      
                      4,041,575
                      
                      
                      
                      4,632,996Notes
      payable, net of discount of $1,236,064 in 2009 and $1,545,080 in
      2008
                      
                      
                      18,640,756
                      
                      
                      
                      16,974,022Total
      liabilities
                      
                      
                      22,682,331
                      
                      
                      
                      21,607,018Stockholders'
      Equity (Deficit)Series
      A Preferred stock, $0.01 par value, liquidation preference: $10,000 per
      share; 1,500 shares authorized; 550 and 350 shares issued and outstanding
      at March  31, 2009 and December 31, 2008,
      respectively
                      
                      
                      5,500,000
                      
                      
                      
                      3,500,000Series
      E Preferred stock, $0.01 par value; 50,000 shares authorized: 50,000
      shares issued and outstanding at March 31, 2009 and  December
      31, 2008
                      
                      
                      500
                      
                      
                      
                      500Series
      E-1 Preferred stock, $0.01 par value; 50,000 shares
      authorized:  5,700 shares issued and outstanding at March 31,
      2009
                      
                      
                      57
                      
                      
                      
                      -Common
      stock, $0.0001 par value; 100,000,000 shares authorized; 42,751,735 shares
      issued and outstanding at March 31, 2009 and December 31,
    2008
                      
                      
                      4,275
                      
                      
                      
                      4,275Additional
      paid-in capital
                      
                      
                      73,669,782
                      
                      
                      
                      73,567,817Accumulated
      deficit
                      
                      
                      (88,478,431
                      )
                      
                      
                      (86,321,891
                      )Total
      stockholders' equity (deficit)
                      
                      
                      (9,303,817
                      )
                      
                      
                      (9,249,299
                      )Total
      liabilities and stockholders' equity
                      
                      $
                      13,378,514
                      
                      
                      $
                      12,357,719





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


-1-
 Table of Contents


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


For
the Three Months Ended March 31, 2009 and 2008


(Unaudited)


2009
                  
                  
                  2008RevenuesRace
      sanctioning and event fees
                  
                  $
                  905,364
                  
                  
                  $
                  552,194Admission
      fees and ticket sales
                  
                  
                  1,488,325
                  
                  
                  
                  1,510,546Sponsorship
      and advertising revenue
                  
                  
                  505,127
                  
                  
                  
                  775,052Merchandise
      sales
                  
                  
                  92,781
                  
                  
                  
                  53,339Other
      revenue
                  
                  
                  39,009
                  
                  
                  
                  52,848Total
      revenues
                  
                  
                  3,030,606
                  
                  
                  
                  2,943,979Operating
      expensesTrack
      and event operations
                  
                  
                  3,010,938
                  
                  
                  
                  3,159,906Sales
      and marketing
                  
                  
                  493,324
                  
                  
                  
                  674,295Merchandise
      operations and cost of sales
                  
                  
                  109,209
                  
                  
                  
                  81,036General
      and administrative
                  
                  
                  472,477
                  
                  
                  
                  625,783Non-cash
      stock compensation
                  
                  
                  252,022
                  
                  
                  
                  557,529Depreciation
      and amortization
                  
                  
                  156,472
                  
                  
                  
                  212,955Total
      operating expenses
                  
                  
                  4,494,442
                  
                  
                  
                  5,311,504Loss
      from operations
                  
                  
                  (1,463,836
                  )
                  
                  
                  (2,367,525
                  )Other
      (Expenses) IncomeGain
      on modification of debt
                  
                  
                  350,843
                  
                  
                  
                  -Interest
      expense, net
                  
                  
                  (1,043,547
                  )
                  
                  
                  (808,033
                  )Total
      Other Expense
                  
                  
                  (692,704
                  )
                  
                  
                  (808,033
                  )Net
      (Loss)
                  
                  $
                  (2,156,540
                  )
                  
                  $
                  (3,175,558
                  )Net
      loss applicable to common stock
                  
                  $
                  (2,156,540
                  )
                  
                  $
                  (3,175,558
                  )Net
      loss applicable to common stock per common share -Basic and
      diluted
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.10
                  )Weighted
      average common shares outstanding - Basic and
diluted
                  
                  
                  42,751,735
                  
                  
                  
                  32,152,262





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


-2-
 Table of Contents


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED STATEMENTOF STOCKHOLDERS’ DEFICIT


For
the Three months ended March 31, 2009


(Unaudited)


AdditionalPreferred
      Stock
                                                                                  
                                                                                  Common
      Stock
                                                                                  
                                                                                  Paid-in
                                                                                  
                                                                                  AccumulatedShares
                                                                                  
                                                                                  Amounts
                                                                                  
                                                                                  Shares
                                                                                  
                                                                                  Amounts
                                                                                  
                                                                                  Capital
                                                                                  
                                                                                  (Deficit)
                                                                                  
                                                                                  
                                                                                  TotalBalance,
      December 31, 2008
                                                                                  50,350
                                                                                  
                                                                                  $
                                                                                  3,500,500
                                                                                  
                                                                                  42,751,735
                                                                                  
                                                                                  $
                                                                                  4,275
                                                                                  
                                                                                  $
                                                                                  73,567,817
                                                                                  
                                                                                  $
                                                                                  (86,321,891
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (9,249,299
                                                                                  )Value
      assigned to stock options, restricted stock and warrants, non-cash
      compensation expense
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  252,022
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  252,022Placement
      agent fees paid
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  (150,000
                                                                                  )
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (150,000
                                                                                  )Issuance
      of Series A Preferred Stock
                                                                                  200
                                                                                  
                                                                                  
                                                                                  2,000,000
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,000,000Issuance
      of Series E-1 Preferred Stock
                                                                                  5,700
                                                                                  
