UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended March 31, 2008
   ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the transition period from 
to


0-18045





World
Racing Group, Inc.








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





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








(704)
795-7223








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





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





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




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




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




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











TABLE OF CONTENTS











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





























-2-




Table of
Contents




PART
I


FINANCIAL INFORMATION





ITEM  1.                               FINANCIALSTATEMENTS


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


March
31, 2008 and December 31, 2007




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





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


-3-


Table of
Contents


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


For
the Three Months Ended March 31, 2008 and 2007


(Unaudited)





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








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





-4-


Table of Contents


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT


For
the Three months ended March 31, 2008





(Unaudited)





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








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


-5-


WORLD
RACING GROUP, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


For
the Three months ended March 31, 2008 and 2007


(Unaudited)





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








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








-6-


Table of Contents


WORLD
RACING GROUP, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008





NOTE
      1.
            DESCRIPTION
      OF BUSINESS




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





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




NOTE
      2.
            GOING
      CONCERN





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





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





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





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


-7-


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-KSB for the
year ended December 31, 2007. In the opinion of management, these statements
include all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the results of operations, financial
position and cash flows for the interim periods presented. Operating results for
the three months ended March 31, 2008 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2008 due to the
seasonal nature of the Company’s business.





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





NOTE
      4.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Reclassifications





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





Use
of Estimates





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





Principles
of Consolidation





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





Revenue
Recognition and Deferred Revenue





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




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





Expense
Recognition and Deferral





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




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


-8-


Table of Contents




Net
Loss Per Share and Warrants Outstanding





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





March
      312008
            
            
            2007Net
      (Loss)
            
            $
            (3,175,558
            )
            
            $
            (2,284,462
            )Net
      loss applicable to common stock
            
            $
            (3,175,558
            )
            
            $
            (2,284,462
            )Net
      loss applicable to common stock
              per common share —
              Basic and
    diluted
            
            $
            (0.10
            )
            
            $
            (0.16
            )Weighted
      average common shares outstanding —
              Basic and
    diluted
            
            
            32,152,262
            
            
            
            14,529,211





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





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





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





Cash
and Cash Equivalents





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





Inventories





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





Property
and Equipment





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





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





-9-


Table of
Contents





Purchase
Accounting





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





Intangible
Assets





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





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





Income
Taxes





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





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





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





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





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





Concentration
of Credit Risk





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





New
Accounting Pronouncements





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


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In June
2006, the FASB issued FIN 48, which clarifies the accounting and reporting
for income taxes where interpretation of the law is uncertain. FIN 48
prescribes a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken in income tax returns.
FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company files tax returns in the United States and various state
jurisdictions.  The Company’s 2003-2006 U.S. federal and state income
tax returns remain open to examination by the Internal Revenue Service. The
Company is continuing its practice of recognizing interest and/or penalties
related to income tax matters as general and administrative expenses. The
Company may have nexus in more states than it is currently filing tax
returns.  Thus, upon examination, the Company could be required to
file additional tax returns.  Due to the losses incurred, it is
unlikely that any additional filings would result in any additional income
tax.  Management adopted this Statement on January 1, 2007 and
the initial adoption of FIN 48 did not have a material impact on the
Company’s financial position, results of operations, or cash flows.





In
September 2006, the FASB issued Statement No. 157,Fair Value Measurements
(SFAS No. 157). SFAS No. 157 addresses how companies should
measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. Management adopted this Statement on January 1, 2007 and the
initial adoption SFAS 157 did not have a material impact on our financial
position, results of operations, or cash flows.




