UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                   FORM 10-QSB


                   (X) QUARTERLY REPORT PURSUANT TO SECTION 13
                                OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 For the quarterly period ended: March 31, 2004

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                        Commission File Number: 000-30771


                           INTERACTIVE MOTORSPORTS AND
                               ENTERTAINMENT CORP.
                   f.k.a. Pacific International Holding, Inc.
               (Exact name of registrant as specified in charter)


                                     Indiana
         (State or other jurisdiction of incorporation or organization)

                                   87-0678630
                           (I.R.S. Employer I.D. No.)

               5624 West 73rd Street, Indianapolis, Indiana 46278
                    (Address of principal executive offices)

                                 (317) 295-3500
              (Registrant's telephone number, including area code)


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

As of May 10, 2004, there were 86,595,218 (par value $0.0001) common shares
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Exhibit Index on page 25.

<PAGE>

                    INDEX TO QUARTERLY REPORT ON FORM 10-QSB



                                                                            Page
Section                                                                   Number

NOTE ON FORWARD LOOKING INFORMATION                                            3
BASIS OF PRESENTATION..........................................................4

                                     PART I

Item 1.    Financial Statements and Notes to Financial Statements
                Consolidated Balance Sheets at March 31, 2004 and
                   December 31, 2003...........................................5
                Consolidated Statements of Operations for the Three
                   Months Ended March 31, 2004 and 2003........................7
                Consolidated Statements of Changes in Shareholders' Equity
                  for the Three Months Ended March 31, 2004....................8
                Consolidated Statements of Cash Flows for the Three Months
                   Ended March 31, 2004 and 2003...............................9
                  Notes to Consolidated Financial Statements..................11
Item 2.    Management's Discussion and Analysis of Financial Condition and
                Results of Operations.........................................15
Item 3.         Qualitative and Quantitative Disclosures of Market Risk.......22
Item 4.    Internal Controls and Procedures...................................22

                                    PART II

Item 1.    Legal Proceedings..................................................23
Item 2     Changes in Securities. ............................................23
Item 3     Defaults Upon Senior Securities....................................23
Item 4.    Submission of Matters to a Vote of Security Holders................23
Item 5.         Other Information.............................................23
Item 6.         Exhibits and Reports on Form 8-K..............................23


SIGNATURES....................................................................23

CERTIFICATIONS................................................................24

EXHIBITS INDEX................................................................25

EXHIBITS......................................................................26

<PAGE>
                       NOTE ON FORWARD-LOOKING INFORMATION

This Form 10-QSB and other statements issued or made from time to time by the
Company or its representatives contain statements, which may constitute
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995, 15 U.S.C.A Sections 77z-2 and 78u-5. Those
statements include statements regarding the intent, belief, or current
expectations of the Company and members of its management team as well as the
assumptions on which such statements are based. All statements, trend analyses,
and other information contained in this report relative to markets for the
Company's products and/or trends in the Company's operations or financial
results, as well as other statements which include words such as "anticipate,"
"could," "feel(s)," "believes," "plan," "estimate," "expect," "should,"
"intend," "will," and other similar expressions, constitute forward-looking
statements and are subject to known and unknown risks, uncertainties and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (i) general economic conditions that may impact the disposable
income and spending habits of consumers; (ii) the availability of alternative
entertainment for consumers; (iii) the ability of the company to obtain
additional capital and/or debt financing; (iv) the receipt of a going concern
opinion from the Company's independent public accountants for the year ended
December 31, 2003; and (v) the ability of the company to control costs and
execute its business plan.

The reader is cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements are set forth herein. The Company undertakes no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.


<PAGE>

                              BASIS OF PRESENTATION

Effective August 2, 2002, Pacific International Holding, Inc., a Utah
corporation ("PIH"), which was originally organized in 1986, changed its state
of domicile and name by merging with and into Interactive Motorsports and
Entertainment Corp. (the surviving entity), an Indiana corporation (the
"Company"), pursuant to an Agreement and Plan of Reorganization. Per the merger
agreement, each share of PIH common stock outstanding immediately prior to the
effective date of the merger was cancelled and converted into four shares of
Interactive Motorsports and Entertainment Corp. common stock. Although it had
been in a variety of businesses for over 15 years, at the time of the merger,
PIH had limited operations.

Subsequent to the merger and effective as of the same date, the Company acquired
pursuant to a Plan and Agreement of Exchange all of the issued and outstanding
shares of common stock and preferred stock of Perfect Line, Inc., an Indiana
corporation ("Perfect Line"), from the Perfect Line shareholders in exchange on
a "share-for-share" basis for shares of the Company's common stock and preferred
stock. As a result of the share exchange, the Perfect Line shareholders held as
of August 2, 2002 Company shares representing approximately eighty-two percent
(82%) of the Company's capital stock. Also effective as of August 2, 2002, the
members of the Board of Directors of Perfect Line were elected to replace the
members of the Company's Board of Directors and the executive officers of
Perfect Line became the executive officers of the Company.

As Perfect Line had revenues, operations, and business activity, for financial
reporting purposes, Perfect Line is considered the acquirer, and therefore the
predecessor, and the Company is considered the acquiree for accounting and
reporting purposes. Due to the fact that the merger is being treated as a
reverse acquisition, the equity of the Company has been recapitalized for
financial reporting purposes. The operations of Interactive Motorsports and
Entertainment Corp. have been included in consolidation from August 2, 2002
through March 31, 2004.

All information in this Form 10-QSB is presented from the perspective of
Interactive Motorsports and Entertainment Corp. and its subsidiary Perfect Line
and not from the perspective of PIH.


<PAGE>

                                     PART I

Item 1. Condensed Financial Statements

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>

                                     ASSETS

                                                                              March 31,           December 31,
                                                                                2004                  2003
                                                                         -----------------     -----------------
                                                                         (Unaudited)


CURRENT ASSETS

<S>                                                                      <C>                   <C>
   Cash and cash equivalents                                             $         334,406     $         249,005
   Trade accounts receivable                                                        41,578                39,459
   Other receivable                                                                      -                10,000
   Merchandise inventory                                                            65,323                48,875
   Prepaid insurance and other expenses                                             34,647                33,996
                                                                         -----------------     -----------------

     Total Current Assets                                                          475,954               381,335
                                                                         -----------------     -----------------

PROPERTY AND EQUIPMENT, NET                                                        851,970               869,014
                                                                         -----------------     -----------------

OTHER ASSETS

   Deposits                                                              41,989                39,953
   Other intangible assets, net                                                     10,407                11,542
                                                                         -----------------     -----------------

       Total Other Assets                                                           52,396                51,495
                                                                         -----------------     -----------------

     TOTAL ASSETS                                                        $       1,380,320     $       1,301,844
                                                                         =================     =================
</TABLE>
<PAGE>


        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                     Consolidated Balance Sheets (Continued)

<TABLE>

                  LIABILTIES AND SHAREHOLDERS' EQUITY (Deficit)

                                                                              March 31,           December 31,
                                                                                2004                  2003
                                                                         -----------------     -----------------
                                                                         (Unaudited)