                                                                                  
                                                                                  57
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  (57
                                                                                  )
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Net
      loss
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  (2,156,540
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (2,156,540
                                                                                  )Balance,
      March 31, 2009
                                                                                  56,250
                                                                                  
                                                                                  $
                                                                                  5,500,557
                                                                                  
                                                                                  42,751,735
                                                                                  
                                                                                  $
                                                                                  4,275
                                                                                  
                                                                                  $
                                                                                  73,669,782
                                                                                  
                                                                                  $
                                                                                  (88,478,431
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (9,303,817
                                                                                  )





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


-3-
 Table of Contents


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED STATEMENTSOF CASH FLOWS


For
the Three months ended March 31, 2009 and 2008


(Unaudited)


2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      (loss)
                    
                    $
                    (2,156,540
                    )
                    
                    $
                    (3,175,558
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    156,472
                    
                    
                    
                    212,955Gain
      on modification of debt
                    
                    
                    (350,843
                    )
                    
                    
                    -Non-cash
      interest expense
                    
                    
                    931,602
                    
                    
                    
                    279,552Non-cash
      stock compensation
                    
                    
                    252,022
                    
                    
                    
                    557,529Increase
      (decrease) in cash for changes in:Accounts
      receivable
                    
                    
                    (407,707
                    )
                    
                    
                    (670,241
                    )Inventory
                    
                    
                    (57,054
                    )
                    
                    
                    (111,007
                    )Prepaid
      expenses and other current assets
                    
                    
                    (8,658
                    )
                    
                    
                    231,301Other
      non-current assets
                    
                    
                    -
                    
                    
                    
                    91,499Accounts
      payable
                    
                    
                    121,587
                    
                    
                    
                    498,848Accrued
      liabilities
                    
                    
                    (169,708
                    )
                    
                    
                    (188,909
                    )Deferred
      revenue
                    
                    
                    832,507
                    
                    
                    
                    813,008Net
      cash (used in) operating activities
                    
                    
                    (856,320
                    )
                    
                    
                    (1,461,023
                    )Cash
      flows from investing activities:Purchase
      of property, contract rights, trademarks and goodwill
                    
                    
                    (23,378
                    )
                    
                    
                    (233,715
                    )Net
      cash (used in) investing activities
                    
                    
                    (23,378
                    )
                    
                    
                    (233,715
                    )Cash
      flows from financing activities:Proceeds
      from the issuance of Preferred Stock
                    
                    
                    2,000,000
                    
                    
                    
                    -Payments
      on notes payable
                    
                    
                    (170,941
                    )
                    
                    
                    (48,398
                    )Payment
      of Placement Agent Fees
                    
                    
                    (150,000
                    )
                    
                    
                    -Proceeds
      from issuance of notes payable
                    
                    
                    -
                    
                    
                    
                    335,925Net
      cash provided by financing activities
                    
                    
                    1,679,059
                    
                    
                    
                    287,527Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    799,361
                    
                    
                    
                    (1,407,211
                    )Cash
      and cash equivalents, beginning of period
                    
                    
                    886,245
                    
                    
                    
                    1,668,611Cash
      and cash equivalents, end of period
                    
                    $
                    1,685,606
                    
                    
                    $
                    261,400Cash
      payments for interest
                    
                    $
                    32,048
                    
                    
                    $
                    127,629Supplemental
      schedule of non-cash activities:Issuance
      of secured notes payable for interest
                    
                    $
                    503,695
                    
                    
                    $
                    -Gain
      on modification of debt
                    
                    $
                    350,843
                    
                    
                    $
                    -Issuance of Series E-1 Preferred Stock, Series A
      financing
                    
                    $
                    57
                    
                    
                    $
                    -





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


-4-
 Table of Contents


WORLD
RACING GROUP, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS


MARCH
31, 2009





NOTE
      1.
            DESCRIPTION
      OF BUSINESS




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.


-5-
 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. The Company
incurred a net loss of $12.9 million for the year ended December 31, 2008 and a
net loss of $2.2 million for the three months ended March 31,
2009.  The Company has an accumulated deficit of $88.5 million and
negative working capital of $1.3 million as of March 31, 2009, 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
are vigorously defending the allegations set forth in the
complaint.    The discovery phase of the case concluded on
January 30, 2009, and the Court is currently considering
pending  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 will 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.


-6-
 Table of Contents




NOTE
      3.
            BASIS
      OF PRESENTATION





The
accompanying condensed consolidated financial statements have been prepared in
compliance with Rule 8-03 of Regulation S-X and U.S. generally accepted
accounting principles, but do not include all of the information and disclosures
required for audited financial statements. These statements should be read in
conjunction with the condensed consolidated financial statements and notes
thereto included in the Company’s latest Annual Report on Form 10-K for the year
ended December 31, 2008. In the opinion of management, these statements include
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the results of operations, financial
position and cash flows for the interim periods presented. Operating results for
the three months ended March 31, 2009 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2009 due to the
seasonal nature of the Company’s business.





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





NOTE
      4.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Reclassifications





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





Use
of Estimates





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





Principles
of Consolidation





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





Revenue
Recognition and Deferred Revenue





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


-7-
 Table of Contents





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 $5,000 of total revenues
for the quarter ended March 31, 2009 and $38,400 in the quarter ended March 31,
2008.





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 $57,548 and $60,574 for the three month
periods ended March 31, 2009 and 2008, 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 quarters ended March 31, 2009 and 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.