In
September 2006, the FASB issued Statement No. 158,Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans (SFAS No. 158),
an amendment of FASB Statements No. 87, 88, 106 and 132(R).
SFAS No. 158 requires (a) recognition of the funded status
(measured as the difference between the fair value of the plan assets and the
benefit obligation) of a benefit plan as an asset or liability in the employer’s
statement of financial position, (b) measurement of the funded status as of
the employer’s fiscal year-end with limited exceptions, and (c) recognition
of changes in the funded status in the year in which the changes occur through
comprehensive income. The requirement to recognize the funded status of a
benefit plan and the disclosure requirements are effective as of the end of the
fiscal year ending after December 15, 2006. The requirement to measure the
plan assets and benefit obligations as of the date of the employer’s fiscal
year-end statement of financial position is effective for fiscal years ending
after December 15, 2008.  This Statement has no current
applicability to the Company’s financial statements.  Management
adopted this Statement on December 31, 2006 and the adoption of
SFAS No. 158 did not have a material impact to the Company’s financial
position, results of operations, or cash flows.





In
September 2006, the Securities Exchange Commission issued Staff Accounting
Bulletin No. 108 (SAB No. 108). SAB No. 108
addresses how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial statements.
SAB No. 108 requires companies to quantify misstatements using a
balance sheet and income statement approach and to evaluate whether either
approach results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. When the effect of initial adoption is
material, companies will record the effect as a cumulative effect adjustment to
beginning of year retained earnings and disclose the nature and amount of each
individual error being corrected in the cumulative adjustment.
SAB No. 108 was effective beginning January 1, 2007 and the
initial adoption of SAB No. 108 did not have a material impact on the
Company’s financial position, results of operations, or cash flows.





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





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





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


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





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





Stock-Based
Compensation





The
Company’s 2004 Long Term Incentive Plan (2004 Plan) provides for the grant of
share options and shares to its employees for up to 3,950,000 shares of
common stock. Option awards are generally granted with an exercise price equal
to the market price of the Company’s stock at the date of grant; those
option awards generally vest based on three years of continuous service and
have five year contractual terms. Share awards generally vest over three
years. Certain option and share awards provide for accelerated vesting if there
is a change in control, as defined in the 2004 Plan.





Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standard No. 123(R),“Share-Based Payment”, (SFAS No. 123(R)), using the modified
prospective transition method. SFAS No. 123(R) requires equity-classified
share-based payments to employees, including grants of employee stock options,
to be valued at fair value on the date of grant and to be expensed over the
applicable vesting period. Under the modified prospective transition method,
share-based awards granted or modified on or after January 1, 2006, are
recognized in compensation expense over the applicable vesting period. Also, any
previously granted awards that are not fully vested as of January 1, 2006
are recognized as compensation expense over the remaining vesting period. No
retroactive or cumulative effect adjustments were required upon the Company’s
adoption of SFAS No. 123(R).





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





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





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





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





Expected
      volatility
            
            
            58%Expected
      life in years
            
            
            2.0Weighted
      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.


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





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





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





NOTE
      5.
            PROPERTY
      AND EQUIPMENT





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





2008
            
            
            2007
            
            
            Depreciable
      LifeLand
            
            $
            6,916,338
            
            
            $
            6,916,338
            
            
            N/ABuildings
      and grandstands
            
            
            3,423,859
            
            
            
            3,444,624
            
            
            7 -
      40 yearsTransportation
      equipment
            
            
            1,863,927
            
            
            
            1,669,309
            
            
            5 -
      7 yearsOffice
      furniture and equipment
            
            
            781,698
            
            
            
            743,663
            
            
            3 -
      7 years12,985,822
            
            
            
            12,773,934Less
      accumulated depreciation
            
            
            (2,644,831
            )
            
            
            (2,473,458
            )Property
      and equipment, net
            
            $
            10,340,991
            
            
            $
            10,300,476








Depreciation
is computed on a straight-line basis. Depreciation expense for the three month
periods ended March 31, 2008 and 2007 was $193,200 and $187,403,
respectively.





