UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


(Mark One)


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

For the quarterly period ended September 30, 2010


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

For the transition period from to

COMMISSION FILE NO. 0-27160

CALL NOW, INC.

(Exact name of Registrant as specified in its charter)


Nevada (State or other jurisdiction of incorporation or organization)		65-0337175 (IRS Employer Identification No.)

1 Retama Parkway, Selma, TX (Address of principal executive offices)		78154 (Zip Code)

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

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

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

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


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

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

Registrant had 2,013,877 shares of common stock issued and outstanding as of November 15, 2010.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFOMRATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 1A. RISK FACTORS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. RESERVED
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURES
EX-31.1
EX-32.1

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CALL NOW, INC. AND SUBSIDIARY

Consolidated Balance Sheets


	September 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS

Current Assets:
Cash and cash equivalents	$	15,862		$	17,452
Accounts receivable, net		789,069			789,069
Marketable securities — related party		2,500,853			9,068,353
Marketable securities — other		3,772,399			140,808
Other current assets		291,322			139,696

Total current assets		7,369,505			10,155,378

Furniture, Equipment and Improvements (less accumulated depreciation of $8,239 and $5,296 respectively)		11,382			14,325

Other Assets:
Marketable securities — Retama Development Corp.		133,000			145,000
Investments		1,643,624			4,365,136
Notes and interest receivable — Retama Development Corp.		401,322			5,222,893
Deferred tax asset		1,758,100			936,601

Total other assets		3,936,046			10,669,630


Total Assets	$	11,316,933		$	20,839,333


LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable — Retama Development Corporation	$	150,555		$	—
Accrued expenses		524,342			654,301
Margin loan payable — related party		5,668,532			13,259,281
Long-term note payable and accrued interest — related party, current portion		401,556			—
Deferred taxes payable		—			1,463,379

Total current liabilities		6,744,985			15,376,961


Long-term Note Payable and Accrued Interest — Related Party, net of current portion		14,761,187			—

Equity:
Call Now Stockholders’ Equity (Deficit):
Preferred stock, $.001 par value; authorized 266,667 shares, none outstanding		—			—
Common stock, $.001 par value; authorized 16,666,667 shares, 3,327,075 issued and 2,013,877 and 2,902,367 outstanding		3,326			3,326
Additional paid-in-capital		7,091,121			7,091,121
Treasury stock, at cost, 1,313,198 and 424,708 shares		(14,372,488	)		(3,094,455	)
Accumulated other comprehensive income (loss)		(75,480	)		2,840,676
Retained earnings (deficit)		(2,996,155	)		(1,502,733	)

Total Call Now stockholders’ equity (deficit)		(10,349,676	)		5,337,935
Non-controlling interest		160,437			124,437

Total equity (deficit)		(10,189,239	)		5,462,372


Total Liabilities and Equity	$	11,316,933		$	20,839,333

See notes to consolidated financial statements.

CALL NOW, INC. AND SUBSIDIARY

Consolidated Statements of Operations


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Reimbursement of payroll and payroll related expenses	$	1,079,045		$	1,239,804		$	3,089,520		$	3,584,050
Management fees		60,000			60,000			180,000			180,000

Total Revenues		1,139,045			1,299,804			3,269,520			3,764,050

Expenses
Payroll and payroll related expenses		1,079,045			1,239,804			3,089,520			3,584,050
Corporate general and administrative operations		194,644			185,339			671,107			553,450

Total expenses		1,273,689			1,425,143			3,760,627			4,137,500


Net Operating (Loss)		(134,644	)		(125,339	)		(491,107	)		(373,450	)

Other Income (Expenses)
Interest income — related party		1,322			97,139			141,229			283,429
Interest income — other		118,053			5,950			242,392			82,862
Gain on sales of marketable securities — related party		5,548			688,197			2,077,511			688,197
Gain (loss) on sales of marketable securities — other		—			—			(10,001	)		41,570
Gain on sales of investment — related party		—			5,786			—			107,353
Gain on sales of investment — other		—			—			12,179			5,786
Impairment of investments		(2,960,671	)		—			(2,960,671	)		—
Interest expense — related party		(464,171	)		(253,072	)		(1,251,569	)		(810,682	)

Total other income (expense), net		(3,299,919	)		544,000			(1,748,930	)		398,515


Income (loss) before non-controlling interest and income taxes		(3,434,563	)		418,661			(2,240,037	)		25,065

Income tax expense (benefit)		(1,187,488	)		259,516			(782,615	)		125,155


Net income (loss) including non-controlling interest		(2,247,075	)		159,145			(1,457,422	)		(100,090	)

Less: Net income attributable to non-controlling interest		12,000			12,000			36,000			36,000


Net Income (Loss) Attributable to Call Now	$	(2,259,075	)	$	147,145		$	(1,493,422	)	$	(136,090	)



Per Share Data

Basic and diluted income (loss) per share attributed to Call Now common shareholders	$	(1.12	)	$	.05		$	(.65	)	$	(.05	)


Weighted average common shares outstanding:
Basic		2,013,877			2,902,367			2,283,589			2,902,367
Dilutive		2,013,877			2,902,367			2,283,589			2,902,367

See notes to consolidated financial statements.

CALL NOW, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows


	Nine Months Ended September 30,
	2010			2009
	(Unaudited)			(Unaudited)
Operating Activities
Net income (loss) including non-controlling interest	$	(1,457,422	)	$	(100,090	)
Adjustments to reconcile net income (loss) to net cash (used) by operating activities:
Net realized (gains) on sales of marketable securities — related party		(2,077,511	)		(688,197	)
Net realized (gains) loss on sales of marketable securities — other		10,001			(41,570	)
Net realized (gains) on sales of long-term investments to related party		—			(107,353	)
Net realized (gains) on sales of long-term investments — other		(12,179	)		(5,786	)
Impairment of long-term investments		2,896,061			—
Deferred income taxes		(782,615	)		155
Depreciation		2,943			2,943
Changes in operating assets and liabilities
Accounts receivable		—			(180,000	)
Other current assets		(151,626	)		46,754
Accounts payable and accrued expenses		20,596			118,627

Net Cash (Used) by Operating Activities		(1,551,752	)		(954,517	)

Investing Activities
Advances on notes and loans receivable		(400,000	)		(283,429	)
Proceeds from sale of note receivable — Retama Development Corp.		5,221,571			—
Proceeds from sales of available-for-sale marketable securities — related party		4,480,000			1,170,597
Proceeds from sales of available-for-sale marketable securities — other		67,000			1,106,364
Proceeds from sales of investments		88,880			—
Proceeds from other long-term investments — related party		—			400,000
Proceeds from other long-term investments — other		—			158,850
Purchase of marketable securities		(3,950,000	)		—
Purchase of other long-term investments		(251,250	)		(609,482	)