March
      312009
                
                
                2008Net
      (Loss)
                
                $
                (2,156,540
                )
                
                $
                (3,175,558
                )Net
      loss applicable to common stock
                
                $
                (2,156,540
                )
                
                $
                (3,175,558
                )Net
      loss applicable to common stock per common share -Basic and
      diluted
                
                $
                (0.05
                )
                
                $
                (0.10
                )Weighted
      average common shares outstanding -Basic and
      diluted
                
                
                42,751,735
                
                
                
                32,152,262




-8-
 Table of Contents





In
addition, as of March 31, 2009, the Company’s Series E Preferred Stock was
convertible into 50.0  million shares of common stock, the Company’s
Series E-1 Preferred Stock was convertible into 5.7 million shares of common
stock,  and the Company had warrants outstanding to purchase 0.6
million common shares and options to purchase 0.4 million shares of common
stock. None of these were included in the computation of diluted EPS because the
Company had a net loss and all potential issuance of common stock would have
been anti-dilutive.





The following table summarizes the
Company’s common stock purchase warrant and certain stock options outstanding at
March 31, 2009.  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
              
              
              
              2.3Other
      warrants
              
              
              275,059
              
              
              $
              3.00
              
              
              
              2.9Stock
      options
              
              
              420,000
              
              
              $
              3.95
              
              
              
              1.9Total
      warrants and stock options outstanding
              
              
              970,862
              
              
              $
              3.41
              
              
              
              2.3




Cash
and Cash Equivalents





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





Inventories





Inventories
of retail merchandise are stated at the lower of cost or market on the first in,
first out method. Shipping, handling and freight costs related to merchandise
inventories are charged to cost of merchandise.





Property
and Equipment





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





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


-9-
 Table of Contents


Purchase
Accounting





The
Company accounted for its acquisitions of assets in accordance with Statement of
Financial Accounting Standards No. 141R (SFAS No. 141R), Business Combinations
and Statement of Financial Accounting Standards No. 142, Goodwill and Intangible
Assets (SFAS No. 142). SFAS No. 141R requires that all business combinations
entered into subsequent to January 1, 2009 be recorded at full fair
value and also requires that transaction-related costs be expensed in the period
incurred.





Intangible
Assets





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





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





Income
Taxes





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





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





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





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





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


-10-
 Table of Contents





Concentration
of Credit Risk





Due to
the nature of the Company’s sponsorship agreements, the Company could be subject
to concentration of accounts receivable within a limited number of
accounts.  As of March 31, 2009, the Company had bank deposits in
excess of FDIC insurance of approximately $1.5 million.





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 has adopted the provisions of FAS 157
as it relates to non-financial assets and liabilities. The adoption did not have
a material impact on our financial position, results of operations or cash
flows.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements–an amendment of ARB No. 51.
This Statement changes the accounting and reporting for non-controlling
interests in consolidated financial statements. A non-controlling interest,
sometimes referred to as a minority interest, is the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. Specifically,
SFAS No. 160 establishes accounting and reporting standards that require (i) the
ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the consolidated balance sheet
within equity, but separate from the parent’s equity; (ii) the equity amount of
consolidated net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the consolidated
income statement (consolidated net income and comprehensive income will be
determined without deducting minority interest, however, earnings-per-share
information will continue to be calculated on the basis of the net income
attributable to the parent’s shareholders); and (iii) changes in a
parent’s ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently and
similarly—as equity transactions. This Statement is effective for fiscal years,
and interim period within those fiscal years, beginning on or after December 15,
2008. Early adoption is not permitted. SFAS No. 160 shall be applied
prospectively as of the beginning of the fiscal year in which it is initially
applied, except for its presentation and disclosure requirements, which shall be
applied retrospectively for all periods presented. The Company adopted SFAS No.
160 on January 1, 2009.  The adoption did not have a material impact
on our financial position, results of operations or cash flows.


-11-
 Table of Contents





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 adopted SFAS No.
141R on January 1, 2009.  The adoption did not have a material impact
on our financial position, results of operations or cash flows.




In
December 2007, the Securities and Exchange Commission issued SAB 110, Certain Assumptions Usedin 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 adopted SFAS
No. 161 on January 1, 2009.  The adoption did not 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.


-12-
 Table of Contents





The
following table provides information relating to outstanding stock options as of
March 31, 2009, no options were granted in 2009 or 2008:





Expected
      volatility
                
                
                58
                %Expected
      life in years
                
                
                2.0Weighted
      average risk free interest rate
                
                
                4.66




The
Company has not declared dividends and does not intend to do so in the
foreseeable future, and thus did not use a dividend yield. In each case, the
actual value that will be realized, if any, depends on the future performance of
the common stock and overall stock market conditions. There is no assurance that
the value an optionee actually realizes will be at or near the value estimated
using the Black-Scholes model.





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




A summary
of the status of stock options and related activity as of March 31, 2009 is
presented below:





Shares
                                
                                Weighted
                                  Average
                                  Exercise Price
                                  per
      Share
                                
                                Weighted
                                  Average
                                  Remaining
                                  Contractual Term
                                
                                Aggregate
                                  Intrinsic
                                  ValueOptions
      outstanding at December 31, 2008
                                420,000
                                
                                $
                                3.95
                                
                                2.1
                                
                                $       -Granted
                                -Exercised
                                -Forfeited/expired/surrendered
                                -Options
      outstanding at March 31, 2009
                                420,000
                                
                                $
                                3.95
                                
                                1.9
                                
                                $           
      -Options
      exercisable at March 31, 2009
                                420,000
                                
                                $
                                3.95
                                
                                1.9
                                
                                $           
      -




-13-
 Table of Contents





A summary
of the status of stock purchase warrants and related activity for the three
months ended March 31, 2009 is presented below:


Shares
                                                      
                                                      Weighted
                                                        Average
                                                        Exercise Price
                                                        per
      Share
                                                      
                                                      Weighted
                                                        Average
                                                        Remaining
                                                        Contractual Term
                                                      