NOTE
      6.
            GOODWILL
      AND OTHER INTANGIBLE ASSETS





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


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NOTE
      7.
            ACCRUED
      LIABILITIES





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





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





NOTE
      8.
            DEFERRED
      REVENUE





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





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





NOTE
      9.
            NOTES
      PAYABLE





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





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





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


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





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





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





●
            $12.0
      million of Senior Notes due March 15, 2010 bearing interest at 12.5% per
      annum payable quarterly.  These notes are secured by
      substantially all of the assets of the Company and our
      subsidiaries.●
            $2,340,000
      note payable issued in connection with the purchase of Lernerville
      Speedway, bearing interest at 10% annually payable each
      November.  The balance is due in a $500,000 installment on
      November 7, 2008, a $900,000 installment on November 7, 2009 and the
      remaining balance and unpaid interst due upon maturity on November 7,
      2010.  As part of the agreement to extend the date of maturity of the
      note, the Company has agreed to pay the holder any additional taxes due
      related to the repayment of the note due to changes in tax rates or
      regulations.●
            $2,000,000
      note payable issued in connection with the purchase of Volusia Speedway,
      bearing interest at one percent over prime and payable in fifty-nine equal
      monthly installments commencing at $24,000 per month and adjusted
      quarterly for changes in interest rates with the balance of the
      outstanding principal and accrued interest due on June 30,
      2010.  The outstanding principle balance on this note was
      $1,648,566 as of March 31, 2008.  This note is secured by a
      mortgage on the real property, and security agreement covering the other
      assets acquired from Volusia Speedway.●
            $595,180
      in various vehicle notes payable, bearing interest at rates ranging from
      6.25% to 8.25% and due in monthly installments of principal and interest
      through December 2026.





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





Remainder
      of 2008
            
            $
            822,4612009
            
            
            1,132,1382010
            
            
            14,386,8562011
            
            
            43,5992012
            
            
            38,584Thereafter
            
            
            160,108$
            16,583,746Less:  Note
      Discount
            
            
            (2,236,414
            )$
            14,347,332





NOTE
      10.
            STOCKHOLDERS’
      EQUITY





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





The
Company also entered into exchange agreements pursuant to which each of its
issued and outstanding shares of Series B Convertible Preferred Stock, par
value $.01 per share (Series B Stock), and Series C Convertible
Preferred Stock, par value $.01 per share (Series C Stock), were exchanged
for an aggregate of 9,843.3 shares of the Company’s Series D Stock. The
shares of Series D Stock issued in this exchange were convertible into
9,843,270 shares of common stock, the same number of shares of our common stock
as the original Series B Stock and Series C Stock could have been
converted.


-15-


Table of
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The
Company also issued 4,400 shares of Series D Stock and 1,320,178
Series D Warrants in exchange of $12,001,616 of short term promissory notes
in connection with the Series D financing. Further, warrants to purchase an
aggregate of 5,839,701 shares of common stock, at exercise prices ranging from
$3.00 to $5.00 per share, were cancelled and exchanged into an aggregate of
917,187 shares of our common stock and warrants to purchase 542,738 shares of
our common stock at $.001 exercise price with a term of five years.





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





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


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





NOTE
      11.
            INCOME
      TAXES





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





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





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





NOTE
      12.
            COMMITMENTS





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





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





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





The
Orange County Fair Speedway is leased on an annual basis at a rate of $115,000
per year.  The track is located in Middletown, New York.





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





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





Payment
      Due by PeriodTotal
            
            
            Remainder
      of2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
      and ThereafterOperating
leases
            
            $
            777,901
            
            
            $
            277,616
            
            
            $
            139,931
            
            
            $
            142,285
            
            
            $
            144,694
            
            
            $
            73,375





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


-16-


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





NOTE
      13.
            LITIGATION
      AND CONTINGENCIES





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




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





NOTE
      14.
            SUBSEQUENT
      EVENTS




On May
14, 2008, the Company issued $3.0 million in additional Senior Notes due March
15, 2010.  The Senior Notes were issued to existing Senior Note
Holders and were issued under the terms of a Note Purchase Agreement, dated
September 27, 2007 which allowed for the issuance of up to $15.0 million in
Secured Notes.  The Senior Notes accrue interest at the rate of 12.5%
per annum payable quarterly on each of December 15, March 15, June 15 and
September 15. Commencing September 15, 2008, interest due under the Senior Notes
is payable at our option in cash or additional Senior Notes that will accrue
interest at 13.5% per annum. The Senior Notes are secured by substantially all
of the assets of the Company and our subsidiaries, including our four race
tracks, pursuant to a Security Agreement (Security Agreement) and mortgages
(Mortgages) by and among us, certain of our subsidiaries, and the lenders. The
Senior Notes contain various standard and customary covenants, including
prohibitions on incurring additional indebtedness, except under certain limited
circumstances, or granting a security interest in any of our properties. Our
obligations under the Senior Notes are guaranteed by our principal operating
subsidiaries pursuant to a Subsidiary Guarantee (Guarantee) by and among us, our
principal operating subsidiaries, and the lenders.
 