CURRENT LIABILITIES

<S>                                                                      <C>                   <C>
   Accounts payable                                                      $       1,591,394     $       1,561,830
   Accrued payroll and payroll taxes                                               142,156                98,858
   Sales tax payable                                                                41,687                51,308
   Gift certificates and customer deposits, net                                    106,935               113,087
   Deposits on simulator sales                                                     626,545               352,692
   Accrued expenses                                                                761,575               776,314
   Notes payable - related parties                                                 196,000               200,000
   Notes payable                                                                   571,016               500,000
                                                                                __________              ________

       Total Current Liabilities                                                 4,037,308             3,654,089
                                                                         -----------------     -----------------

LONG TERM LIABILITIES

   Note payable - related party                                                          -                45,750
                                                                         -----------------     -----------------

       Total Long Term Liabilities                                                       -                45,750
                                                                         -----------------     -----------------

     TOTAL LIABILITIES                                                           4,037,308             3,699,839
                                                                         -----------------     -----------------

COMMITMENT AND CONTINGENCIES
  (Notes 7 and 8)

SHAREHOLDERS' EQUITY (Deficit)

   Convertible preferred stock, $0.0001 par value,
     10,000,000 shares authorized, -0- and 2,272,728
     shares issued and outstanding                                                       -                   227
   Common stock; $0.0001 par value, 200,000,000 shares
     authorized, 86,595,218 and 74,314,183 shares issued
     and outstanding                                                                 8,660                 7,431
   Additional paid-in capital                                                    4,289,384             4,029,002
   Retained deficit                                                             (6,955,032)           (6,434,655)
                                                                         -----------------     -----------------

       Total Shareholders' equity (deficit)                                     (2,656,988)           (2,397,995)
                                                                         -----------------     -----------------

     TOTAL LIABILITIES AND SHAREHOLDERS'
       EQUITY (Deficit)                                                  $       1,380,320     $       1,301,844
                                                                         =================     =================

</TABLE>

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

<PAGE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (Unaudited)


<TABLE>


                                                                             For the Three Months Ended
                                                                                         March  31,
                                                                           -----------------------------------------
                                                                               2004               2003
                                                                           ---------------     ---------------

<S>                                                                        <C>                 <C>
NET SALES                                                                  $        1,609,346  $       2,120,314

OPERATING EXPENSES
     Payroll related expenses                                                         876,813          1,180,105
     Rent                                                                             499,051            702,439
     Other operating expenses                                                         700,886            976,774
                                                                           ------------------  --------------------

          TOTAL OPERATING EXPENSES                                                  2,076,750          2,859,318
                                                                           ------------------  -----------------

OPERATING LOSS                                                                       (467,404)         (739,004)
                                                                           ------------------  ----------------

INTEREST EXPENSE                                                                       52,973             17,432
                                                                           ------------------  -----------------

LOSS BEFORE INCOME TAX                                                               (520,377)         (756,436)
                                                                           ------------------  ----------------

PROVISION FOR INCOME TAX                                                                    -                  -
                                                                           ------------------  -----------------

NET LOSS                                                                   $         (520,377) $       (756,436)
                                                                           ==================  ================

BASIC NET LOSS PER COMMON SHARE                                            $            (0.01) $          (0.01)
                                                                           ==================  ================

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                                                      86,105,061         61,313,000
                                                                           ==================  =================
</TABLE>

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


<PAGE>


        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                   Statement of Shareholders' Equity (Deficit)

<TABLE>
                                                                                 Additional                         Total
                                       Preferred Stock         Common Stock      Paid-In         Retained        Shareholders'
                                       Shares    Amount        Shares  Amount    Capital          Deficit        Equity (Deficit)


<S>                                    <C>          <C>   <C>          <C>       <C>            <C>               <C>
Balance at December 31, 2003           2,272,728    227   74,314,183   $7,431    4,029,002      (6,434,655)$      (2,397,995)

Issuance of common stock for
consulting  services                   -            -         10,000        1        2,299                 -            2,300

Issuance of common stock for payment
  of interest                          -            -         65,034        7        9,993                 -           10,000

Issuance of common stock for
convertible  preferred stock          (2,272,728)  (227)  11,363,640    1,136        (909)                 -            -
-

Issuance of common stock for
  extinguishments of accrued liabilities  -         -        842,361       85       115,535                 -           -

Fair value of options granted          -            -             -         -       133,464                 -         133,464

Net loss for the three months ended
  March 31, 2004                       -            -              -        -             -        (520,377)         (520,377)
                                   ------------    -------   --------     ------    --------     -------------

Balance at March 31, 2004              -           -       86,595,218    8,660    4,289,384      (6,955,032)       (2,656,988)

</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>


        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>

                                                                                  For the Three Months Ended
                                                                                          March  31,
                                                                            --------------------------------------------
                                                                                      2004             2003
                                                                            ------------------   -------------------
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                         <C>                 <C>
   Net loss                                                                 $         (520,377) $(756,436        )
   Adjustments to reconcile net loss to net cash provided
    (used) by operating activities:
     Depreciation and amortization                                                      95,887              92,476
     Common stock issued for services                                                    2,300              10,080
     Common stock issued for interest                                                   10,000                   -
     Amortization of notes payable discount                                             14,480                   -
     Provision for inventory obsolescence                                                    -              10,000
   Net changes in operating assets and liabilities:
     Decrease in trade accounts and other receivable                                     7,881              37,182
     (Increase) in merchandise inventory                                               (16,448)             (6,111)
     (Increase) decrease in prepaid expenses and other assets                            (651)               1,889
     Increase in deposits                                                               (2,036)                 -
     Increase in accounts payable                                                       29,564              45,637
     Increase (decrease) in accrued payroll and payroll taxes                           43,298              61,294
     Decrease in sales tax payable                                                      (9,621)             (6,071)
     Decrease in gift certificates and customer deposits                                (6,152)            (16,076)
     Increase (decrease) in accrued expenses                                           101,131            (130,985)
     Increase (decrease) in accrued property taxes                                           -               2,942
     Increase in deposits on simulator sales                                           273,853                   -
                                                                            ------------------  ------------------

       Net Cash Provided (Used) by Operations                                           23,109            (654,179)
                                                                            ------------------ -------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of property and equipment                                                  (77,708)           (109,207)
                                                                            ------------------     ----------------

       Net Cash Used by Investing Activities                                           (77,708)           (109,207)
                                                                            ------------------ --------------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Loans from and (repayments to) related parties                                      (45,000)            200,000
   Proceeds from issuance of notes payable                                             185,000                   -
   Bridge loan proceeds                                                                      -             500,000
                                                                            ------------------  ------------------

       Net Cash Used by Financing Activities                                           140,000             700,000
                                                                            ------------------  ------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        85,401            (63,386)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         249,005             582,905
                                                                            ------------------  ------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $          334,406  $          519,519
                                                                            ==================  ==================
</TABLE>

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

<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Continued)
                                   (Unaudited)

<TABLE>
                                                                               For the Three Months Ended
                                                                                          March  31,
                                                                            -----------------------------------------
                                                                               2004                     2003
                                                                            ---------------      --------------------


SUPPLEMENTAL CASH FLOW DISCLOSURES:

<S>                                                                         <C>                 <C>
   Cash paid for interest                                                   $            3,443  $                -
   Cash paid for income taxes                                               $                -  $                -

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

   Common stock issued for accrued liabilities                              $          115,620  $                -
   Accrued interest converted to notes payable                              $              250  $                -
   Discount on convertible notes                                            $          133,464  $                -

</TABLE>

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

<PAGE>

NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                a.       Unaudited Interim Financial Information

               The accompanying unaudited condensed consolidated balance sheets
               of Interactive Motorsports and Entertainment Corp. (the
               "Company") at March 31, 2004 and December 31, 2003, and the
               unaudited consolidated statements of operations and statements of
               cash flows for the three months ended March 31, 2004 and 2003,
               have been prepared by the Company's management and do not include
               all the information and notes to the financial statements
               necessary for a management and do not include all the information
               and notes to the financial statements necessary for a complete
               presentation of the financial position, results of operations,
               and cash flows in conformity with generally accepted accounting
               principles. In the opinion of management, all adjustments
               necessary for a fair presentation of the results of operations
               and financial position have been included and all such
               adjustments are of a normal recurring nature. Although management
               believes the disclosures are adequate to make the information
               presented not misleading, it is suggested that these condensed
               consolidated financial statements be read in conjunction with the
               audited financial statements and the notes thereto included in
               the Company's latest annual financial statements included in the
               Company's annual report on Form 10-KSB. The results of operations
               for the three months ended March 31, 2004 are not necessarily
               indicative of the results that may be expected for the full year
               ending December 31, 2004 or any future period.

               b.       Use of Estimates

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


NOTE 2 -      EQUITY TRANSACTIONS AND COMMON STOCK WARRANTS

               On January 13, 2004, the Company issued 10,000 common shares to
               an unrelated entity as the last installment on the Company's most
               recent S-8 registration statement.

               On January 27, 2004, the Company issued 39,742 common shares to
               its former President for the extinguishment of the Stock Purchase
               Interest on the Bridge financing.

               On January 27, 2004, the Company issued 150,000 common shares to
               Cameron & Associates for consulting services provided.

               On January 27, 2004, the Company issued 468,060 common shares to
               Ropart Asset Mgmnt Fund for the extinguishment of the Stock
               Purchase Interest on the Bridge financing.

               On January 29, 2004, the Company issued 11,363,640 shares for the
               conversion of all of the remaining preferred stock to common
               stock.

               On February 4, 2004, the Company issued 184,559 shares to Erik
               Risman for the extinguishment of a liability to him of $ 31,375.

               On March 12, 2004, the Company issued 65,034 common shares to
               Ropart Asset Management Fund for the extinguishment of the Stock
               Purchase Interest on the Bridge financing.


<PAGE>

NOTE 3 -    DEBT AND CREDIT ARRANGEMENTS

               Pursuant to a note and option purchase agreement and security
               agreement dated February 2, 2004, the Company has issued notes
               payable in the amount of $331,000. The notes are due February 2,
               2005, but may be prepaid after six months from their date of
               issuance. Each note comes with an option to purchase common
               shares of the Company equal to the amount of notes purchased
               divided by the fair market value of the Company's stock on the
               date of issuance of the note.

               Options to purchase 1,752,122 shares of the Company's common
               stock were granted. The options were valued at $133,464 and will
               be amortized to interest expense over their life which expires
               March 1, 2005. Amortization of option discount of $14,480 was
               included in interest expense for the three months ended March 31,
               2004.

               The notes are secured by certain of the Company's simulators and
               a worldwide royalty free, non-exclusive license to use the
               Company's propriety software that is loaded into the simulators
               which secure the notes.


NOTE 4 -       REVENUE SHARING AGREEMENTS

               On March 18, 2004, the Company entered into an agreement with
               Michigan based Checker Flag Lightning, LLC to convert seven of
               its nine corporate owned racing centers into revenue share
               stores. The agreement shifts the burden of occupancy and labor
               costs to Checker Flag, and guarantees the Company a minimum
               revenue share income for each site.


NOTE 5 -       MANAGEMENT PLANS

               The accompanying consolidated financial statements have been
               prepared in accordance with accounting principles generally
               accepted in the United States of America and contemplate the
               Company's ability to continue as a going concern. The
               consolidated financial statements do not include any adjustments
               that might result if the Company is unable to obtain additional
               financing. Absent additional funding, the Company may not have
               sufficient resources to satisfy cash requirements for the next
               twelve months.

               For the period ending March 31, 2004, the Company's racing
               centers generated revenue of approximately $1.6 million.
               Operating without the necessary capital to properly market and
               merchandise these stores, sales performance resulted in a net
               loss of approximately $520,000 for the quarter. The performance
               for the quarter ending March 31,2004 represents a $236,000
               improvement over the performance for the comparable period in
               2003, and is the result of managements decision to change the
               business model under which it operates, and its cost containment
               efforts subsequent to that decision. In addition, for the first
               time in its history, the company was able to generate positive
               cash flow from operations for the quarter. Furthermore,
               management believes that under the recently announced conversion
               of seven owned and operated racing centers to revenue share
               locations, and based upon the guaranteed minimum payments within
               the Checker Flag Lightning agreement and the Company's current
               financial projections, management expects the Company to show a
               positive EBITDA soon after the landlords expected approval of the
               conversions. The Company is currently in assignment discussions
               with the five landlords, and while the Company does not foresee
               any issues that would prevent the assignments from occurring,
               there can be no assurances. Management believes this transaction
               will enhance the Company's ability to secure long term debt or
               equity financing in order to meet its short term debt
               obligations. Management is in the process of seeking additional
               sources of short-term funds to continue operations until
               additional long-term equity and/or debt financing can be
               established.

<PAGE>

NOTE 5 -        MANAGEMENT PLANS (Continued)

               The December 31, 2003 outstanding balance of $745,750 from the
               Secured Bridge Note and additional Promissory Note has been
               reduced during the period ending March 31, 2004 to $555,000. The
               company repaid $45,000 of the notes, and transferred $145,750 of
               the Bridge Note into a note and option purchase agreement and
               security agreement dated February 2, 2004. In addition, the
               company issued $185,000 in new notes under this same agreement
               (see Note 3 above for details).

               The Company believes that, absent the final consent from the
               landlords for the Checker Flag Lightning conversions (see
               "Description of Business-Major Agreement"), the projected level
               of cash receipts from simulator and merchandise sales will not be
               sufficient to fund the daily operations of the business through
               2004. Although the company continues to attract new investment,
               the current rate of that investment is not sufficient to fund
               ongoing operations unless additional sources of funds are created
               through bank credit facilities, equity or debt financing
               infusions, or other financing.

               Since inception, the Company's short-term and long-term plans
               have included raising a level of investment adequate to
               accomplish the objectives of the business. The required level of
               financing has not yet been achieved. The Company's ability to
               raise the necessary financing will depend on many factors,
               including the economic and market conditions prevailing at the
               time financing is sought. Management believes it can achieve the
               required level of financing; however, there can be no assurance
               that additional financing will be available or, if available,
               that it will be on terms acceptable to the Company.