                                                      Aggregate
                                                        Intrinsic
                                                        ValueWarrants
      outstanding at December 31, 2008
                                                      550,862
                                                      
                                                      $
                                                      2.99
                                                      
                                                      2.8
                                                      
                                                      $
                                                      -Granted
                                                      -
                                                      
                                                      
                                                      -Exercised
                                                      -
                                                      
                                                      
                                                      -Forfeited/expired/surrendered
                                                      -
                                                      
                                                      
                                                      -Warrants
      outstanding at March 31, 2009
                                                      550,862
                                                      
                                                      $
                                                      2.99
                                                      
                                                      2.6
                                                      
                                                      $
                                                      -Warrants  exercisable
      at March 31, 2009
                                                      550,862
                                                      
                                                      $
                                                      2.99
                                                      
                                                      2.6
                                                      
                                                      $
                                                      -





Unrecognized
compensation expense as of March 31, 2009 related to outstanding stock options
and restricted stock grants was $0.1 million.





NOTE
      5.
            PROPERTY
      AND EQUIPMENT





Property
and equipment consisted of the following at March 31, 2009 and December 31,
2008:





2009
                
                
                2008
                
                Depreciable
      LifeLand
                
                $
                6,916,338
                
                
                $
                6,916,338
                
                N/ABuildings
      and grandstands
                
                
                3,514,779
                
                
                
                3,509,384
                
                7 -
      40 yearsTransportation
      equipment
                
                
                1,914,283
                
                
                
                1,910,409
                
                5 -
      7 yearsOffice
      furniture and equipment
                
                
                881,708
                
                
                
                867,599
                
                3 -
      7 years13,227,108
                
                
                
                13,203,730Less
      accumulated depreciation
                
                
                (3,257,770
                )
                
                
                (3,108,800
                )Property
      and equipment, net
                
                $
                9,969,338
                
                
                $
                10,094,930




Depreciation
is computed on a straight-line basis. Depreciation expense for the three month
periods ended March 31, 2009 and 2008 was $148,970 and $193,200,
respectively.


-14-
 Table of Contents





NOTE
      6.
            GOODWILL
      AND OTHER INTANGIBLE ASSETS





As
discussed in Note 4, the Company conducts an annual impairment test as required
by SFAS No. 142. Under SFAS 142, goodwill impairment is deemed to exist if the
carrying value of a reporting unit exceeds its estimated fair value. In
calculating the impairment charge, the fair values of the reporting units were
estimated using the expected present value of future cash flows from those
units. The World of Outlaws acquisition, the DIRT acquisition, the UMP
acquisition, the MARS acquisition, and the Lernerville acquisition were treated
as separate reporting units for purposes of making these impairment
calculations.  During the year ended September 30, 2004, an impairment
of $2,954,978 was recorded related to 2004 acquisitions.  During the
year ended December 31, 2005, impairments related to the goodwill associated
with the acquisition of the World of Outlaws, UMP and Dirt was determined to be
impaired by $2,027,248, $2,218,171 and $1,611,700 respectively.  In
addition, the trademark associated with the World of Outlaws was determined to
be impaired by $142,452.  These amounts were charged to current
earnings for the quarter ended September 30, 2005.  The Company
evaluated again in 2006 and it was determined that the remaining goodwill for
each reporting unit was fully impaired and the remaining amounts recorded as
goodwill were impaired and during the year ended December 31, 2006, an
impairment of $1,508,440 was recorded related to the goodwill associated with
the acquisitions of the UMP, MARS and Lernerville was determined to be impaired
by $812,715, $148,000 and $547,725, respectively.





NOTE
      7.
            ACCRUED
      LIABILITIES





Accrued
liabilities at March 31, 2009 and December 31, 2008 consisted of the
following:





March
      31,
                
                December
      31,2009
                
                2008Points
      fund
                
                $
                219,795
                
                $
                557,394Interest
                
                
                167,387
                
                
                298,333Salaries,
      wages and other compensation and benefits
                
                
                191,573
                
                
                154,608Sales
      and other taxes
                
                
                182,002
                
                
                69,104Professional
      fees
                
                
                128,015
                
                
                192,000Other
      accrued liabilities
                
                
                7,154
                
                
                5,037Total
      Accrued Liabilities
                
                $
                895,925
                
                $
                1,276,476





NOTE
      8.
            DEFERRED
      REVENUE





Deferred
revenues at March 31, 2009 and December 31, 2008 consisted of the
following:





March
      31,
                
                December
      31,2009
                
                2008Sponsorship
      prepayments
                
                $
                722,206
                
                $
                140,463Sanction
      fee advances
                
                
                128,138
                
                
                32,718Season
      ticket  sales, advance ticket sales
                
                
                94,799
                
                
                11,280Membership
      fees
                
                
                100,925
                
                
                29,100$
                1,046,068
                
                $
                213,561




-15-
 Table of Contents





NOTE
      9.
            NOTES
      PAYABLE





From May
2005 through April 2006 we issued $12.4 million in promissory notes payable to
existing shareholders.  These notes were classified as current, due
and payable on the first to occur of:  (i) October 27, 2006 (ii) the
completion of an equity or equity linked financing with gross proceeds of
$9,000,000 or (iii) the acceleration of the obligations under the promissory
notes.  These promissory notes bear interest at 8% for the first 6
months from the date of issuance and 12% for the next 6 months and was payable
on a quarterly basis.  The Company issued warrants to purchase
1,948,510 shares of our common stock at an exercise price of $4.50 in connection
with these notes.  The warrants were valued based on the Black-Scholes
fair value method and the value was recorded as a non-cash debt discount and was
being amortized over the life of the notes.  In connection with the
Series D Preferred Stock financing in May 2006, we repaid $867,506 of these
notes plus accrued interest and we exchanged the remaining $11.6 million in
notes plus accrued interest into 4,401 shares of our Series D Preferred stock
and issued Series D warrants to purchase 1,320,178 shares of our common stock at
an exercise price of $4.50.  At the time of conversion, the Company
recognized the remaining unamortized debt discount as interest expense in
2006.  Additionally, the Company recognized interest expense for the
conversion of the notes at 110% into Series D preferred stock (Note
9).