Net Cash Provided by Investing Activities		5,256,201			1,942,900

Financing Activities
Proceeds from margin loan — related party		6,423,947			1,260,787
Payments on margin loan — related party		(14,014,696	)		(2,297,879	)
Proceeds from long-term debt — related party		15,162,743			—
Purchase of treasury stock — related party		(11,404,600	)		—
Sales of treasury stock — related party		126,567			—

Net Cash (Used) by Financing Activities		(3,706,039	)		(1,037,092	)


Net Change in Cash and Cash Equivalents		(1,590	)		(48,709	)

Cash and cash equivalents at beginning of year		17,452			88,837


Cash and Cash Equivalents at End of Quarter	$	15,862		$	40,128



Supplemental Disclosures
Interest paid in cash	$	1,251,569		$	810,682
Income tax paid in cash		—			—

See notes to consolidated financial statements.

CALL NOW, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 — BASIS OF PRESENTATION

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

The primary operation of the Company is the management of Retama Park Racetrack (“Retama Park”) in Selma, Texas, through an 80% owned subsidiary, Retama Entertainment Group, Inc. (“REG”). Retama Park is owned by the Retama Development Corporation (the “RDC”). The RDC has an agreement with REG to operate and manage Retama Park until November 1, 2020. The RDC, as owner of the facility, reimburses REG for the majority of payroll and payroll related expenses, plus a monthly management fee.

The accompanying unaudited consolidated financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company’s financial position, results of operations and cash flows for such periods. The accompanying interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

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

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Call Now, Inc. and its 80% owned subsidiary, Retama Entertainment Group, Inc. (collectively “the Company” or “Call Now”). All significant inter-company transactions and balances have been eliminated in consolidation.

Noncontrolling Interests: The Company accounts for noncontrolling interests (NCIs) in partially owned consolidated subsidiaries as a separate component of equity. Increases and decreases in the parent’s ownership interest that leave control intact are treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.

Marketable Securities: The Company classifies its marketable security investment portfolio as either held to maturity, available-for-sale, or trading. At September 30, 2010, all of the Company’s marketable securities were available-for-sale. Securities classified as available-for-sale are carried at fair value with unrealized gains and losses included in stockholders’ equity as a component of other comprehensive income. Classification as current or non-current is based primarily on whether there is an active public market for such security.

Other-than-temporary impairments are recognized through earnings if the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security before recovery of our amortized cost basis. Even if the Company does not expect to sell a security, the Company must also evaluate expected cash flows to be received and determine if a credit loss has occurred. In the event of a credit loss, only the amount associated with the credit loss is recognized through earnings. The amount of loss relating to other factors is recorded in accumulated other comprehensive income.

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

Certain prior period amounts have been reclassified for comparative purposes to conform to the current period’s presentation.

NOTE 2 — STOCK BASED COMPENSATION

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

NOTE 3 — MARGIN LOAN PAYABLE — RELATED PARTY

The Company has a margin loan payable to Penson Financial Services, Inc. (“PFSI”), a wholly owned subsidiary of Penson Worldwide, Inc. (“PWI”), which accrues interest at 7.45% as of September 30, 2010. The balance of the margin loan was $5,668,532 at September 30, 2010 and $13,259,281 at December 31, 2009. The margin loan is collateralized by the Company’s marketable securities. The Company paid interest on the margin loan for the three months ended September 30, 2010 and 2009 of $106,831 and $253,072, respectively, and for the nine months ended September 30, 2010 and 2009 of $410,826 and $810,682, respectively.

In September 2009 PFSI determined that, for margin account purposes due to, among other reasons, the lack of trading activity in the Retama Development Corporation Series B bonds, it should require a 100% margin requirement, effectively making these bonds non-marginable. As a result, the Company received a margin call letter on September 28, 2009 from PFSI notifying the Company that it needed to deposit $5,300,000 in additional cash or margin collateral into its margin loan account by September 30, 2009. The Company did not make the requested deposit by September 30, 2009, nor did the Company make any additional deposits into the margin account for the remainder of the fiscal year ended December 31, 2009. During the second fiscal quarter ended June 30, 2010, the Company entered into a Promissory Note in favor of PWI in the principal amount of $13,922,000, the proceeds of which were used to satisfy the Company’s margin requirement. On September 16, 2010 the Company borrowed an additional $400,000 against this Promissory Note, the proceeds of which were used for general operating purposes of Retama Development Corporation. This transaction is further detailed below in Note 14 — Related Party Transactions.

NOTE 4 — INCOME TAXES

During 2004, the Internal Revenue Service (the “IRS”) notified the RDC that it was conducting an examination of the tax-exempt status of the municipal bonds issued in connection with that company’s reorganization in 1997. In February 2005, the IRS issued a proposed adverse determination with respect to the RDC’s 1997 Series A and Series B bonds, stating that the interest on the bonds is not excludable from the gross income of their holders. The RDC filed a protest of such determination and requested that the matter be referred to the Office of Appeals of the IRS. In August 2005, the IRS completed an examination of the Company’s tax returns for the years 2000 through 2003. As a result of the examination, the IRS submitted a request for change to include in taxable income the interest earned by the Company on the RDC Series A bonds in the total amount of $588,000.

During the fourth fiscal quarter of 2009, the Company and the law firm that served as legal counsel for the original issuance of the 1997 RDC bonds entered into a Closing Agreement on Final Determination in settlement of issues raised by the IRS in the examination of the 1997 RDC bonds. The terms of the settlement consist of two components: 1.) there shall be a payment made to the IRS in the amount of $773,750. $375,000 of this amount will be paid by the law firm that provided the legal opinion for the 1997 RDC bond issue and will be funded at the time of final execution of the documents by the IRS. The Company will pay the remaining $398,750 over the next three years with $133,750 due on or before July 1, 2010, $135,000 due on or before July 1, 2011 and $130,000 due on or before July 1, 2012; and 2.) 35% of the Series B bonds, or $30,425,000 face amount of the $86,925,000 outstanding, shall be converted to taxable bonds. In favor of the cash contribution to be made by the Company, the majority of the other holders of the Series B bonds agreed to a higher percentage of their bonds to be converted to taxable bonds, resulting in the Company agreeing to convert only $4,897,500, or 11.14%, of the $43,962,500 Series B bonds held by the Company to taxable bonds. The Company has accrued the entire $398,750 as a liability as of December 31, 2009. The Company received final execution by the IRS of the closing documents in March 2010 and made the first payment of $133,750 in June 2010, per the agreement.