               In July of 2003, management revised the Company's business model,
               changing the focus from Company owned and operated mall-based
               racing centers to revenue share racing centers (mall merchandise
               retailers, family entertainment centers, amusement parks,
               casinos, auto malls, etc.) and mobile lease programs such as the
               Nextel Experience. Without the burden of occupancy costs and
               labor costs, management believes this is a profitable model going
               forward, but the model is not yet proven and there can be no
               assurances of its success. Nevertheless, the company did
               implement several cost saving mechanisms as part of the
               implementation of the revised model. These actions allowed the
               company to report a $236,000 positive variance to its net loss
               over the same period in 2003, despite a 24% drop in revenue for
               the period ending March 31, 2004 as compared to the period ending
               March 31, 2003.

               Revenue share racing centers opened in Monterey, California and
               St. Louis, Missouri in 2003, and installations are scheduled in
               2004 for Syracuse, New York, Sao Paulo, Brazil, and Toronto,
               Ontario, Canada.

               The Company and Checker Flag Lightning of Granville, Michigan,
               tested the conversion of one of the Company's mall racing centers
               to a Checker Flag Lightning retail merchandise and entertainment
               center beginning in November of 2003. The lease at the racing
               center within RiverTown Crossing in Granville, Michigan was
               assigned to Checker Flag Lightning and the store was remodeled by
               reducing the number of simulators to 8 from 10, and building out
               the retail merchandise space to fill nearly half of the 6100
               square feet with NASCAR merchandise. The success of this model
               led to an agreement with Checker Flag Lightning in March of 2004
               to assign seven of the Company's mall leases with the intent to
               convert each of them to the new mall model. The landlord
               assignments are currently in process. In addition, Checker Flag
               Lightning is scheduled to open in August of 2004 a 4,000 square
               foot retail merchandise and entertainment center featuring 8 of
               the Company's simulators in the new Jordan Creek Town Center in
               Des Moines, Iowa. The layout and design of this new center is
               expected to be the model for future Checker Flag Lightning mall
               centers.

               The Company recently established two new revenue streams that
               management believes will be beneficial to the Company in the
               future, mobile leases and sales of simulator equipment. A total
               of 28 simulators have been ordered for purchase, primarily from
               overseas (United Kingdom, Russian Federation and United Arab
               Emirates). At the 2004 Daytona 500 in February, Nextel debuted
               The Nextel Experience, a mobile fan interactive experience that
<PAGE>

NOTE 5 -        MANAGEMENT PLANS (Continued)

               features six of the Company's race simulators. The Nextel
               Experience will have a prominent location at each of the NASCAR
               Nextel Cup events for at least the next three seasons. Nextel has
               contracted for a second mobile experience that they use for
               promotional events that features two of the Company's simulators

               Currently, the Company is exploring collateralized debt financing
               with several sources and is in various stages of discussion with
               each. Additionally, the Company has obtained investors for
               $331,000 of the maximum $750,000 Note and Option Purchase
               Agreement and Security Agreement dated February 2, 2004. The
               Company has interest from parties interested in an equity
               investment in the Company, but management's first priority is
               secured debt financing using the value of its simulator inventory
               (161 remaining after recent purchases of which 80 are not subject
               to current security interests) and its recent sales and revenue
               transactions to establish a market value of $75,000 per
               simulator.


NOTE 6 -        SUBSEQUENT EVENT

               On April 16, 2004, the Company issued a note payable in the
               amount of $25,000. Options to purchase 227,273 shares of the
               Company's common stock were granted as part of the agreement. The
               note is due on February 2, 2005, and the options expire on March
               1, 2005.



<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of the consolidated results of
operations and financial condition of the Company. The terms "Company", "we",
"our" or "us" are used in this discussion to refer to Interactive Motorsports
and Entertainment Corp. along with Interactive Motorsports and Entertainment
Corp.'s wholly owned subsidiary, Perfect Line, Inc., on a consolidated basis,
except where the context clearly indicates otherwise. The discussion and
information that follows concerns the Registrant as it exists today, as of this
filing, including the predecessor of the Company's operations, Perfect Line,
LLC. This discussion and analysis does not relate to the operations of Pacific
International Holding, Inc. which had limited operations prior to the merger
with the Company on August 2, 2002.

Interactive Motorsports and Entertainment Corp. ("IMTS" or the "Company"), an
Indiana corporation, through its wholly owned subsidiary, Perfect Line, Inc.,
owns and operates NASCAR Silicon Motor Speedway ("NSMS") racing centers, the
largest chain of NASCAR branded entertainment centers. NSMS customers experience
driving in a NASCAR race car that simulates the motion, sights and sounds of an
actual NASCAR event. Located in high profile, high traffic locations, the
Company's racing centers currently include up to 14 racecar simulators per
location and many offer what the Company believes to be the best selling NASCAR
driver merchandise available to the market.

For the period ending March 31, 2004, the Company's racing centers generated
revenue of approximately $1.6 million. Operating without the necessary capital
to properly market and merchandise these stores, sales performance resulted in a
net loss of approximately $520,000 for the quarter. Additionally, for the first
time in its history, the company generated positive cash flow from operations
for the period. Furthermore, management believes that under the recently
announced conversion of seven owned and operated racing centers to revenue share
locations, and based upon the guaranteed minimum payments within the Checker
Flag Lightning agreement and the Company's current financial projections,
management expects the Company to show a positive EBITDA soon after the
landlords expected approval of the conversions. The Company is currently in
assignment discussions with the five landlords, and while the Company does not
foresee any issues that would prevent the assignments from occurring, there can
be no assurances. Management believes this transaction will enhance the
Company's ability to secure long term debt or equity financing in order to meet
its short term debt obligations. Management is in the process of seeking
additional sources of short-term funds to continue operations until additional
long-term equity and/or debt financing can be established.


In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience. Revenue share racing centers opened in Monterey,
California and St. Louis, Missouri in 2003, and installations are scheduled in
2004 for Syracuse, New York, Sao Paulo, Brazil, and Toronto, Ontario, Canada.
The Company recently established two new revenue streams that management
believes will be beneficial to the Company in the future, mobile leases and
sales of simulator equipment. A total of 28 simulators have been ordered for
purchase, primarily from overseas (United Kingdom, Russian Federation and United
Arab Emirates). At the 2004 Daytona 500 in February, Nextel debuted The Nextel
Experience, a mobile fan interactive experience that features six of the
Company's race simulators. The Nextel Experience will have a prominent location
at each of the NASCAR Nextel Cup events for at least the next three seasons.
Nextel has contracted for a second mobile experience that they use for
promotional events that features two of the Company's simulators


The Company has recently entered into lease/revenue share arrangements as well
as entered into transactions for the sale of simulators. The lease/revenue
arrangements involve four types of locations (including ongoing service
agreements for locations of simulators which are sold) and four types of
arrangements. The Company entered into lease/revenue arrangements for fixed
locations with (i) new facility operators for new locations; (ii) new facility
operators to assume the Company's operations under presently existing Company
locations; (iii) new operations for mobile arrangements for use with the Nextel
experience; and (iv) simulator equipment sales. A brief description of each of
those is listed below.