During
the first quarter of 2007, the Company entered into a line of credit agreement
with one of its principal shareholders to provide the Company with working
capital advances.  Amounts outstanding bear interest at 8%, no amounts
are outstanding under the line of credit as of December 31, 2008 or March 31,
2009.  As of March 31, 2009, $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.




-16-
 Table of Contents




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.




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.




-17-
 Table of Contents


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.




On March
31, 2009, the Company amended and restated that certain Secured Promissory Note
issued on November 7, 2007, in the principal amount of $2.3 million, issued to
Helen W. Martin (“Martin”) in consideration for the acquisition of Lernerville
Speedway in 2004 (the “Old Note”).  The total amount due and owing
Martin under the terms of the Old Note, prior to restatement, including
principal and accrued interest, was $2.5 million.  The Company paid
Martin $200,000 as consideration for the amended and restated note (the
“Principal Deposit”) (the “New Note”), which New Note was issued in the
principal amount of $2.0 million.  The Company recognized a gain on
the amendment and restatement of $350,843 during the three month period ended
March 31, 2009.  The principal amount under the terms of the New Note
increases monthly at a rate per annum equal to 10% through the maturity date of
the New Note, November 7, 2010.  In the event the New Note is paid in
full prior to August 31, 2009, the Principal Deposit is credited to the Company,
therefore decreasing the total principal due and owing Martin on such early
repayment date.  In the event the New Note is not paid in full prior
to August 31, 2009, the Principal Amount is retained by Martin without right of
offset by the Company.  The Company is obligated to pay $30,000 per
month under the terms of the New Note, until the maturity date, at which time
all remaining principal shall be due in full.  The New Note remains
subject to a mortgage securing repayment of all amounts due Martin under the
terms of the New Note.




Notes
payable at March 31, 2009 consisted of the following:





·
            $15.0
      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.·
            $1.5
      million of PIK notes issued in connection with the Senior Notes due March
      15, 2011, as amended, bearing interest at 13.5% per annum payable
      quarterly.  These notes are secured by substantially all of the
      assets of the Company and our subsidiaries.·
            $2.0
      million note payable to Martin, as set forth above.·
            $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
      $1,441,965 as of March 31, 2009.  This note is secured by a
      mortgage on the real property, and security agreement covering the other
      assets acquired from Volusia Speedway.·
            $685,940
      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.




-18-
 Table of Contents


The
aggregate amounts of maturities of debt during each of the years ending December
31, 2009 through 2014 and thereafter are:




Remainder
      of 2009
                
                $
                819,2042010
                
                
                3,188,0282011
                
                
                16,577,1832012
                
                
                33,1172013
                
                
                50,9232014
      and thereafter
                
                
                104,546$
                20,773,001Less:  Note
      Discount
                
                
                (1,236,064
                )$
                19,536,937





NOTE
      10.
            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 41,164 shares of Series E Convertible Preferred Stock
convertible into 41.2 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.




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.  In addition, on March 31, 2009, we issued an additional
200 Series A Shares and 5,700 shares of Series E-1 Preferred Stock, resulting in
gross proceeds to the Company of $2.0 million.


-19-
 Table of Contents




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 $4.5 million.  Under the terms of the Preferred Purchase
Agreement, Series A Shares purchased at subsequent closings will include 28.5
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
      11.
            INCOME
      TAXES





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





At March
31, 2009, the Company had net operating loss carry forwards of approximately $64
million for federal income tax purposes.





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





NOTE
      12.
            COMMITMENTS





In
addition to its owned racing facilities, the Company leases three racing
facilities, the Canandaigua Speedway, the Syracuse Fairgrounds Race Track, and
the Orange County Fair Speedway.





The
Canandaigua Speedway is leased on an annual basis, $22,000 per year, through
November 1, 2011.  The track is located at the Ontario County
Fairgrounds in Canandaigua, Ontario County, New York.





The
Syracuse Fairgrounds Race Track is leased for the Super Dirt Week series of
races held annually during October.  The track is located in Syracuse,
New York.  The track is leased on a year-to-year basis for one week
per year at a rental rate of $110,000.





The
Company entered into a lease for a new corporate facility in Concord, North
Carolina for approximately 9,000 square feet of office and 7,000 square feet of
warehouse space.  It is leased under a 62 month lease for $9,492 per
month for the first year escalating annually to $10,275 in year
five.


-20-
 Table of Contents




Total
scheduled future minimum lease payments, under these operating leases are as
follows:





Payment
      Due by PeriodTotal
                
                
                Remainder
      of 2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
      and ThereafterOperating
      leases
                
                $
                471,238
                
                
                $
                110,884
                
                
                $
                142,285
                
                
                $
                144,694
                
                
                $
                73,375
                
                
                $
                -





Operating
lease expense for the quarter ended March 31, 2009 and 2008 was $73,495 and
$74,379, respectively.





The
Company has employment agreements with its executive officers and other
employees, the terms of which expire at various times over during 2009 and 2010.
The aggregate commitment for future salaries at March 31, 2009 was $358,880
million.





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
are vigorously defending the allegations set forth in the
complaint.    The discovery phase of the case concluded on
January 30, 2009, and the Court is currently considering
pending  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.





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.