NOTE 5 — EARNINGS PER SHARE ATTRIBUTABLE TO CALL NOW, INC.

Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding during each year. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive

securities outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

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


	Income			Shares		Per Share
	(Numerator)			(Denominator)		Amount
Three Months Ended September 30, 2010
Basic EPS:
Net (loss) attributed to Call Now, Inc.	$	(2,259,075	)		2,013,877	$	(1.12	)
Effect of dilutive options		—			—		—

Dilutive EPS Attributed to Call Now, Inc.	$	(2,259,075	)		2,013,877	$	(1.12	)

Three Months Ended September 30, 2009
Basic EPS:
Net income attributed to Call Now, Inc.	$	147,145			2,902,367	$	0.05
Effect of dilutive options		—			—		—

Dilutive EPS Attributed to Call Now, Inc.	$	147,145			2,902,367	$	0.05

Nine Months Ended September 30, 2010
Basic EPS:
Net income attributed to Call Now, Inc.	$	(1,493,422	)		2,283,589	$	(0.65	)
Effect of dilutive options		—			—		—

Dilutive EPS Attributed to Call Now, Inc.	$	(1,493,422	)		2,283,589	$	(0.65	)

Nine Months Ended September 30, 2009
Basic EPS:
Net income attributed to Call Now, Inc.	$	(136,090	)		2,902,367	$	(0.05	)
Effect of dilutive options		—			—		—

Dilutive EPS Attributed to Call Now, Inc.	$	(136,090	)		2,902,367	$	(0.05	)

NOTE 6 — MARKETABLE SECURITIES

The carrying amounts of marketable securities as shown in the accompanying balance sheets and their approximate market values are as follows at September 30, 2010 and December 31, 2009:


			Gross		Gross			Carrying/
			Unrealized		Unrealized			Market
September 30, 2010	Cost		Gains		(Losses)			Value
Current Assets, available-for-sale:
PWI common stock, see Note 7	$	2,416,448	$	84,405	$	—		$	2,500,853
Municipal bonds		4,076,575		—		(304,176	)		3,772,399


	$	6,493,023	$	84,405	$	(304,176	)	$	6,273,252


Non-current Assets, available-for-sale:
RDC Series A bonds		27,594		105,406		—			133,000


Total available-for-sale marketable securities	$	6,520,617	$	189,811	$	(304,176	)	$	6,406,252


			Gross		Gross			Carrying/
			Unrealized		Unrealized			Market
December 31, 2009	Cost		Gains		(Losses)			Value
Current Assets, available-for-sale:
PWI common stock, see Note 7	$	4,828,448	$	4,239,905	$	—		$	9,068,353
Municipal bonds		191,575		—		(50,767	)		140,808


	$	5,020,023	$	4,239,905	$	(50,767	)	$	9,209,161


Non-current Assets, available-for-sale:
RDC Series A bonds		30,083		114,917		—			145,000


Total available-for-sale marketable securities	$	5,050,106	$	4,354,822	$	(50,767	)	$	9,354,161

Unrealized gains and losses on marketable securities available-for-sale at September 30, 2010 and December 31, 2009 are shown net of income taxes as a component of stockholders’ equity.

The Company has several marketable securities in an unrealized loss position at September 30, 2010. The unrealized loss on those securities at September 30, 2010 is $304,176 and the market value is $3,772,399. The Company does not consider these investments to be other-than-temporarily impaired.

NOTE 7 — MARKETABLE SECURITIES — RELATED PARTY

In March 2010, the Company completed a transaction with the Company’s Chairman and majority shareholder, Christopher J. Hall, where the Company, in part, transferred to Mr. Hall 500,000 shares of Penson Worldwide, Inc. (“PWI”) (Nasdaq:PNSN) common stock valued at $4,480,000, or $8.96 per share. The Company continues to own 500,922 shares of PWI common stock a market value of $2,500,853 at September 30, 2010, based on a closing stock price of $4.99 per share. At December 31, 2009 the Company held 1,000,922 shares of PWI common stock with a market value of $9,068,353 based on a year-end closing stock price of $9.06 per share. The Company also has a margin loan payable to Penson Financial Services, Inc., a wholly owned subsidiary of Penson Worldwide, Inc., with a balance of $5,668,532 at September 30, 2010 and $13,259,281 at December 31, 2009. The President of Call Now, Inc. is a Director of Penson Worldwide, Inc.

In exchange for the shares of PWI transferred to Mr. Hall the Company received, in part, $3,200,000 face amount of Leon County FL Educational Facilities Authority (Southgate Dormitory) Series B, 7.625% due 9/1/28 bonds, valued at $2,080,000 at the time of the exchange, or $.65/$1.00, and $2,200,000 face amount of Cambridge Student Housing Financing Revenue Series C, 9.70% due 11/1/39 bonds, valued at $1,870,000 at the time of the exchange, or $.85/$1.00. Please refer to Note 14 — Related Party Transactions in this form 10-Q for complete details of this transaction.

The Company owns $133,000 face amount of the Retama Development Corporation Special Facilities Revenue bonds, Series A (“Series A Bonds”) at September 30, 2010 and $145,000 at December 31, 2009, which are classified as long-term. The Series A Bonds are secured by a senior lien on the Retama Park racetrack facility. The face amount of the total Series A Bonds outstanding is $6,045,000 at September 30, 2010 and $6,250,000 at December 31, 2009.

The Company owns $43,962,500 face amount of the Retama Development Corporation Special Facilities Revenue Series B (“Series B Bonds”) at September 30, 2010 and December 31, 2009. The Company’s entire position of Series B bonds have been pledged as collateral for the Promissory Note described in Note 3 — Margin Loan Payable — Related Party. The Series B Bonds are secured by the excess cash flow of the Retama Park racetrack facility that is subordinate to the Series A Bonds and the Funding Agreement (discussed in Note 9). The face amount of the Series B Bonds outstanding is $86,925,000 at September 30, 2010 and December 31, 2009. The Company’s carrying value (investment) in the Series B bonds was written down to $0 in 2006.