<PAGE>

Perfect Line's racing centers are located in high traffic, high profile mall
locations.

Locations

Company Owned (24 simulators):
<TABLE>

              Location                     Market              Sq. Ft.          Simulators
       --------------------         -------------------     -----------         ----------

        <C>                         <C>                       <C>               <C>
1)       Mall of America            Minneapolis, MN           5,899             12 racecars
2)       Universal CityWalk         Los Angeles, CA           5,000             12 racecars


Revenue Share (133 simulators):


             Location                      Market              Sq. Ft.          Simulators
     ----------------------         -------------------     -----------         ----------
1)       Opry Mills                 Nashville, TN             6,007             12 racecars
2)       Woodfield                  Chicago, IL               6,111             12 racecars
3)       Palisades Center           Nyack, NY                 5,700             12 racecars
4)       Concord Mills              Charlotte, NC             7,865             14 racecars
5)       Mall of Georgia            Atlanta, GA               5,895             12 racecars
6)       Katy Mills                 Houston, TX               6,172             12 racecars
7)       Riverchase Galleria        Birmingham, AL            6,188             10 racecars
8)       NASCAR SpeedPark           Sevierville, TN           1,584              6 racecars
9)       Pavilion Ocean Front       Myrtle Beach, SC          2,600              5 racecars
10)      RiverTown Crossing         Grand Rapids, MI          6,100              8 racecars
11)      Cowboy Pizza               Monterey, CA                968              4 racecars
12)      NASCAR SpeedPark           St. Louis, MO             1,496              6 racecars
13)      Burdick Driver's Village(1)Syracuse, NY              3,472              8 racecars
14)      Playcenter(2)              Sao Paulo, Brazil         1,000              4 racecars
15)      Jordan Creek Town Ctr(3)   Des Moines, Iowa          4,000              8 racecars
16)      NASCAR SpeedPark(4)        Toronto, Ontario           1500              6 racecars
</TABLE>

(1) Scheduled to open in May, 2004
(2) Scheduled to open in July, 2004
(3) Scheduled to open in August, 2004
(4) Scheduled to open in October, 2004


Mobile Units (8 simulators):
<TABLE>

<C>                                  <C>                                        <C>
1)  Nextel Mobile Experience         2003-05 NASCAR Nextel Cup series events     6 racecars
2)  Nextel Mini Mobile Experience    Various markets                             2 racecars

</TABLE>

Sales of Simulators (28 simulators):

        Buyer                   Market                  Simulators
       --------                 ------                  ----------
1) Roltex               Moscow, Russian Federation      8 racecars
2) Yello Properties     London, United Kingdom          12 racecars
3) Tonne Mgmt           Wisconsin Dells, WI             4 racecars
4) I-Vision Technologies Abu Dhabi, UAE                 4 racecars


History

Perfect Line, LLC, the predecessor of the Company's wholly owned subsidiary
Perfect Line, Inc. ("Perfect Line"), was formed in 2001 as a Delaware limited
liability company and merged with and into Perfect Line, Inc. on August 1, 2002.
Perfect Line is in the business of owning and operating simulated race
facilities and selling racing related merchandise.
<PAGE>

NSMS racing centers were originally owned and developed by Silicon
Entertainment, Inc. ("SEI"). SEI opened its first site in August 1997 at the
Mall of America in Bloomington, Minnesota, the largest mall in the United
States. SEI raised large sums of initial capital, of which, according to SEI
internal documents, approximately $6.5 million was utilized to create its
proprietary software technology and approximately $25 million was utilized to
produce approximately 170 simulators and complete the build-out of 15 stores in
high traffic malls. SEI was unable to secure additional long term financing to
support its capital expansion, and was liquidated through Chapter 7 bankruptcy
in April 2001. Perfect Line's assets were primarily acquired from creditors of
SEI. As a result of SEI's bankruptcy, Perfect Line was able to purchase the
assets of SEI at a price substantially below SEI's cost.

Perfect Line re-opened 12 of the racing centers, which utilize 136 of the
simulators, between July 2001 and August 2002. The Company has warehoused 32
simulators for future deployment and 2 simulators are used for research and
development purposes at the Company's technology center in Santa Clara,
California. The proprietary technology includes two U.S. Patents, which combine
to create what management believes to be one of the world's most realistic
simulations of the sights, sounds and motions experienced by driving in an
actual NASCAR race. The proprietary motion-based platform that the racecar
simulator is mounted on is among the other assets that were acquired and
licensed as part of the transaction.

In August 2002, Perfect Line became a wholly owned subsidiary of IMTS, through
an exchange of shares that resulted in Perfect Line shareholders owning
approximately 82% of IMTS equity. Simultaneous with this event, approximately
$2.6 million in private equity financing was made available to Perfect Line.
Approximately one-half of the funding was used to retire the Company's bank note
and the balance was used for working capital.

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience. Without the burden of occupancy costs and labor costs,
management believes this is a profitable model going forward, but the model is
not yet proven and there can be no assurances of its success.



The Company's Current Operations, Recent Developments and Plan for the Future

The Company's primary focus is to leverage the Company's ownership of its
internationally unique, proprietary race car simulation technology and creating
the largest chain of officially-licensed, NASCAR-branded entertainment centers
in the world. The Company believes that this can be done profitably through a
combination of owned and operated racing centers, third party revenue share
locations (family entertainment centers, amusement parks, casinos, auto malls,
etc.), mobile unit leases and the domestic and international sales of the race
simulator product.

NASCAR racing is currently the #1 spectator sport in America. The Company has an
exclusive license agreement with NASCAR for location-based entertainment, which
includes the right to use the NASCAR name within the Silicon Motor Speedway
logo, on racing center signage, within collateral sales materials, on the NSMS
web site, and within the NSMS racing simulator software. The Company has also
secured licenses with many popular racetracks in the United States, and the cars
driven by many of the race fans' favorite Nextel Cup teams and drivers, ranging
from established stars such as Dale Earnhardt, Jr., Tony Stewart, and Dale
Jarrett, to rising stars like Matt Kenseth and Kurt Busch. These licensing
agreements and the use of NASCAR related identities and marks provide immediate
name recognition, credibility, and authenticity to NSMS.

The Company has integrated these license agreements with sophisticated
proprietary racing simulator technology to create a chain of NASCAR-themed,
family-oriented, racing entertainment and retail merchandise centers. Nine of
the Company's racing centers are in some of America's premier shopping malls,
giving us access to over 160 million annual site visits from potential
customers.

Simulator races take place on famous NASCAR Nextel Cup racetracks such as
Daytona International Speedway, Indianapolis Motor Speedway, Lowe's (Charlotte)
Motor Speedway, Atlanta Motor Speedway, Bristol Motor Speedway, and Richmond
International Raceway.
<PAGE>

NSMS owned, as well as many of its revenue share Racing Centers, are operated as
combined racing entertainment and retail merchandise stores. In addition to
providing customers with the opportunity to drive Nextel Cup racecars, NSMS
Racing Centers also feature a large selection of officially-licensed NASCAR
merchandise. Research indicates that NASCAR fans buy more merchandise than fans
from almost any other sport and they are also the most brand-loyal. These
characteristics helped boost worldwide NASCAR-branded retail sales from
approximately $82 million in 1990 to $1.5 billion in 2002. The Company's NSMS
racing centers are the largest chain of officially licensed, NASCAR-branded
interactive entertainment stores in the world, and offer its customers the most
popular NASCAR merchandise available. With these factors in place, the Company
believes it is well-positioned to capitalize on this billion-dollar market.