-21-
 Table of Contents




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





FORWARD
LOOKING STATEMENTS





The
following Management’s Discussion and Analysis is intended to assist the reader
in understanding our results of operations and financial
condition.  Management’s Discussion and Analysis is provided as a
supplement to, and should be read in conjunction with, our audited consolidated
financial statements beginning on page 3 of this Quarterly Report. This
Form 10-Q includes certain statements that may be deemed to be “forward-looking
statements” within the meaning of Section 27A of the Securities
Act.  All statements, other than statements of historical fact,
included in this Form 10-Q that address activities, events or developments that
we expect, project, believe, or anticipate will or may occur in the future,
including matters having to do with expected and future revenues, our ability to
fund our operations and repay debt, business strategies, expansion and growth of
operations and other such matters, are forward-looking statements.  In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “will,” “expects,” “intends,”
“plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative
thereof or any variation thereon or similar terminology or expressions. 
These statements are based on certain assumptions and analyses made by our
management in light of its experience and its perception of historical trends,
current conditions, expected future developments, and other factors it believes
are appropriate in the circumstances.  These statements are subject to
a number of assumptions, risks and uncertainties, that could cause actual
results to differ materially from results proposed in such statements. 
These include, but are not limited to, general economic and business
conditions, the business opportunities (or lack thereof) that may be presented
to and pursued by us, our performance on our current contracts and our success
in obtaining new contracts, our ability to attract and retain qualified
employees, and other factors, many of which are beyond our control, as well as
those factors set forth under the caption "Risk Factors" in our Annual
Report on Form 10-K for our fiscal year ended December 31, 2008 filed with the
Securities and Exchange Commission.  You are cautioned that these
forward-looking statements are not guarantees of future performance and that
actual results or developments may differ materially from those projected in
such statements.  All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by the foregoing.  Except as required by
law, we assume no duty to update or revise our forward-looking statements based
on changes in internal estimates or expectations or otherwise.





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





In 2008,
we scheduled 80 World of Outlaw Sprint Series races and completed 66 races, 50
World of Outlaw Late Model Series Races and completed 43 races, 26 Advance Auto
Parts Big Block Modified Events, and over 200 other major racing events in our
other regional and touring racing series.  In 2009, we have scheduled
76 World of Outlaw Sprint Series races, 48 World of Outlaw Late Model Series
Races, 24 Advance Auto Parts Big Block Modified Events, and over 200 other major
racing events in our other regional and touring racing
series.   Most of these events are scheduled in the period from
March to November each year.   As a result, our business has
been, and is expected to remain, highly seasonal.




During
the first quarter of 2009, inclement weather negatively impacted one World of
Outlaws Sprint Car Series race and one World of Outlaws Late Model Series race,
compared to five World of Outlaws Sprint Car Series races and no World of
Outlaws Late Model Series races in the comparable period in 2008.  We
had 39 events scheduled and were able to complete 37 events during the
quarter.   We have not rescheduled any of these
events.  If events are impacted by weather, many of the Series'
operating costs, including personnel costs and travel costs, are incurred in
preparation for the events.  The reduction in the number of events
completed can also impact our merchandise sales, as our mobile store fronts
continued to incur operating costs without having the ability to sell
merchandise at the events if they are cancelled.


-22-
 Table of Contents




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





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





Results
of Operations – Comparison of Three months ended March 31, 2009 (“2009”) and
2008 (“2008”)





Revenues – Our total revenues
increased to $3.0 million in 2009 from $2.9 million in 2008.




Race
sanctioning and event fees revenue increased to $905,000 in 2009 from $552,000
in 2008.  This increase is due to a increase in the number of
sanctioned events completed in 2009 as compared to 2008, particularly in the
World of Outlaws Sprint Series. In 2009, we completed six sanctioned events at
non-owned facilities and three events at our facilities. In 2008 we completed
four sanctioned events at non-owned facilities and three events at our
facilities. In 2009 and 2008 we completed four and three World of Outlaw Late
Model Series Events, respectively.  We expect sanction fees to reflect
the increase in the number of completed sanctioned events at non-affiliated
facilities for the remainder of 2009 as compared to 2008.





During
2009 we generated $1.49 million in track operations, ticket and concession sales
as compared to $1.51 million in 2008. These revenues are generated at events
held at our owned or operated racetracks, primarily at Volusia Speedway during
February each year.   Our racing season at our tracks in New York
and Pennsylvania typically begins in late March or early April each year but is
dependent upon the weather in each region.  We expect our track
operations, ticket and concession sales to remain about the same in 2009 as
compared to 2008 for the remainder of the year.





Our
sponsorship and advertising revenues decreased to $505,000 in 2009 from $775,000
in 2008.  We expect sponsorship and advertising revenues to
decrease in 2009 due to the loss of a significant sponsor at the end of the 2008
racing season, and due to the general softness in the market for sponsorship and
advertising resulting from current adverse economic conditions.





Sales of
merchandise increased from 2008 to 2009 due to an increase in the number of
completed events and increases in sales per event.  In 2007 and 2008,
we entered into arrangements to license our product sales in areas other than
our on-site sales at our World of Outlaw Sprint Series races; we continued those
relationships in 2009.  We expect that our net operating cash
generated from the new arrangements to increase our overall operating margins in
these areas and we expect revenues for merchandise sold on-site at our World of
Outlaw Sprint Series events to increase as compared to 2008.




Operating expenses – Our
total operating expenses decreased to $4.5 million in 2009 from $5.3 million in
2008.  The decrease is principally due to decreases in operating costs
including staffing and prize money, decreased sales and marketing costs,
non-cash stock compensation expense, and other reductions resulting from the
Company’s aggressive efforts to reduce operating costs.


