Senior               Subordinate
Retama Development Corporation Special                              Series A Bonds          Series B Bonds
Facilities Revenue Bonds, Dated 1997                                7% due 9/1/33           8% due 9/1/33
Total Bonds Outstanding at December 31, 2007                       $    6,345,000          $   86,925,000
Bonds owned by Call Now, Inc. at December 31, 2007                 $      145,000          $   43,962,500
Carrying Value of Call Now, Inc. position at December 31,
2007 as reported on the balance sheet                              $      145,000          $          -0-

The Series A bonds are subject to an annual mandatory sinking fund redemption. As of December 31, 2007, a total of $655,000 of the original $7,000,000 Series A bonds have been redeemed through the sinking fund, resulting in the $6,345,000 in Series A bonds outstanding at December 31, 2007. The Company recognizes a carrying value on the balance sheet at face value of the Series A bonds, or $145,000.
In accordance with FAS 115, 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 invested $6,000,000 in Penson Worldwide, Inc. ("PWI") of Dallas, Texas. On December 23, 2003, an additional $600,000 was loaned to PWI. PWI is a leading provider of a broad range of critical securities-processing infrastructure products and services to the global securities and investment industry. Their products and services include securities and futures clearing, margin lending, facilities management, technology and other related offerings to broker-dealers, investment funds, banks and financial technology.
The investment in PWI was made in the form of a convertible promissory note maturing on June 26, 2008 (the "PWI Note"). Interest on the note was 5% above the "Broker's Call Rate" to be paid monthly. The PWI Note also called for the Company as noteholder to have the option to convert the entire outstanding principal amount into shares of PWI's common stock. The conversion price per common share was 2.25 times PWI's shareholders' equity as of June 30, 2003 divided by the actual number of issued and outstanding shares of PWI as of June 30, 2003, which equated to $2.01 per share.
In August of 2003, the Company's President and CEO, Thomas R. Johnson, was elected to the Board of Directors of PWI pursuant to a provision in the PWI Note which required that PWI use its best efforts to appoint a nominee of the Company to the board of directors.
On June 30, 2005, the Company converted the entire $6,600,000 principal balance of the PWI Note into PWI common stock, totaling 3,283,582 shares. 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 post-split shares, of the PWI shares in the IPO resulting in a 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 represent an approximate 7.29% interest in the company; and 1,130,922 shares of the publicly traded PWI common stock, which represents approximately 4.43% of PWI's outstanding shares as of December 31, 2007. As of December 31, 2007 the Company realized cumulative other comprehensive income from the increase in value of the PWI common stock of approximately $10,773,000
(gross) or $7,127,000 net of taxes. The Estates at Canyon Ridge
On March 31, 2005 the Company entered into a partnership agreement to provide approximately 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 Estates at Canyon Ridge, Ltd. ("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 48%. Other partners of the Limited Partner include Thomas R. Johnson, President, CEO and director of the Company, Christopher J. Hall, the majority shareholder and director of the Company, and Bryan P. Brown, CEO of Retama Entertainment Group, Inc. and director of the Company. The General Partner is required to fund 5% of the equity and the Limited Partner is required to fund 95%.
As a member of the Limited Partner, the Company is entitled to receive a preferred return of its capital contribution plus a 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, and net refinancing or disposition proceeds shall be paid 50% to the General Partner and 50% to the Limited Partner. At December 31, 2007, the Company's investment totaled approximately $1.78 million.
As of December 31, 2007 the clubhouse and ten of the twenty-seven residential buildings had been completed, delivered and ready for occupancy. Approximately 24% of the total units were leased and 19% of the total units were occupied at that time.
The Cambridge at Auburn
On December 11, 2006 the Company entered into a partnership agreement to provide 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 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 who also serves 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 paragraphs. As the limited partner, the Company is entitled to receive a preferred return of its capital contribution plus a 10% per annum cumulative return, compounded monthly. Following the repayment of 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 50% to the general partner and 50% to the limited partner. As of December 31, 2007, the Company's investment totaled approximately $1.5 million. Rehabilitation of the facility was completed during 2007 and 100% occupancy was achieved for the beginning of the 2007-2008 school year. An equity distribution of $150,000 was paid to the Company in October 2007. 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 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. Investment Company Act
The Company has taken the position that it is not an investment company required to be registered under the Investment Company Act of 1940 (the "1940 Act"), based on one or more applicable exemptions thereunder. If the Company were deemed to be an investment company under the 1940 Act, the Company would be required to register as an investment company, unless an exemption is available. In such event, the Company would incur significant registration and regulatory compliance costs and could become subject to liability under the 1940 Act, the Securities Act of 1933, the Securities Exchange Act of 1934 and rules and regulations adopted thereunder.