Tony Stewart, 2002 NASCAR Winston Cup Champion, is the spokesman and technical
advisor for NASCAR Silicon Motor Speedway. He will be featured in promotions,
advertising and point-of-sale material and will also make appearances at NSMS
racing center locations throughout the country.

The Company first tested the revenue share business model with the Burroughs and
Chapin Company of Myrtle Beach, South Carolina, with the installation of 6
simulators at their Smokey Mountain NASCAR SpeedPark in April of 2003, and 5
simulators at their Myrtle Beach Pavilion Amusement Park's Ocean Front Arcade in
May of 2003. The success of these two revenue share racing centers inspired
management to revise the Company's business model beginning in July of 2003,
changing the focus from Company owned and operated racing centers to revenue
share racing centers located within malls, family entertainment centers,
amusement parks, casinos, auto malls, etc. Revenue share locations will provide
IMTS the opportunity to install simulators in existing or planned entertainment
venues and share proportionately in the sales generated with owner-operators.
The Company provides the simulators at cost (expected to be financed through a
third party leasing firm, although no agreements have been reached) and the host
organization (owner-operator) provides the space, required site build-out, and
day-to-day operations staffing. Revenue share racing centers opened in Monterey,
California and St. Louis, Missouri in 2003, and installations are scheduled in
2004 for Syracuse, New York, Sao Paulo, Brazil, and Toronto, Ontario, Canada.

The Company and Checker Flag Lightning of Granville, Michigan, tested the
conversion of one of the Company's mall racing centers to a Checker Flag
Lightning retail merchandise and entertainment center beginning in November of
2003. The lease at the racing center within RiverTown Crossing in Granville,
Michigan was assigned to Checker Flag Lightning and the store was remodeled by
reducing the number of simulators to 8 from 10, and building out the retail
merchandise space to fill nearly half of the 6100 square feet with NASCAR
merchandise. The success of this model led to an agreement with Checker Flag
Lightning in March of 2004 to assign seven of the Company's mall leases with the
intent to convert each of them to the new mall model. Landlord approval and
consent to the assignments are currently in process. In addition, Checker Flag
Lightning is scheduled to open in August of 2004 a 4,000 square foot retail
merchandise and entertainment center featuring 8 of the Company's simulators in
the new Jordan Creek Town Center in Des Moines, Iowa. The layout and design of
this new center is expected to be the model for future Checker Flag Lightning
mall centers.

During the process of the revised business model, the Company bought out of its
lease at Crossgates Mall in Albany, New York, and the Company terminated its
lease at Arbor Place Mall in Douglasville, Georgia. Simulators from both sites
have been activated in either revenue share locations or mobile lease
agreements.

The Company recently established two new revenue streams that management
believes will be beneficial to the Company in the future, mobile leases and
sales of simulator equipment. A total of 28 simulators have been ordered for
purchase, primarily from overseas (United Kingdom, Russian Federation and United
Arab Emirates). At the 2004 Daytona 500 in February, Nextel debuted The Nextel
Experience, a mobile fan interactive experience that features six of the
Company's race simulators. The Nextel Experience will have a prominent location
at each of the NASCAR Nextel Cup events for at least the next three seasons.
Nextel has contracted for a second mobile experience that they use for
promotional events that features two of the Company's simulators.

The Company has made technological improvements to the simulation, resulting in
an enhanced racing experience. In addition, two popular racetracks, Bristol and
Indianapolis, were introduced to the simulation experience late in 2002 and
early in 2003. Other software improvements were implemented, including on-line
programs such as MySpeedway. MySpeedway is a feature on IMTS's website

<PAGE>

(www.smsonline.com) that allows customers to find their recent lap times, and
analyze their results to improve their performance by comparing their times to
those of other racers throughout the country. Car parameters were introduced in
August 2003 allowing racers to set up their cars to their personal preferences.
Adjustable parameters include traction control, anti-lock brakes, spoiler angle,
steering ratio, front anti-roll bar, engine, transmission gearing, and rear end
ratio.

Technological improvements were introduced in the second half of 2003 and others
are currently under development. These include upgrading and enhancing the game
graphics, upgrading the underlying operating system in order to accommodate
future developments, and significant revenue enhancing game features that target
the Company's core customers.

The Company has established a subsidiary, Race Car Simulators, Inc., which, upon
the receipt of future funding will develop, manufacture, and sell its
motion-based simulators to the commercial entertainment/amusement market.
Exploiting this opportunity may create another attractive revenue stream for the
Company. Race Car Simulators, Inc. has hired an experienced sales manager, Mr.
Rich Wheeler, and has a representation agreement with veteran international
amusement park executive Mr. Alain Baldacci for several international markets
including Brazil, Japan, Australia, Argentina, Chile, and Korea. Their efforts
have already produced agreements to install 12 simulators within a family
entertainment center in the heart of London, England, 8 simulators for an
entertainment mall in Moscow, 4 simulators for a revenue share family
entertainment center in Sao Paulo, Brazil and 4 simulators for a customer in Abu
Dhabi, United Arab Emirates.

Overview of Financial Position and Results of Operations

The Company has not generated a profit nor has it generated sufficient cash flow
since inception to fund operations. Since inception on May 31, 2001 and through
March 31, 2004, the Company has accumulated aggregate losses totaling
$(6,955,032).

The Company has funded its retained losses through the initial investment of
$650,000 in May 2001, $400,000 of capital contributed in February 2002,
approximately $2.6 million received in August 2002 from the sale of Preferred
Stock, the $700,000 borrowed March 2003, $627,000 received from deposits for the
purchase of racecar simulators by third parties, $185,000 received in February
and March, 2004 from the sale of Notes, and $1,243,000 by delaying payment to
its vendors. The Company is in the process of soliciting additional debt and/or
equity financing to fund current operating deficits and the Company's growth
plan. See further discussion under the "Liquidity and Capital Resources" section
below.

During the three months ended March 31, 2004, the Company had total revenues of
$1,609,346 compared to $2,120,314 for the three months ended March 31, 2003. The
decrease in revenue of 24.1% is attributed to: a) the closing of two racing
centers (Arbor Place and Crossgates Mall), b) the conversion of RiverTown Mall
to a revenue share location, c). the weakness of the economy and the war in
Iraq, d) revenues in the first quarter of 2003 included a sales promotion that
management chose not to repeat in the first quarter of 2004, e) the company's
lack of capital, resulting in 1) an inability to properly advertise and promote
the racing centers, and 2) an inability to purchase merchandise inventory at
levels necessary to adequately stock its stores.