NOTE 8 — INVESTMENTS

During the third quarter, the Company took an impairment charge on its investment in The Estates at Canyon Ridge of $1.6 million and on its investment in The Cambridge at Auburn of $1.3 million. For more information and detail, see the discussion in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and The Estates at Canyon Ridge and The Cambridge at Auburn sections under Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

NOTE 9 — NOTES AND INTEREST RECEIVABLE — RETAMA DEVELOPMENT CORPORATION

As part of the RDC’s bankruptcy and debt refinancing in 1996 and 1997, the Company entered into an agreement with the RDC that required the Company to fund any operating losses of the RDC for a period of up to 2 years (the “Funding Agreement”). As more fully detailed in Note 14 — Related Party Transactions in this Form 10-Q, in March 2010 the Company transferred to Christopher J. Hall, the Company’s Chairman and majority shareholder, the full principal and interest value of the Funding Agreement, valued at $3,627,569 in principal and $1,727,859 in accrued interest, to Mr. Hall with cash and additional securities in exchange a portion of two unrelated municipal bond issues and shares of the Company’s stock. Following this transaction, the Company no longer has an interest in the Funding Agreement.

On September 16, 2010 the Company loaned the RDC $400,000 for general operating purposes. The loan carries an interest rate of 8.50% and matures January 1, 2013. However, the Company is currently not recognizing the interest as income due to the financial condition of the RDC (see Note 10 below). The loan will be reviewed for impairment on a quarterly basis.

NOTE 10 — INTERST INCOME RECOGNITION — RETAMA DEVELOPMENT CORPORATION

During each accounting period, the Company evaluates whether to recognize accrued interest on the RDC note as income based on several criteria including, but not limited to, the value of the underlying collateral, the financial performance of Retama Park and the payment history of the RDC note and other similarly positioned debt securities. In 2009, the Company recognized the accrued interest on the RDC note as income through September 30, 2009; however, effective October 1, 2009, the Company elected to suspend recognition of interest income due to the continued decline of the financial performance of Retama Park and the lack of timely funding of the Series A Bonds September 1, 2009 interest payment. Following the transaction on February 25, 2010 and further detailed in Note 14 — Related Party Transaction, the Company reversed its decision and recognized the accrued interest on the RDC note from October 1, 2009 through February 25, 2010, when the note was transferred to Christopher J. Hall. As noted above, interest is not being recognized on the new $400,000 advance to the RDC.

NOTE 11 — CONTINGENCY

Investment Company Act

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

NOTE 12 — COMPREHENSIVE INCOME ATTRIBUTED TO CALL NOW, INC.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net income (loss) attributed to Call Now, as reported	$	(2,259,075	)	$	147,145		$	(1,493,422	)	$	(136,090	)

Other comprehensive income (loss):
Change in fair market value of available-for-sale securities		590,441			382,949			(4,418,419	)		1,797,829
Income tax effect		(200,750	)		(130,203	)		1,502,262			(611,261	)


Total comprehensive income (loss) attributed to Call Now	$	(1,869,384	)	$	399,891		$	(4,409,579	)	$	1,050,478

NOTE 13 — FAIR VALUE MEASUREMENTS

The Company follows the provisions of ASC topic 820-10 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. As it relates to the Company, this applies to impaired other investments. Impairments are based on expected future cash flows and other considerations. The Company has designated these assets as level 3.

ASC topic 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

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

Level 1: Quoted prices are available in active markets for identical asset or liabilities;

Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or

Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

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


	September 30, 2010
Recurring Fair Value Measures	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities — related party	$	2,500,853	$	—	$	—	$	2,500,853
Marketable securities — other		3,772,399		—		—		3,772,399
Marketable securities — Retama Dev. Corp. — Series A		—		—		133,000		133,000

Liabilities:
None	$	—	$	—	$	—	$	—


	December 31, 2009
Recurring Fair Value Measures	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities — related party	$	9,068,353	$	—	$	—	$	9,068,353
Marketable securities — other		140,808		—		—		140,808
Marketable securities — Retama Dev. Corp. — Series A		—		—		145,000		145,000

Liabilities:
None	$	—	$	—	$	—	$	—

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

The following table sets forth a reconciliation of changes in the fair market value of financial assets classified as level 3 in the fair value hierarchy.


	Marketable Securities -
	Retama Developmement Corp.			Total
Balances as of January 1, 2010	$	145,000		$	145,000
Total losses (realized or unrealized):
Included in earnings		—			—
Included in other comprehensive income		—			—
Purchases, issuances and settlements		(12,000	)		(12,000	)
Transfers in and out of level 3		—			—

Balance as of September 30, 2010	$	133,000		$	133,000

Change in unrealized gains or losses in earnings (or changes in net assets) relating to asset still held as of September 30, 2010	$	—		$	—

NOTE 14 — RELATED PARTY TRANSACTIONS

On or about January 19, 2009, the Company agreed to sell 23.24% of its 95% limited partnership interest in Cambridge at Auburn, LP to Thomas R. Johnson for $400,000, resulting in a gain of $107,162. Thomas R. Johnson is the Company’s President, CEO and a Director. The transaction closed on January 27, 2009. Cambridge at Auburn, LP owns a student residential rental housing property in Auburn, Alabama. The transaction was approved by a majority of the Company’s Board of Directors with no interest in the transaction.

On February 25, 2010, the Company entered into a Promissory Note in favor of PWI, in the principal amount of $13,922,000, accumulating interest at a rate of 10% per year with a maturity of February 25, 2012. In addition, the Company has granted PWI a carried interest equal to 8% of the proceeds from its holdings of Retama Development Corp. B Bonds. If the Company irrevocably repays the Promissory Note prior to the first anniversary of the issuance and there is no default or event of default prior to such repayment, the carried interest will be reduced to zero. If the Company repays the Promissory Note prior to the second anniversary of the issuance and there is no default or event of default prior to such repayment, the carried interest will be reduced to 4%. The carried interest entitles the lender to a percentage of all income, principal and other proceeds (in whatever form) from or in respect of the Retama Development Corp. B Bonds of any kind whether on account of interest, redemption of principal, proceeds of sale, pledge or other transfer or disposition of the Bonds, insurance proceeds, tax refunds, or otherwise made or payable in respect of any of the Bonds. The carried interest survives the repayment of the Promissory Note. The Promissory Note is secured by a lien on substantially all of the Company’s assets.

Simultaneous with the execution of the Promissory Note with PWI, the Company entered into a Purchase and Sale Agreement with Christopher Hall, the Company’s majority stockholder, Chairman and a director. Under such agreement, which was approved by the Board of Directors in accordance with the By-laws, the Company purchased from Mr. Hall the following:

$11,404,600 for 898,463 shares of Call Now, Inc. common stock to be held as Treasury stock;

$2,080,000 for Leon County FL Educational Facilities Authority (Southgate) Series B Bond, $3,200,000 principal amount, 7.625% due September 1, 2028; and

$1,870,000 for Cambridge Student Housing Financing Revenue Series C Bond, $2,200,000 principal amount, 9.70% due November 1, 2039.