If the Company were deemed an investment company under the 1940 Act and failed to qualify for an exemption, the Company would have to modify how it conducts business in order to conform to the Act. The 1940 Act places significant restrictions on the capital structure and corporate governance of a registered investment company, and materially restricts its ability to conduct transactions with affiliates. Such changes could have a material adverse affect on the Company's business, results of operations and financial condition.
In addition, if the Company is deemed to have been an investment company and did not register under the 1940 Act, it would be in violation of the 1940 Act and would be prohibited from engaging in business or certain other types of transactions and could be subject to civil and criminal actions for doing so. In addition, the Company's contracts would be voidable and a court could appoint a receiver to take control and liquidate it.
There can be no assurance that an exemption from the registration requirements of the 1940 Act will be available to the Company on a continuing basis. The Company is currently consulting with legal counsel and evaluating alternatives to ensure that it complies with applicable law. 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 debt securities. We believe our estimates and assumptions to be reasonable under the circumstances. However, actual results could differ from those estimates under different assumptions or conditions.
Valuation of Marketable Securities
Investments in equity securities are generally based on quoted market prices. However, the 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 are classified as available-for-sale and have been valued at their face value as supported by the underlying value of the collateral (the Retama Park racetrack facility). We obtained a complete appraisal of the racetrack land and improvements in June 2005, and based our valuation of the Series A bonds on our percentage ownership. 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 December 31, 2007, the last trading day of the fiscal year. Based on a closing price of $14.35 per share and a position of 1,130,922 shares, the Company's holdings of PWI common stock is valued at $16,228,731 as of December 31, 2007. 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 also has tax net operating loss carryforwards which result in the recognition of a deferred tax asset, and unrealized gains on marketable securities which result in the recognition of a deferred tax liability.

YEAR ENDED DECEMBER 31, 2007 COMPARED TO 2006
RESULTS OF OPERATIONS
a. Revenues and Other Income Revenue The Company's revenue for the year ended December 31, 2007 was $4,855,038 compared to $5,325,578 for the year ended December 31, 2006. The decline in revenue is attributed to a reduction in Thoroughbred race days, 32 in 2007 as compared to 51 in 2006, and a reduction in Quarter Horse race days, 21 in 2007 as compared to 24 in 2006. As discussed in the "Retama Park Racetrack - Management" section under Item 6 in the preceding section, the Company's revenue is directly related to the reimbursement of payroll and payroll related expenses of the racetrack. Therefore, a reduction in race days results in a reduction in staffing requirements and, consequently, reduces reimbursements to the Company. Interest Income
Interest income for the year ended December 31, 2007 was $555,840 compared to $616,605 for the year ended December 31, 2006. The decrease in interest income was a result in the reduction of municipal bond investments held by the Company during the year. The decrease was partially offset by the interest income received from the preferred return paid on the investment in The Cambridge at Auburn.
b. Expenses Cost and Other Expenses of Revenues Operating expense for the year ended December 31, 2007 was $5,298,359 compared to $5,779,737 for the year ended December 31, 2007. The decrease in operating expense in 2007 as compared to 2006 is also attributable to the decrease in Thoroughbred and Quarter Horse race days at Retama Park in 2007. Income Tax
The Company has recognized a tax benefit in each of the past two years due to the operating loss the Company has realized in each of the fiscal years. The income tax benefit increased from $107,651 in 2006 to $263,643 in 2007. Other Comprehensive Income
In 2007, the Company recognized other comprehensive income of $7,227,628, net of related taxes, primarily on the increase in fair market value of its investments in Penson Worldwide, Inc. common stock based on the closing price of the common stock as of December 31, 2007. Other comprehensive income in 2006 was $17,008,772, net of taxes.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2007, the Company's operating activities used cash of $810,871 compared to $1,004,040 used for the year ended December 31, 2006. The decrease in cash used by operating activities is largely attributed to the capital gain realized in 2006 on the sale of the PWI common stock at the IPO that is not recognized as cash available for operating activities. As discussed in Note 5 to the audited financial statements, the Company maintains an investment account that utilizes a margin loan collateralized by the Company's marketable securities. As of December 31, 2007 the available balance of that margin loan was in excess of $2.0 million. As a result of this availability of funds management of the Company believes it has adequate financial resources to fund its operations for the current fiscal year.

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.
RISK FACTORS
There are many factors that affect our business and the results of its operation, some of which are beyond our control. The following is a description of some of the important factors that may cause the actual results of our operations in future periods to differ materially from those currently expected or desired.
RISKS RELATED TO OUR BUSINESS
Concentration of Operations of Subsidiary Our 80% owned subsidiary, Retama Entertainment Group, Inc. provides management services to Retama Park racetrack, a Class 1 horseracing facility located in Selma, TX. The management contract with Retama Park is the only management agreement that REG has entered into with a track currently in operation and, therefore, the management fees received as a result of this management agreement represent the only source of revenue for REG. The financial performance of REG is reported on a consolidated basis with the Company. Under certain specific circumstances, the management agreement with Retama Park may be terminated. If this management agreement were to be terminated prematurely, it would have significant negative impact on our operations. Concentration of Assets
As of December 31, 2007 the Company held one asset, the Penson Worldwide, Inc. ("PWI") common stock, whose value represented almost 60% of the total assets of the Company. Any significant decline in the fair market value of this asset may negatively impact the financial position and operations of the Company. Limited Liquidity Available in the Secondary Market As detailed in Item 11 of this report, a director of the Company holds 89.96% of the outstanding common stock of the Company as of February 28, 2008. Given the majority position held by a single shareholder and the shareholder's position as a director of the Company, there remains a relatively small amount of shares available in the public float. A limited float may have the effect of reducing the number of buyers and sellers of the Company's stock, and as a result, negatively impact the liquidity of the Company's common stock. Investment Company Act
The Company has taken the position it is not an investment company required to be registered under the Investment Company Act of 1940 (the "1940 Act"), based on one or more applicable exemptions thereunder. If it was established that we are an unregistered investment company, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the Securities and Exchange Commission. We would also be unable to enforce contracts with third parties or third parties could seek to obtain rescission of transactions undertaken with us during the period it was established that we were an unregistered investment company. See Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations - Investment Company, for more information.