 The
Senior Notes were issued together with 275,000 shares of our common stock for
each $1.0 million principal amount of Senior Notes purchased. We issued an
aggregate of 825,000 shares of common stock in May 2008. The fair value of the
common stock will be recorded as an increase in additional paid in capital
and will be recorded as a discount to the Senior Notes payable and
will be recognized as interest expense through the maturity date of the Secured
Notes.


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





FORWARD
LOOKING STATEMENTS





The following Management’s Discussion and Analysis is
intended to assist the reader in understanding our results of operations and
financial condition.  Management’s Discussion and Analysis is provided
as a supplement to, and should be read in conjunction with, our audited
consolidated financialstatements beginning
on page 3of 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.  Theseinclude, but are not limited to, general
economic and business conditions, the business opportunities (or lack thereof)
that may be presented to and pursued by us, our performance on our current
contracts and our success in obtaining new contracts, our ability to attract and
retain qualified employees, and other factors, many of which are beyond our
control, as well as those factors set forth under the caption "Risk
Factors" in our Annual Report on Form 10-KSB for our fiscal year ended December
31, 2007 filed with the Securities and Exchange Commission.  You are
cautioned that these forward-looking statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in such statements.  All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
foregoing.  Except as required by law, we assume no duty to update or
revise our forward-looking statements based on changes in internal estimates or
expectations or otherwise.





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





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


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


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





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





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





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




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





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





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


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





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





Sales and
marketing – Sales and marketing expenses includes expenses incurred by our
sales, marketing and public relations departments.  The expenses are
primarily personnel related to the pursuit of corporate and event sponsors along
with professional fees and printing for our advertising publications and
fulfillment under our sponsorship agreements.  Sales and marketing
expense increased to $700,000 in 2008 from $400,000 in 2007 as a result
of increased staffing, professional fees, promotion and
advertising.





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




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





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





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





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





Liquidity
and Capital Resources





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





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





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





During
the three months ended March 31, 2008, financing activities provided $0.3
million primarily through the issuance of $0.3 million in notes payable offset
by scheduled repayments of notes payable. During the period ended March 31,
2007, the Company used $0.6 million in operating activities primarily the result
of a net loss of $2.3 million, depreciation and amortization of $0.2 million,
non-cash stock compensation of $0.5 million and other working capital changes,
primarily accounts payable and accrued liabilities.





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





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





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


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





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





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





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


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


Critical Accounting Policies





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





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





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





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





Use
of Estimates





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





Revenue
Recognition and Deferred Revenue





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


-20-


Table of
Contents





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





Expense
Recognition and Deferral





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




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





Net
loss Per Share





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





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





●
            Placement
      Agent Warrants to purchase 275,803 shares of common stock at exercise
      prices ranging from $2.70 to $5.00●
            Warrants
      to purchase 275,059 shares of common stock at an exercise price of
      $3.00●
            Other
      warrants to purchase 250,000 shares of common stock issued at an exercise
      price  of $0.60●
            Other
      warrants to purchase 100,000 shares of common stock issued at an exercise
      price  of $0.80●
            Other
      warrants to purchase 40,000 shares of common stock issued at an exercise
      price  of $3.65●
            Director
      stock options to purchase 75,000 shares at exercise price of $4.75 per
      share●
            Other
      stock options totaling 345,000 shares at exercise prices ranging from
      $3.00 to $4.50 per share