In consideration of the foregoing, the Company transferred and paid to Mr. Hall the following:

$5,355,428 in valuation for the Retama Development Corporation Funding Agreement, representing $3,627,569 principal and $1,727,859 interest;

$4,480,000 in valuation for 500,000 shares of Penson Worldwide, Inc. common stock; and $5,511,800 in cash.

On June 15, 2010 Mr. Hall contributed $126,567 to the Company to be used for operating capital. This contribution was recognized as a sale of Treasury Stock by the Company to Mr. Hall of 9,973 shares of the Company’s stock at $12.69 per share.

On September 16, 2010 the Company expanded the PWI Promissory Note by $400,000 to a total of $14,322,000. The interest rate and maturity of the note remain unchanged except that $400,000 plus interest is now due on December 30, 2010, with the balance maintaining the original maturity of February 25, 2012. Additionally, the terms of PWI carried interest in the Retama Development Corporation Series B bonds have been changed as follows. If the Company irrevocably repays the Promissory Note prior to the second anniversary of the issuance but after the first anniversary, and there is no default or event of default prior to such repayment, the carried interest will be reduced to 15%. If the Company repays the Promissory Note prior to the first anniversary of the issuance and there is no default or event of default prior to such repayment, the carried interest will be reduced to 10%. The carried interest percentages were adjusted from 8%, 4% and 0%, respectively, from the original terms.

Refer also to Note 3 — Margin Loan Payable, Note 7 — Marketable Securities — Related Party and Note 9 — Notes and Interest Receivable — Related Party above for additional details pertaining to additional related party relationships.

NOTE 15 — SUBSEQUENT EVENTS

The Company sold its investment in the Estates at Canyon Ridge on November 2, 2010.


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

Forward Looking Statements

The following discussion and analysis of financial condition and results of operations may contain forward-looking statements that involve a number of risks and uncertainties. Actual results in future periods may differ materially from those expressed or implied in such forward-looking statements. This discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and the notes thereto included in this report, and our Annual Report on Form 10-K for the year ended December 31, 2009. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

Overview

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

Retama Park Racetrack

The Company is primarily engaged in the operation and management of Retama Park, a horse racetrack located in Selma, TX just outside of San Antonio, through our 80% owned subsidiary, Retama Entertainment Group, Inc. (“REG”). REG is responsible for all of the day-to-day operational activities at Retama Park including: live racing; daily simulcasting of other racetracks from around the country; the operation of all food and beverage outlets that include a Turf and Field Club, fine dining, a sports bar and concession stands; all regulatory responsibilities with the Texas Racing Commission; and the pursuit of additional legislation from the Texas Legislature that would be favorable to Retama Park, such as other forms of gaming. Effective January 1, 2010, the management agreement was extended to November 1, 2020.

All personnel at the racetrack are employees of REG, as a result, it is only the payroll costs of the personnel that are reimbursed by the RDC to the Company. REG also receives a $20,000 per month management fee from the RDC. The financial performance of Retama Park is not included in the Company’s financial statements. However, the management fee and the reimbursement of payroll and payroll related expenses are the Company’s only source of revenue at this time, and the loss of this management contract or the inability to collect the management fee and other obligations of the RDC would negatively impact the Company’s revenue and financial condition.

The facility and real estate are owned by the Retama Development Corporation (the “RDC”), a municipal subdivision of the city of Selma, TX, and it is encumbered by $6,045,000 Senior Series A Bonds and $86,925,000 Subordinate Series B Bonds. In addition to the management relationship, the Company also maintains a substantial investment in the facility through holdings of a portion of the Retama Development Corporation Special Facilities Revenue Refunding Bonds and additional loans through the Funding Agreement. (See Notes to Consolidated Financial Statements, Note 7 — Marketable Securities — Related Party and Note 9 — Notes and Interest Receivable — Retama Development Corporation for additional details.)

In the event of a default on the Series A Bonds, the holders of the bonds could seek to foreclose on the Retama Park racetrack facilities and real estate. We have provided loans to the RDC to support the operations of the racetrack and to meet its interest and sinking fund obligations on its Series A Bonds. We believe it has been in our best interest to help the RDC avoid default of the Series A Bonds as the best strategy to achieve returns on the Series B Bonds in the event of additional forms of gaming are approved for Texas racetracks, of which there can be no assurance. Such financial support is entirely at the discretion of the Company and is documented by promissory notes secured by a mortgage on the Retama Park racetrack real estate and facilities which is subordinated only to the RDC Series A Bonds and converted Series B Bonds, if any.

Our strategy is to operate the Retama Park racetrack in order to maintain its status as a Class I racetrack, attract horsemen to its racing meets, provide a satisfactory gaming and entertainment experience for its customers and provide a safe and attractive facility. We are also seeking the legalization of additional forms of gaming at Texas racetracks. We believe that the offering of additional forms of gaming will be required to enable us to achieve a satisfactory return on our holdings of RDC Series B Bonds.

The status of the racing industry in Texas is similar to many other states around the country as Texas racing facilities continue to experience greater competition from those facilities that have been granted the right to conduct additional forms of gaming such as video lottery terminals, slot machines and poker. All states that share a border with Texas — Louisiana, Arkansas,

Oklahoma and New Mexico — currently allow additional forms of gaming at their racetracks. The benefits of additional gaming for racing facilities located in these states are two-fold. First, the operation of this additional gaming has provided these facilities with a new, and typically highly profitable, business line. Second, additional gaming has also provided supplemental funds for the horse purses (the prize money paid) within the state. These higher purses have attracted higher quality horses, which tend to be more attractive to the betting public.

We have been actively pursuing the legalization of additional gaming at Texas racetracks a coalition of Texas racetracks that includes the other two Class I tracks, Lone Star Park and Sam Houston Race Park. If the legalization of additional forms of gaming is approved at Texas racetracks, it is anticipated that the profit from this operation would provide sufficient cash flow to enable both the Series A and Series B bonds to be repaid. However, there can be no assurance that the Texas legislature and governor will approve such additional gaming and, if approved, whether the structure and taxation on such additional gaming would benefit the Company. There is substantial opposition to expanding gaming operations in Texas and no such expansion was approved during the 2009 Texas legislative session. Retama Park is experiencing strong competition from other gaming alternatives from the on-line gaming and surrounding states with other forms gaming, as well as from other entertainment venues in its market area. We expect these factors to continue to adversely affect the liquidity of REG in the absence of legislation allowing additional gaming.

The legalization of gaming in Texas remains uncertain in both the likelihood and timeframe. The alternative available to the Company as a majority Series B bondholder would be to develop a plan with the Series A bondholders and the RDC that would maximize the value of the underlying collateral real estate through a liquidation or a joint venture redevelopment with a third party.