Although revenues declined, expenses declined even further, resulting in a
smaller loss for the period ending March 31, 2004 as compared to the same period
in 2003

Review of Consolidated Financial Position

Cash and Cash Equivalents: The Company had $334,406 in cash and cash equivalents
as of March 31, 2004 compared with $249,005 at December 31, 2003, an increase of
$85,401. This increase in cash during the quarter was due principally to the
sale of notes totaling $185,000, and the receipt of $294,000 in deposits from
third parties committing to the future purchase of racecar simulators. This
receipt of cash was offset by the loss of $520,377 for the quarter. See further
discussion under the "Liquidity and Capital Resources" section below.



Trade Accounts Receivable: These are primarily credit card receivables and the
slightly higher balance of $41,578 at March 31, 2004 versus $39,459 at December
31, 2003 is due to the timing of the collection of these receivables at March
31, 2004 versus December 31, 2003.

<PAGE>

Merchandise Inventory: At March 31, 2004, merchandise inventory increased by
$16,448 from December 31, 2003 levels due primarily to the partial replenishment
of store merchandise inventories following the Christmas season.

Notes Payable: The Company sold secured notes totaling $331,000 in February and
March 2004 and granted options in connection therewith as further discussed in
Note 3 to the Consolidated Financial Statements. Of the total amount received,
$133,464 was attributed to options and the remainder of $197,536 was attributed
to the notes. The notes bear interest at a rate of 9.6% per annum. All amounts
due under the notes are due and payable February 2, 2005. Proceeds from these
notes in the amount of $145,750 were transferred from the outstanding balance on
the Bridge Loans of March, 2003.

Deposits on Simulator Sales: During the period ending March 31, 2004, the
Company entered into two more agreements for the purchase of its proprietary
racecar simulators, and collected $294,477 in deposits per the terms of these
agreements. Additionally, $20,000 of a deposit received in a prior period was
applied to a lease payment that became due on January 1, 2004.

Other Liabilities: Accounts payable, accrued payroll and payroll taxes, sales
taxes payable, unearned revenue, and other accrued expenses fluctuate with the
volume of business, timing of payments, and the day of the week on which the
period ends.

Review of Consolidated Results of Operations

Sales for the three months ended March 31, 2004 were $510,968 lower than the
comparable period in 2003 due primarily to: a) the closing of two racing centers
(Arbor Place and Crossgates Mall), b) the conversion of RiverTown Mall to a
revenue share location, c). the weakness of the economy and the war in Iraq, d)
revenues in the first quarter of 2003 included a sales promotion that management
chose not to repeat in the first quarter of 2004, e) the company's lack of
capital, resulting in 1) an inability to properly advertise and promote the
racing centers, and 2) an inability to purchase merchandise inventory at levels
necessary to adequately stock its stores.

During the first quarter of 2004, the Company has experienced a decline in the
average sales per week per store on a comparable basis from $15,251 for the
first quarter of 2003 to an average of $12,359 for the first quarter of 2004, a
decrease of 19.0%. Management believes this decrease is primarily attributable
to a lack of funding for merchandise inventory and the marketing and promotion
of the stores.

Operating expenses for the three months ended March 31, 2004 were approximately
129% of net sales and approximately 135% for the comparable period in 2003. The
primary reasons for the decrease in 2004 are the decreases in employee
compensation expenses, and rent expense. In the period ending March 31, 2004,
employee compensation expenses decreased by $303,292 as compared to the period
ending March 31, 2003, due to reductions in the corporate staff, the store
manager ranks, and the elimination of the Group Sales division. The reductions
in rent expense are the result of store closures, store conversions to revenue
share locations, and the renegotiation of leases at the remaining store
locations.

Despite the reduction in revenue for the period as compared to the same period
last year, the net loss for the quarter ending March 31, 2004 of $520,377 was
$236,059 less than the loss for the same period ending March 31, 2003. This was
the result of the cost containment activities implemented by management in the
second half of 2003.

Liquidity and Capital Resources

The primary source of funds available to the Company are receipts from customers
for simulator and merchandise sales, proceeds from equity offerings including
the $2,610,050 received in August 2002, proceeds from debt offerings including
the $700,000 in Secured Bridge Notes and warrants issued in March 2003, and the
$185,000 in new Notes and options issued in February and March, 2004, loans from
shareholders, credit extended by vendors, and possible future financings.

As of the filing of this Form 10-QSB, the net proceeds of $185,000 from the
Notes and options financing received in February and March 2004 and earmarked
for operations has been depleted and the Company believes the projected level of
cash receipts from simulator and merchandise sales may not be sufficient to fund
the daily operations of the business through 2004. A difficult consumer and

<PAGE>

retail environment and the lack of merchandise in the stores have created
further challenges at increasing the sales volume in 2004. However, management
believes that under the recently announced conversion of seven owned and
operated racing centers to revenue share locations, and based upon the
guaranteed minimum payments within the Checker Flag agreement as described
herein, and the Company's current financial projections, management expects the
Company to show a positive EBITDA soon after the landlords' approval of the
conversions. While the landlords have not formally agreed to the conversions to
revenue and assumption of the lease obligations, the Company is aware of no
reasons why they will not do so.

Management is seeking additional sources of short-term funds to continue
operations until additional long-term equity and/or debt financing can be
established.

The Company continues to explore both equity and collateralized debt financing
with several sources and is in various stages of discussion with each. While the
Company believes that at least one of these financing efforts will occur, there
are no assurances. Management believes that some combination of simulator sales
(from existing inventory of owned and unencumbered simulators), equity financing
and/or collateralized debt financing will generate enough capital to sustain the
business until permanent financing can be obtained, although there can be no
assurances.

Since inception, the Company's short-term and long-term plans have included
raising a level of investment adequate to accomplish the objectives of the
business. The required level of financing has not yet been achieved. Absent
additional funding, the Company believes it may not have sufficient resources to
satisfy cash requirements for the next twelve months or even the remainder of
2004. The Company's ability to raise the necessary financing will depend on many
factors, including the economic and market conditions prevailing at the time
financing is sought. Management believes that the investment climate since the
Company commenced operations has generally been unfavorable, particularly to
newer enterprises, which has hindered the Company in obtaining its financing
goals. Nonetheless, management believes that the recently announced conversion
of seven of its owed and operated racing centers to revenue share locations,
combined with some combination of simulator sales (from existing inventory of
owned and unencumbered simulators), the increased revenues from the recently
signed third party revenue share agreements, and even a minimum level of equity
financing and/or collateralized debt financing will allow the Company to achieve
positive EBITA and monthly profitability. While management has pursued financing
for some time, it has encountered difficulties in raising the financing, and
there can be no assurance that additional financing will be available or, if
available, that it will be on terms acceptable to the Company.

During the quarter ended March 31, 2004, the operating activities of the Company
provided net cash of $23,109 compared to net cash used of $654,179 for the
comparable period in 2003. The majority of the increase in cash provided in
operations was due to a smaller loss from operations, an increase in deposits on
future simulator sales, and an increase in accrued expenses.

During the three months ended March 31, 2004, the Company used $77,708 of net
cash in investing activities compared with $109,207 of net cash used in
investing activities during the comparable period in 2002. In 2003, the net cash
used relates primarily to the refurbishment of existing simulators.