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





Cash
and Cash Equivalents





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





Inventories





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





Property
and Equipment





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





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


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Purchase
Accounting





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





Intangible
Assets





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





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





Income
Taxes





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





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





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





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





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





Concentration
of Credit Risk





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





New
Accounting Pronouncements





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


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





In June
2006, the FASB issued Interpretation 48,“Accounting for Uncertainty in
Income Taxes” (FIN 48), an interpretation of FASB Statement
No. 109,“Accounting for
Income Taxes.”  FIN 48 clarifies the accounting and
reporting for income taxes where interpretation of the law is uncertain.
FIN 48 prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of income tax
uncertainties with respect to positions taken or expected to be taken in income
tax returns. FIN 48 is effective for fiscal years beginning after
December 15, 2006. We file tax returns in the United States and various
state jurisdictions.  Our 2003-2006 U.S. federal and state income tax
returns remain open to examination by the Internal Revenue Service. We are
continuing our practice of recognizing interest and/or penalties related to
income tax matters as general and administrative expenses. We may have a nexus
in more states than we are currently filing tax returns.  Thus, upon
examination, we could be required to file additional tax returns.  Due
to the losses incurred, it is unlikely that any additional filings would result
in any additional income tax.  Management adopted this Statement on
January 1, 2007 and the initial adoption of FIN 48 did not have a
material impact on our financial position, results of operations, or cash
flows.





In
September 2006, the FASB issued Statement No. 157,“Fair Value Measurements”
(SFAS No. 157). SFAS No. 157 addresses how companies should
measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. Management adopted this Statement on January 1, 2007 and the
initial adoption SFAS 157 did not have a material impact on our financial
position, results of operations, or cash flows.




In
September 2006, the FASB issued Statement No. 158,“Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans” (SFAS No. 158),
an amendment of FASB Statements No. 87, 88, 106 and 132(R).
SFAS No. 158 requires (a) recognition of the funded status
(measured as the difference between the fair value of the plan assets and the
benefit obligation) of a benefit plan as an asset or liability in the employer’s
statement of financial position, (b) measurement of the funded status as of
the employer’s fiscal year-end with limited exceptions, and (c) recognition
of changes in the funded status in the year in which the changes occur through
comprehensive income. The requirement to recognize the funded status of a
benefit plan and the disclosure requirements are effective as of the end of the
fiscal year ending after December 15, 2006. The requirement to measure the
plan assets and benefit obligations as of the date of the employer’s fiscal
year-end statement of financial position is effective for fiscal years ending
after December 15, 2008.  This Statement has no current
applicability to our financial statements.  Management adopted this
Statement on December 31, 2006 and the adoption of SFAS No. 158
did not have a material impact to our financial position, results of operations,
or cash flows.





In
September 2006, the Securities Exchange Commission issued Staff Accounting
Bulletin No. 108 (SAB No. 108). SAB No. 108
addresses how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial statements.
SAB No. 108 requires companies to quantify misstatements using a
balance sheet and income statement approach and to evaluate whether either
approach results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. When the effect of initial adoption is
material, companies will record the effect as a cumulative effect adjustment to
beginning of year retained earnings and disclose the nature and amount of each
individual error being corrected in the cumulative adjustment.
SAB No. 108 was effective beginning January 1, 2007 and the
initial adoption of SAB No. 108 did not have a material impact on the
Company’s financial position, results of operations, or cash flows.





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





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


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





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





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





Stock-Based
Compensation





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





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





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





The fair
value of each option grant is estimated for disclosure purposes on the date of
grant using the Black-Scholes option-pricing model with the expected lives equal
to the vesting period. The weighted average contractual life of the outstanding
options at December 31, 2007 was 3.2 years.





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




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




ITEM 3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK





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





ITEM 4T.
            CONTROLS
      AND PROCEDURES







a)  Evaluation
of Disclosure Controls and Procedures




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




b)  Changes
in Internal Control Over Financial Reporting




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





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PART II





OTHER
INFORMATION






ITEM 1.
            LEGAL
      PROCEEDINGS





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





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





ITEM 6.
            EXHIBITS





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







Exhibit
              Number
            Description31
            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


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SIGNATURES




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





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