In accordance with ASC topic 320, the Company fully impaired the Series B Bonds in 2006 based on the limited available market, the uncertainty of principal or interest payments to be made in the foreseeable future and the subordinated lien on the collateral.

Penson Worldwide, Inc.

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

On May 16, 2006, PWI completed the Initial Public Offering (“IPO”) of their common stock (Nasdaq: PNSN). In a simultaneous transaction, PWI affected a 1-for-2.4 share reverse split and the split-off of certain non-core business operations known as SAMCO. As part of the IPO, the Company elected to participate in the exchange of PWI shares for SAMCO shares and sell a total of 11.5% of its investment, or 157,337 shares, of the PWI shares in the IPO resulting in a pre-tax gain on the sale of $1,728,504. Following the completion of the PWI IPO, the Company’s resulting position is as follows: 79,900 shares of SAMCO which represents an approximate 7.29% interest in the company; and 1,130,922 shares of the publicly traded PWI common stock. In August 2008, the Company sold 30,000 shares of PWI common stock, leaving a balance of 1,100,922. In August 2009, the Company sold 100,000 shares of PWI common stock, leaving a balance of 1,000,922. In March 2010, the Company transferred to Christopher J. Hall, the Company’s Chairman and majority shareholder, 500,000 shares of PWI common stock in exchange for certain municipal bonds and Company common stock. (See Notes to Consolidated Financial Statements, Note 14 — Related Party Transactions for additional details.) Following this transaction, the Company owns 500,922 shares of PWI common stock, which represents an appoximate 1.94% ownership interest as of September 30, 2010. As of September 30, 2010 the recognized other comprehensive income from the increase in value of the PWI common stock was approximately $84,000.

The Company has a margin loan payable to Penson Financial Services, Inc. (“PFSI”), a wholly owned subsidiary of Penson Worldwide, Inc. (“PWI”). In September 2009 PFSI determined that, for margin account purposes due to, among other reasons, the lack of trading activity in the Retama Development Corporation Series B bonds, it should require a 100% margin requirement, effectively making these bonds non-marginable. As a result, the Company received a margin call letter on September 28, 2009 from PFSI notifying the Company that it needed to deposit $5,300,000 in additional cash or margin collateral into its margin loan account by September 30, 2009. The Company did not make the requested deposit by September 30, 2009, nor did the Company made any additional deposits into the margin account for the remainder of the fiscal year ended December 31, 2009. In February 2010 the Company entered into a Promissory Note in favor of PWI (the “PWI Note”) in the principal amount of $13,922,000, the proceeds of which were used to satisfy the Company’s margin requirement. On September 16, 2010 the Company borrowed an additional $400,000 against the PWI Note, bringing the balance to $14,322,000.

The PWI Note accumulates interest at a rate of 10% per year with a maturity of February 25, 2012. In addition, the Company has granted PWI a carried interest equal to 20% of the proceeds from its holdings of Retama Development Corp. B Bonds. If the Company irrevocably repays the Promissory Note prior to the second anniversary of the issuance but after the first anniversary, and there is no default or event of default prior to such repayment, the carried interest will be reduced to 15%. If the Company repays the Promissory Note prior to the first anniversary of the issuance and there is no default or event of default prior to such repayment, the carried interest will be reduced to 10%. The carried interest percentages were adjusted from 8%, 4% and 0%, respectively, as an additional term of the $400,000 loan by PWI on Septmeber 16, 2010. The carried interest entitles the lender to a percentage of all income, principal and other proceeds (in whatever form) from or in respect of the Retama Development Corp. B Bonds of any kind whether on account of interest, redemption of principal, proceeds of sale, pledge or other transfer or disposition of the Bonds, insurance proceeds, tax refunds, or otherwise made or payable in respect of any of the Bonds. The carried interest survives the repayment of the Promissory Note. The Promissory Note is secured by a lien on substantially all of the Company’s assets.

The Estates at Canyon Ridge

On March 31, 2005 the Company entered into a partnership agreement to provide approximately forty-six percent (46%) of the equity for the development of a 270-unit luxury apartment complex to be known as The Estates at Canyon Ridge, located in the master planned community of Stone Oak in San Antonio, Texas. The name of the partnership was originally Stone Oak Development, Ltd. and was changed to The Estates at Canyon Ridge, Ltd. (“ECR Ltd.”) on April 26, 2005. ECR Ltd. closed on the purchase of the 19.739 acre development site on May 2, 2005. The general partner of ECR Ltd. is an unrelated real estate developer (“General Partner”). The Company owns the largest interest in Stone Oak Prime, L.P. (“Limited Partner”) at forty-eight percent (48%). Other partners of the Limited Partner include Thomas R. Johnson, President and CEO of the Company, Christopher J. Hall, Chairman and the majority shareholder of the Company, and Bryan P. Brown, President of REG. The General Partner is required to fund five percent (5%) of the equity and the Limited Partner is required to fund ninety-five percent (95%).

As a Limited Partner, the Company is entitled to receive a preferred return of its capital contribution plus a ten percent (10%) per annum cumulative return, compounded monthly. Following the repayment of the capital contributions and accrued interest, excess cash, at the discretion of the General Partner, and net refinancing or disposition proceeds shall be paid fifty percent (50%) to the General Partner and fifty percent (50%) to the Limited Partner. Through September 30, 2010 the Company’s investment totaled approximately $3.24 million and at December 31, 2009 the Company’s investment totaled approximately $3.12 million. Construction of project was completed in 2008 and the occupancy as of September 30, 2010 was approximately 99%. On October 8, 2010 the General Partner of ECR Ltd. entered into a Purchase and Sale Agreement with a third party real estate company for the acquisition of The Estates at Canyon Ridge for $30.7 million. Based on this sales price and the anticipated net sales proceeds, the Company has written down the original $3.24 million investment in the project by taking an impairment charge of $1.6 million, resulting in a current basis in this project of $1.64 million. The Company believes that the purchase price represents full valuation of the project at this time and provides necessary operating cash for the Company. Closing of the transaction is anticipated to occur in November 2010.