-23-
 Table of Contents





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 decreased to $3.0 million
in 2009 from $3.2 million in 2008.  These decreases are due to
decreased personnel, contract labor cost and other costs including year-end
prize funds for our series and decreased operating expenses at our events at
Volusia Speedway for 2009 as compared to 2008 offset by increases in the number
of completed sanctioned events and the prize money at those events.





Sales and
marketing – Sales and marketing expenses includes expenses incurred by our
sales, marketing and public relations departments.  The expenses are
primarily personnel related to the pursuit of corporate and event sponsors along
with professional fees and printing for our advertising publications and
fulfillment under our sponsorship agreements.  Sales and marketing
expense decreased to $493,000 in 2009 from $674,000 in 2008 as a result
of decreased staffing, professional fees, promotion and
advertising.





Merchandise
operations and cost of sales – Merchandise operations and cost of sales includes
all operating expenses related to the distribution of our merchandise which
includes mobile store fronts that are present at our World of Outlaws touring
series event and the cost of goods sold during 2009 and
2008.  Beginning in 2007, we have entered into arrangements that have
resulted in our licensing the rights to sell merchandise at each of our touring
series events other than at our World of Outlaws Sprint Series
events.  The licensing agreements generally include a one-time rights
fee and a percentage of sales over certain volume thresholds. These licensing
fees will be recorded as sponsorship and advertising sales.   Our
mobile store fronts travel to each series event and continue to incur operating
costs, even if the event is cancelled or negatively impacted by weather without
having the ability to sell merchandise at the events that were
cancelled.   Our operating expenses in 2009 are higher than
merchandise sales due to repairs made to equipment prior to the beginning of the
season and a write off taken for stale merchandise.  Series'
operations and merchandise operations have improved from 2008 to 2009, and we
anticipate that such improvement will continue for the remainder of
2009.




General
and administrative – Our general and administrative expenses decreased to $0.5
million in 2009 from $0.6 million in 2008. The decrease is principally due to a
reduction in legal and related costs incurred in connection with the defense of
the antitrust case currently pending against the Company and decreases in
expenditures relating to the Company’s efforts to reduce all operating
costs.





Non-cash
stock compensation – Non-cash stock compensation of $0.3 million in 2009 and
$0.6 million in 2008 represents the fair value of warrants and options issued to
employees and non-employees for services provided.





Depreciation
and amortization – Depreciation and amortization expense decreased slightly in
2009 from 2008 and is expected to continue to decrease as equipment and
leasehold and track improvements and transportation equipment become fully
depreciated.





Gain on
modification of debt - On March 31, 2009, the Company amended and restated its
note payable issued in connection with the purchase of Lernerville Speedway in
2004.  The amended note resulted in a reduction of principal and
accrued interest which was forgiven resulting in a gain on modification of
$350,843.





Interest
expense, net – Interest expense increased to $1.0 million in 2009 from $0.8
million in 2008.  2009 includes the non-cash amortization of the
discounts recorded for the value assigned to restricted stock granted in
connection with the secured notes issued during the third quarter of 2007.
Interest expense for 2009, 2010 and 2011 will reflect the interest incurred on
our notes and mortgages payable on our two tracks and various vehicle notes and
any non cash interest expense for the amortization of the discounts recorded for
the value assigned to restricted stock granted in connection with the secured
promissory notes issued during the third quarter of 2007.


-24-
 Table of Contents





Liquidity
and Capital Resources





The
Company generated $3.0 million in revenues during the period ended March 31,
2009; however, we have not yet achieved a profitable level of operations. Our
primary source of funding for our operating deficits during the quarter ended
March 31, 2009 has been from cash on hand and the issuance of preferred
stock.





During
the period ended March 31, 2009, the Company used $0.9 million in operating
activities primarily the result of a net loss of $2.2 million, non-cash interest
expense of $0.9 million, depreciation and amortization of $0.2 million, non-cash
stock compensation of $0.3 million and other working capital changes, primarily
accounts receivable, deferred revenue, accounts payable and accrued
liabilities.During the
period ended March 31, 2008, the Company used $1.5 million in operating
activities.




During
the three months ended March 31, 2009, the Company used $23,000 in investing
activities primarily for track improvements and for equipment purchases for our
traveling series, compared to $234,000 during the comparable period in
2008.




During
the three months ended March 31, 2009, financing activities provided $1.7
million primarily through the issuance of $2.0 million in Series A and Series
E-1 Preferred Stock. During the three months ended March 31, 2008, financing
activities provided $0.3 million primarily through the issuance of $0.3 million
in notes payable offset by scheduled repayments of notes payable.





The
Company incurred a net loss of $12.9 million for the year ended December 31,
2008 and a net loss of $2.2 million for the three months ended March 31,
2009.  The Company has an accumulated deficit of $88.5 million and
negative working capital of $1.3 million as of March 31, 2009, 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.





We
are dependent on existing cash resources and external sources of financing
to meet our working capital needs.  The Company raised $2.0
million by issuing additional Series A and Series E-1 Preferred Stock on March
31, 2009, and we may be required to issue additional Series A
Shares in 2009, as current sources of liquidity may be insufficient to provide
for our budgeted and anticipated working capital
requirements.  No assurances can be given that the Company will be
able to issue additional Series A Shares or that other sources of capital will
be available to the Company on acceptable terms, if at all.  If the
Company is unable to obtain additional financing when needed or if such
financing cannot be obtained on terms favorable to us, or if the Company is
unable to renegotiate existing financing facilities, we may be required to delay
or scale back our operations, which could delay development and adversely affect
our ability to generate future revenues.