During the three months ended March 31, 2004, the Company generated $140,000 of
net cash in financing activities, compared with $700,000 in the comparable
period in 2003. The Company intends to use the debt and equity markets to raise
sufficient capital to fund its operating deficits as it implements its new
business model, focusing on revenue share opportunities.

The Company intends to use the debt and equity markets to raise sufficient
capital to fund the operating expenses until the completion of the landlord
assignments and revenues from simulator sales is received. All of the $745,750
cash provided through financing activities during the year ended December 31,
2003 represents the receipt of proceeds from the issuance of the Secured Bridge
Notes and warrants in March 2003, along with a promissory note in August 2003.
The Secured Bridge Notes matured at December 31, 2003, but two of the note
holders representing $550,000 have entered into extension agreements pursuant to
which the maturity of the notes is extended to June 30, 2004, one purchaser of
$50,000 has been repaid $45,000 by the Company, and $145,750 was converted to
the Company's recent Note and Option Agreement.

As of March 31, 2004, the Company had cash and cash equivalents totaling
$334,406 compared to $249,005 at December 31, 2003. Current assets totaled
$475,954 at March 31, 2004 compared to $381,335 on December 31, 2003. Current

<PAGE>

liabilities totaled $4,037,308 on March 31, 2004 compared with $3,654,089 on
December 31, 2003. As such, these amounts represent an overall decrease in
working capital of $288,600 from December 31, 2003.

ITEM 3. Qualitative and Quantitative Disclosures of Market Risk

The fair value of the assets and liabilities comprising the Company's condensed
consolidated balance sheet are not subject to an inordinate amount of market
risk. The term market risk refers to the risk of loss arising from adverse
changes in interest rates and other relevant market rates and prices. The
Company's primary assets are the racing simulators and the software that runs
them. As such, the Company does not believe it has any significant exposure to
market risk, as defined.

ITEM 4. Controls and Procedures

The Principal Executive Officer ("PEO") and the Principal Financial Officer
("PFO") of the Company (currently one individual) have evaluated the
effectiveness of its disclosure controls and procedures (as defined in Rule
13a-14 of the Exchange Act) within 90 days prior to the filing of this report.
Based on that evaluation, the PEO and PFO have concluded that the Company's
disclosure controls and procedures are adequate and effective. There have been
no significant changes in the Company's internal controls, or in factors that
could significantly affect internal controls, subsequent to the most recent
evaluation of such controls.

<PAGE>


                                     PART II

Item 1.  Legal Proceedings

From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. As of March 31, 2004 and
as of the filing of this Interim Report on Form 10-QSB, the Company is not aware
of any material legal actions directed against the Company.

Item 2.  Changes in Securities

On January 13, 2004, 10,000 shares of common stock were issued under a Form S-8
filed on February 13, 2003 for consulting services.

On January 27, 2004, the Company issued 39,742 common shares to its former
President for the extinguishment of the Stock Purchase Interest on the Bridge
financing.

On January 27, 2004, the Company issued 150,000 common shares to Cameron &
Associates for consulting services provided.

On January 27, 2004, the Company issued 468,060 shares to Ropart Asset Mgmnt
Fund for the extinguishment of the Stock Purchase Interest on the Bridge
financing.

On January 29, 2004, the Company issued 11,363,640 shares for the conversion of
all of the remaining preferred stock to common stock.

On February 4, 2004, the Company issued 184,559 shares to Erik Risman for the
extinguishment of a liability to him of $ 31,375.

On March 12, 2004, the Company issued 65,034 to Ropart Asset Management Fund for
the extinguishment of the Stock Purchase Interest on the Bridge financing.


Item 3.  Defaults Upon Senior Securities

None, not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

None, not applicable.

Item 5.  Other Information

None, not applicable.

Item 6.   Exhibits and Reports on Form 8-K

A. Exhibits.

         10.1     Form of Note and Option Purchase Agreement and Security
                        Agreement
         10.2     Form of Procurement Contract
         10.3     Form of Master Revenue Sharing Agreement
         31.1     Certification  of the principal  executive  officer,  William
                        R.  Donaldson,  pursuant to 15 U.S.C.  Section 10A,  as
                        adopted pursuant to Section 302 of the Sarbanes-Oxley
                        Act of 2002.
         31.2     Certification  of the principal  financial  officer,  William
                        R.  Donaldson,  pursuant to 15 U.S.C.  Section 10A,  as
                        adopted pursuant to Section 302 of the Sarbanes-Oxley
                        Act of 2002.
         32.1     Certification  of the principal  executive  officer,  William
                        R. Donaldson,  pursuant to 18 U.S.C.  Section 1350,  as
                        adopted pursuant to Section 906 of the Sarbanes-Oxley
                        Act of 2002
         32.2     Certification  of the principal  financial  officer,  William
                        R. Donaldson,  pursuant to 18 U.S.C.  Section 1350,  as
                        adopted pursuant to Section 906 of the Sarbanes-Oxley
                        Act of 2002.

<PAGE>

B. Reports on Form 8-K.

        99.3    Termination of the client-auditor relationship between Crowe
                Chizek and Company, LLC and the Company dated March 18, 2004.
        99.4    Engagement of HJ & Associates as the new independent auditor for
                the Company dated March 19, 2004
        99.5    Announcement of the Agreement reached with Checker Flag
                Lightning for the conversion of 7 of the Company's stores into
                revenue share Checker Flag Lightning retail merchandise stores.
                Dates March 19, 2004
        99.6    Announcement of press release regarding Perfect Line completing
                milestone agreement with Checker Flag Lightning dated March 23,
                2004





                                   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.

                 INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP.

Date: May 14, 2004                 By:       /s/ William R. Donaldson
                                   --------------------------------------------
                                   William R. Donaldson
                                   Chairman of the Board and Chief Executive
                                   Officer


Pursuant to the requirements of the Securities Exchange of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.


Date: May 14, 2004                By:       /s/ William R. Donaldson
                                 -----------------------------------------------
                                  William R. Donaldson
                                  Chairman of the Board and Chief Executive
                                  Officer
                                  (Principal Executive Officer)

Date: May 14, 2004                By:       /s/ William R. Donaldson
                                 -----------------------------------------------
                                  William R. Donaldson
                                  Chairman of the Board and Chief Executive
                                  Officer
                                  (Principal Financial Officer)

<PAGE>


                                  EXHIBIT INDEX

Exhibits:

         10.1     Form of Note and Option Agreement and Security Agreement
         10.2     Form of Procurement Contract
         10.3     Form of Master Revenue Sharing Agreement
         31.1     Certification  of the principal  executive  officer,
                  William R.  Donaldson,  pursuant to 15 U.S.C.  Section 10A,
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002.
         31.2     Certification  of the principal  financial  officer,  William
                  R.  Donaldson,  pursuant to 15 U.S.C.  Section 10A,  as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002.
         32.1     Certification  of the principal  executive  officer,  William
                  R. Donaldson,  pursuant to 18 U.S.C.  Section 1350,  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.
         32.2     Certification  of the principal  financial  officer,  William
                  R. Donaldson,  pursuant to 18 U.S.C.  Section 1350,  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.