The Cambridge at Auburn

On December 11, 2006 the Company entered into a partnership agreement to provide ninety-five percent (95%) of the equity for the acquisition and rehabilitation of a 156-unit, 312-bed full service, private dormitory located in Auburn, Alabama, immediately adjacent to the campus of Auburn University. The project is now known as The Cambridge at Auburn (“The Cambridge”). The Company is the sole limited partner of Cambridge at Auburn, LP (“CA, LP”). The general partner of CA, LP is an unrelated real estate developer that will also serve as the management company of the project. The general partner of CA, LP is the same general partner of The Estates at Canyon Ridge, Ltd. transaction described in the preceding paragraph. As the limited partner, the Company is entitled to receive a preferred return of its capital contribution plus a ten percent (10%) per annum cumulative return, compounded monthly. Following the repayment of the preferred return on the capital contribution, excess cash, at the discretion of the general partner, as well as refinancing or disposition proceeds shall be paid fifty percent (50%) to the general partner and fifty percent (50%) to the limited partner. Through September 30, 2010 and December 31, 2009, the Company’s investment totaled approximately $1.296 million and $1.081 million, respectively. Due to a significant number of dormitory units constructed by Auburn University that were completed just prior to the 2009-2010 school year, occupancy at The Cambridge suffered a significant decline, with current occupancy at approximately 26%. While it was anticipated that the decline in occupancy was a temporary issue during the absorption of the new dorms in the market, leasing for the 2010-2011 school did not rebound as much as anticipated, reaching approximately 65%. Additionally, due to a lack of available cash, the Company as limited partner was also unable to continue to fund operating losses and debt service payments during this fiscal quarter. As a result, the first mortgage lender for the property has engaged a receiver to operate the property. We have not been informed of the institution of any foreclosure proceedings at the time, but the lender continues to reserve

their rights to take any action they deem necessary. Due to the current status of the property, the Company fully impaired it investment in this project, resulting in a charge to earnings of $1.3 million in the third quarter ended September 30, 2010.

TNO Holdings, LLC

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

Critical Accounting Policies

General

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

Valuation of Marketable Securities

Investments in publicly traded equity securities are generally based on quoted market prices. Investments in the RDC Series A and B bonds represent debt securities and there is no readily available quoted market price, as these securities are owned by a limited number of holders. The Series A bonds have been valued at $133,000, which represents the pro rata share of the underlying value of the collateral (the Retama Park horse track facility). The Company has fully impaired the Series B bonds based on the limited available market, the uncertainty of principal or interest payments and the subordinate lien on the collateral.

Valuation of Penson Worldwide, Inc. Common Stock

The Penson Worldwide, Inc. (“PWI”) (Nasdaq: PNSN) common stock is valued at the market value of the shares held by the Company at the close of business on September 30, 2010, the last trading day of the fiscal quarter. Based on a closing price of $4.9925 per share and a position of 500,922 shares, the Company’s holdings of PWI common stock is valued at $2,500,853. The Company held 1,000,922 shares of PWI common stock as of December 31, 2009 and the holdings were valued at $9,068,353 at that time, based on a closing price of $9.06 per share.

Notes and Interest Receivable — Retama Development Corporation

The Company has provided advances to the RDC primarily to meet the RDC’s interest and sinking fund obligations on its Series A Bonds. Such advances are entirely at the discretion of the Company and are documented by promissory notes secured by a second lien mortgage on the Retama Park racetrack real estate and facilities, which is subordinated to the RDC Series A Bonds and Converted Series B Bonds, if any. We estimate at the end of each reporting period the valuation and collectibility of the RDC note and any interest that has been recognized as income, and report the total amount as other assets in our consolidated balance sheet. As more fully detailed in Note 14 — Related Party Transactions of the unaudited financial statements for the period ending September 30, 2010, in February 2010 the Company transferred to Christopher J. Hall, the Company’s Chairman and majority shareholder the full principal and interest value of the Funding Agreement, valued at $3,627,569 in principal and $1,727,859 in interest, to Mr. Hall with cash and additional securities in exchange a portion of two unrelated municipal bond issues and shares of the Company’s stock. Following this transaction, the Company no longer has an interest in the Funding Agreement.

On September 16, 2010 the Company loaned the RDC $400,000 for general operating purposes. The loan carries an interest rate of 8.50% and matures January 1, 2013.

Valuation of Other Investments

The Company estimates fair value for its other investments based on historical cost and other relevant information. The Company assesses the impairment of the other investments at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant underperformance relative to historical or projected future cash flows; significant changes in the strategy of the overall business; and significant negative industry trends. When management determines that the carrying value of the other investments may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value. The Company recorded impairment losses during the quarter ended September 30, 2010 of $2,960,671.

Interest Income Recognition — Retama Development Corporation

During each accounting period, the Company evaluates whether to continue to recognize the accrued interest on the RDC note as income based on several criteria including, but not limited to, the value of the underlying collateral, the financial performance of Retama Park and the payment history of the RDC note and other similarly positioned debt securities. In 2009, the Company recognized the accrued interest on the RDC note as income through September 30, 2009; however, as of October 1, 2009, the Company elected to suspend further recognition of interest income until events and circumstances dictated otherwise. Due to the continued decline of the financial performance of Retama Park and the lack of timely funding of the Series A Bonds September 1, 2009 interest payment, the Company deemed it appropriate to suspend the income recognition of the interest on the RDC note commencing October 1, 2009. Following the transaction further detailed in Note 14 — Related Party Transactions in this Form 10-Q, the Company has recognized the accrued interest on the RDC note from October 1, 2009 through February 25, 2010, when the note was transferred to Christopher J. Hall.

Income Taxes

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

The Company follows ASC topic 740, “Accounting for Uncertainty in Income Taxes", which defines the confidence level that a tax position must meet in order to be recognized in the financial statements. This standard requires a two-step approach under which the tax effect of a position is recognized only if it is “more-likely-than-not” to be sustained and the amount of tax benefit recognized is equal to the largest tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement of the tax position. This standard also requires that the amount of interest expense to be recognized related to uncertain tax positions be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with this standard and the amount previously taken or expected to be taken in a tax return.

Risk Factors

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO SEPTEMBER 30, 2009

RESULTS OF OPERATIONS

a. Revenues and Other Income

Revenue

The Company’s revenue for the three months and nine months ended September 30, 2010 was $1,139,045 and $3,269,520, respectively, compared to $1,299,804 and $3,764,050, respectively, for the three months and nine months ended September 30, 2009. Retama Entertainment Group, Inc. (“REG”), an 80% owned subsidiary of the Company, is engaged as the management

company of the Retama Park racetrack located in Selma, TX. The owner of the facility, the Retama Development Corporation (the “RDC”), reimburses REG for the majority of payroll and payroll related expenses, plus a monthly management fee of $20,000. It is important to note that the financial performance of Retama Park does not directly impact and is not included in the Company’s financial statements. As a result of this arrangement, the majority of the Company’s revenue consists of the reimbursement of REG’s payroll expenses. Therefore, the decrease in revenue for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009, is largely attributable to the reduction in the number of race days in 2009 of 57 to 16 in 2010. The more significant decrease in revenue for the nine months ended September 30, 2010 as compared the nine months ended September 30, 2009 is due the extra staff required for the live meet held at Retama Park during the first quarter of 2009. There was no live racing held at Retama Park during the first quarter of 2010.