-25-
 Table of Contents





The
following table summarizes our contractual obligations as of March 31,
2009:





Payment
      Due by PeriodRemainder
      of
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2013
      andContractual
      obligations
                    
                    Total
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    thereafterOperating
      leases
                    
                    $
                    471,238
                    
                    
                    $
                    110,884
                    
                    
                    $
                    142,285
                    
                    
                    $
                    144,694
                    
                    
                    $
                    73,375
                    
                    
                    $
                    -Employment
      agreements
                    
                    $
                    358,880
                    
                    
                    $
                    317,213
                    
                    
                    $
                    41,667
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Notes
      payable and interest
                    
                    $
                    25,514,587
                    
                    
                    $
                    2,704,149
                    
                    
                    $
                    5,615,782
                    
                    
                    $
                    17,029,526
                    
                    
                    $
                    46,740
                    
                    
                    $
                    118,390





Operating
lease expense for the quarter ended March 31, 2009 and 2008 was $73,495 and
$74,379, respectively.




Off-Balance
Sheet Arrangements




As of
March 31, 2009, we did not have any relationships with unconsolidated entities
or financial partners, such as entities often referred to as structured finance
or special purpose entities that had been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.  As such, we are not materially exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged
in such relationships.





Critical
Accounting Policies





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





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





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





Although
all of the policies identified in note 4 to our consolidated condensed financial
statements are important in understanding the consolidated financial statements,
the policies discussed below are considered by management to be central to
understanding the consolidated financial statements, because of the higher level
of measurement uncertainties involved in their application.  We have
identified the policies below as critical to our business operations and the
understanding of our results of operations.  The impact and any
associated risks related to these policies on our business operations is
discussed throughout Management’s Discussion and Analysis when such policies
affect our reported and expected financial results.


-26-
 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 the Company receives goods or
services in exchange for sponsorships of motorsports events are recorded at fair
value in accordance with Emerging Issues Task Force (EITF) Issue No. 99-17,
Accounting for Advertising
Barter Transactions.





Expense
Recognition and Deferral





Certain
direct expenses pertaining to specific events, including prize and point fund
monies, advertising and other expenses associated with the promotion of our
racing events are deferred until the event is held, at which point they are
expensed.  Annual points fund monies which are paid at the end of the
racing season are accrued during the racing season based upon the races held and
total races scheduled.




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


-27-
 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
March 31, 2009, 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 March 31, 2009, our Series E Preferred Stock was convertible
into 50.0 million shares of common stock and our Series E-1 Preferred Stock was
convertible into 5.7 million shares of our 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 March 31, 2008, the Company
believes there is no impairment of property and equipment.


-28-
 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 ofa 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 has adopted the provisions of FAS 157 as it relates to non-financial
assets and liabilities. The adoption did not have a material impact on our
financial position, results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements–an amendment of ARB No. 51.
This Statement changes the accounting and reporting for non-controlling
interests in consolidated financial statements. A non-controlling interest,
sometimes referred to as a minority interest, is the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. Specifically,
SFAS No. 160 establishes accounting and reporting standards that require (i) the
ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the consolidated balance sheet
within equity, but separate from the parent’s equity; (ii) the equity amount of
consolidated net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the consolidated
income statement (consolidated net income and comprehensive income will be
determined without deducting minority interest, however, earnings-per-share
information will continue to be calculated on the basis of the net income
attributable to the parent’s shareholders); and (iii) changes in a parent’s
ownership interest while the parent retains its controlling financial interest
in its subsidiary be accounted for consistently and similarly—as equity
transactions. This Statement is effective for fiscal years, and interim period
within those fiscal years, beginning on or after December 15, 2008. Early
adoption is not permitted. SFAS No. 160 shall be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for its
presentation and disclosure requirements, which shall be applied retrospectively
for all periods presented. The Company adopted SFAS No. 160 on January 1,
2009.  The adoption did not 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 adopted SFAS No.
141R on January 1, 2009.  The adoption did not have a material impact
on our financial position, results of operations or cash flows.


-29-
 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 adopted SFAS
No. 161 on January 1, 2009.  The adoption did not 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).





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 March 31, 2009 was 1.9 years.





A summary
of the status of stock options and related activity for the three months ended
March 31, 2009 is presented below:





Options
      outstanding at December 31, 2008
                  
                  
                  420,000
                  
                  
                  $
                  3.95Granted
                  
                  
                  -Exercised
                  
                  
                  -Forfeited/expired
                  
                  
                  -Options
      outstanding at March 31, 2009
                  
                  
                  420,000
                  
                  
                  $
                  3.95




-30-
 Table of Contents





ITEM3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK





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





ITEM
      4T.
            CONTROLS
      AND PROCEDURES





a) Evaluation
of Disclosure Controls and Procedures




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




b) Changes
in Internal Control Over Financial Reporting




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


-31-
 Table of Contents





PARTII





OTHER
INFORMATION






ITEM1.
            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
are vigorously defending the allegations set forth in the
complaint.    The discovery phase of the case concluded on
January 30, 2009, and the Court is currently considering
pending  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.





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







ITEM1A.
            RISK
      FACTORS





In
addition to the risk factors previously disclosed in Part II, Item 6, “Risk
Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008,
you should consider the following risk in connection with the Company’s recent
announcement of its intent to go private:





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 Exchange Commission (the "Commission") and to terminate the
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.


-32-
 Table of Contents




ITEM
      6.
            EXHIBITS





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




Exhibit
                  Number
                Description10.1
                Amended and Restated Secured Promissory Note, dated
      March 31, 2009, in the principal amount of $2.0
  million31
                Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to Rule 13a-14 a under the Securities Exchange
      Act of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes Oxley Act of 200232
                Certification pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 by the Chief Executive Officer and Chief
      Financial Officer




-33-
 Table of Contents




SIGNATURES




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





WORLD
      RACING GROUP, INC.
                (Registrant)Date: 
      May 15, 2009
              By:
              /s/ Brian
      M. CarterBrian
      M. CarterChief
      Executive Officer and Chief Financial Officer