Interest Income

Interest income for the three months and nine months ended September 30, 2010 was $119,375 and $383,621, respectively, compared to $103,089 and $366,481 for the three months and nine months, respectively, ended September 30, 2009. Due to the exchange of the RDC Funding Agreement for interest bearing municipal bonds as further detailed in Note 14 — Related Party Transactions in this Form 10-Q, the source of interest income has been altered but the amount of interest income has generally remained consistent.

b. Expenses

Cost and Other Expenses of Revenues

Operating expenses for the three months and nine month ended September 30, 2010 was $1,273,689 and $3,760,627, respectively, compared to $1,425,143 and $4,137,500, respectively, for the three months and nine months ended September 30, 2009. Operating expenses declined for the three months and nine months ended September 30, 2010 as compared to the same periods in 2009 due to a reduction in associated payroll expenses as a result in the decline of the number of live race days during the this quarter in 2010 as compared to the same period in 2009 as well as the live meet that was held at Retama Park in the first quarter of 2009 and not in 2010 and the associated payroll expenses, as further detailed in the Revenue section above. It should be noted that the Company as elected to take an allowance for bad debt related to the $20,000 per month management fee taken in the third quarter of this fiscal year 2010 that was not taken in the same quarter last year. While the Company will continue to accrue the management fee, as of October 1, 2009, Company management has determined to take an allowance for bad debt for the fee given payment has not been received by the Company in several years.

Income Tax

The Company recognized a federal income tax benefit for the three months and nine months ended September 30, 2010 of $1,187,488 and $782,615, respectively, compared to an expense of $259,516 and $125,155 for the three months and nine months ended September 30, 2009, respectively. The Company’s total federal income tax does not approximate the expected corporate tax rate due primarily to non-taxable municipal bond interest income. The income tax benefit for the three and nine months ended September 30, 2010 is attributable to the partial impairment taken on the Company’s investment in the Estates at Canyon Ridge and the full impairment taken on the Company’s investment in the Cambridge at Auburn. The nine-month comparison is partially offset by the realized capital gain on the disposition of 500,000 shares of Penson Worldwide, Inc. common stock during the first quarter of 2010. The income tax expense for the three and nine months ended September 30, 2009 is largely due to the capital gain realized in the sale of 100,000 shares of Penson Worldwide, Inc. common stock during the quarter ended September 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2010, the Company’s operating activities used cash of $1,551,752 compared to $954,517 cash used for the nine months ended September 30, 2009. The increase in cash used is largely attributed to greater capital gains realized on the sale of marketable securities the first quarter of 2010 as compared to the first quarter of 2009.

The Company maintains an investment account that utilizes a margin loan collateralized by the Company’s marketable securities. Typically, the Company had the ability to borrow up to 75% of the value of the securities held as collateral in the margin account and has utilized this borrowing availability to provide operating liquidity. In September 2009 PFSI determined that, for margin account purposes due to, among other reasons, the lack of trading activity, the Retama Development Corporation Series B Bonds should require a 100% margin requirement, effectively making these bonds non-marginable.

Although the Company has successfully restructured this margin account (see Note 3 — Margin Loan Payable — Related Party and Note 14 — Related Party Transactions), the Company’s margin loan availability remains constrained. See below for a comparison of the margin loan availability as of December 31, 2009 as compared to September 30, 2010.


	As of December 31, 2009			As of September 30, 2010
Margin value of Retama Series B Bonds	$	—		$	—
Margin value of all other marketable securities	$	9,259,476		$	6,317,533

Total margin value of marketable securities	$	9,259,476		$	6,317,533

Maximum loan based on 75% loan-to-value	$	6,944,607		$	4,738,149
Margin loan outstanding	$	13,259,281		$	5,668,532
Margin loan availability (call)	$	(6,314,674	)	$	(930,383	)

In response to the Company’s continued operating losses and current constriction of borrowing availability under its margin account, the Company is currently pursuing solutions including assessing the sale of certain assets and marketable securities in order to provide additional liquidity, such as the sale of the Estates at Canyon Ridge detailed above.

In the past the Company has provided loans to the RDC but has had no obligation to do so since 1999. These loans were provided to support the continued operation of Retama Park as a Class I racetrack while pursuing the approval of additional forms of gaming at Texas racetracks. We anticipate that the profits from additional gaming operations at Retama Park, if approved, would provide sufficient cash flow to the RDC to enable the Series B Bonds to receive substantial payments. We believe our holdings of RDC Series A Bonds in the amount of $133,000 are fully secured by the collateral security in the Retama Park facilities and real estate and would be repaid even if the operations of Retama Park racetrack were terminated. It should also be noted that the loans provided to the RDC have historically been funded from draws against our margin accounts. Given the current status of our margin account as detailed above and our limited ability to derive liquidity, it seems unlikely that the Company will be able to provide additional funding from draws on the margin account in the foreseeable future unless we are successful in liquidating other assets of the Company.

On September 16, 2010 the Company borrowed an additional $400,000 from PWI, bringing the total balance of the PWI Promissory Note to $14,322,000. The proceeds were then loaned to the RDC for general operating purposes.

OFF-BALANCE SHEET ARRANGEMENTS

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

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance related to new disclosures about fair value measurements and clarification on certain existing disclosure requirements. This guidance requires new disclosures on significant transfers in and out of Level 1 and Level 2 categories of fair value measurements. This guidance also clarifies existing requirements on (i) the level of disaggregation in determining the appropriate classes of assets and liabilities for fair value measurement disclosures, and (ii) disclosures about inputs and valuation techniques. The Company has adopted the provisions of this guidance, except for the new disclosures around the activity in Level 3 categories of fair value measurements which will be adopted on January 1, 2011, as required. There was no material impact on the consolidated financial statements resulting from the adoption of this guidance.

In January 2010, the FASB issued guidance related to accounting and reporting for decreases in ownership of a subsidiary. This guidance clarifies the scope of the requirements surrounding the decrease in ownership of a subsidiary and expands the

disclosure requirements for deconsolidation of a subsidiary or de-recognition of a group of assets. The Company has adopted the provisions of this guidance. There was no material impact on the consolidated financial statements resulting from the adoption of this guidance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2010 are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFOMRATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable.

ITEM 1A. RISK FACTORS

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

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

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:


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

32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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


Call Now, Inc.
/s/ Thomas R. Johnson
Thomas R. Johnson
Chief Executive Officer and Chief Financial Officer November 15, 2010

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CALL NOW INC 10-Q