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


                                   FORM 10-QSB


           (X) QUARTERLY REPORT PURSUANT TO SECTION 13OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended: June 30, 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 August 10, 2004, there were 87,003,140 (par value $0.0001) common shares
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Exhibit Index on page 26.


<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 June 30, 2004 and
                        December 31, 2003.....................................5
                Consolidated Statements of Operations for the Three Months
                        Ended June 30, 2004 and 2003 .........................7
                Consolidated Statements of Operations for the Six Months
                        Ended June 30, 2004 and 2003 .........................8
                Consolidated Statement of Shareholders' Equity
                        for the Six Months Ended June 30, 2004................9
                Consolidated Statements of Cash Flows for the Six Months
                        Ended June 30, 2004 and 2003.........................10
                Notes to Consolidated Financial Statements...................12
Item 2.    Management's Discussion and Analysis of Financial Condition
                and Results of Operations....................................16
Item 3.    Internal Controls and Procedures..................................23


                                     PART II

Item 1.    Legal Proceedings.................................................24
Item 2     Changes in Securities. ...........................................24
Item 3     Defaults Upon Senior Securities...................................24
Item 4.    Submission of Matters to a Vote of Security Holders...............24
Item 5.    Other Information.................................................24
Item 6.    Exhibits and Reports on Form 8-K..................................24


SIGNATURES ..................................................................25

CERTIFICATIONS ..............................................................25

EXHIBITS INDEX ..............................................................26

EXHIBITS ....................................................................27




<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 June 30, 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>

<CAPTION>
                                     ASSETS

                                                                              June 30,            December 31,
                                                                                2004                  2003
                                                                         -----------------     -----------------
                                                                         (Unaudited)


CURRENT ASSETS

<S>                                                                      <C>                   <C>
   Cashand cash equivalents                                              $         248,961     $         249,005
   Trade accounts receivable                                                       128,180                39,459
   Other receivable                                                                      -                10,000
   Merchandise inventory                                                            23,404                48,875
   Prepaid insurance and other expenses                                             14,629                33,996
                                                                         -----------------     -----------------

     Total Current Assets                                                          415,174               381,335
                                                                         -----------------     -----------------

PROPERTY AND EQUIPMENT, NET                                                        864,211               869,014
                                                                         -----------------     -----------------

OTHER ASSETS

   Deposits                                                                         41,990                39,953
   Other intangible assets, net                                                     45,106                11,542
                                                                         -----------------     -----------------

       Total Other Assets                                                           87,096                51,495
                                                                         -----------------     -----------------

     TOTAL ASSETS                                                        $       1,366,481     $       1,301,844
                                                                         =================     =================


</TABLE>




<PAGE>


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

<TABLE>

<CAPTION>
                  LIABILTIES AND SHAREHOLDERS' EQUITY (Deficit)

                                                                              June 30,            December 31,
                                                                                2004                  2003
                                                                         -----------------     -----------------
                                                                         (Unaudited)


CURRENT LIABILITIES

<S>                                                                      <C>                   <C>
   Accounts payable                                                      $       1,671,379     $       1,561,830
   Accrued payroll and payroll taxes                                                57,869                98,858
   Sales tax payable                                                                33,193                51,308
   Gift certificates and customer deposits, net                                     99,794               113,087
   Deposits on simulator sales                                                     691,370               352,692
   Accrued expenses                                                                771,886               776,314
   Notes payable - related parties                                                 196,000               200,000
   Notes payable                                                                   895,670               500,000
                                                                                ----------            ----------

       Total Current Liabilities                                                 4,417,161             3,654,089
                                                                                ----------     -----------------

LONG TERM LIABILITIES

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

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

     TOTAL LIABILITIES                                                           4,417,161             3,699,839
                                                                                ----------     -----------------

COMMITMENT AND CONTINGENCIES

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, 87,003,140 and 74,314,183 shares issued
     and outstanding                                                                 8,700                 7,431
   Additional paid-in capital                                                    4,463,164             4,029,002
   Retained deficit                                                             (7,522,544)           (6,434,655)
                                                                         -----------------     -----------------

       Total Shareholders' equity (deficit)                                     (3,050,680)           (2,397,995)
                                                                         -----------------     -----------------

     TOTAL LIABILITIES AND SHAREHOLDERS'
       EQUITY (Deficit)                                                  $       1,366,481     $       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>


<CAPTION>
                                                                             For the Three Months Ended
                                                                                          June 30,
                                                                           ----------------------------------------
                                                                                  2004               2003
                                                                           ------------------  ------------------

NET SALES                                                                  $        1,483,826  $       1,860,750
                                                                           ------------------  -----------------

OPERATING EXPENSES

<S>                                                                                   <C>              <C>
   Payroll related expenses                                                           864,921          1,233,880
   Rent                                                                               570,833            872,641
   Other operating expenses                                                           513,236            735,404
                                                                           ------------------  -----------------

     Total Operating Expenses                                                       1,948,990          2,841,925
                                                                           ------------------  -----------------

OPERATING LOSS                                                                       (465,164)         (981,175)
                                                                           ------------------  ----------------

INTEREST EXPENSE                                                                      102,348             42,000
                                                                           ------------------  -----------------

LOSS BEFORE INCOME TAX                                                               (567,512)       (1,023,175)
                                                                           ------------------  ----------------

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

NET LOSS                                                                   $         (567,512) $     (1,023,175)
                                                                           ==================  ================

BASIC NET LOSS PER COMMON SHARE                                            $            (0.01) $          (0.02)
                                                                           ==================  ================

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                                                      86,661,141         61,355,055
                                                                           ==================  =================

</TABLE>


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


<PAGE>



<TABLE>

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



                                                                              For the Six Months Ended
                                                                                          June 30,
                                                                           ----------------------------------------
                                                                                  2004               2003
                                                                           ------------------  ------------------

NET SALES                                                                  $        3,093,172  $       3,981,064
                                                                           ------------------  -----------------

OPERATING EXPENSES

<S>                                                                                 <C>                <C>
   Payroll related expenses                                                         1,741,734          2,413,984
   Rent                                                                             1,172,598          1,708,181
   Other operating expenses                                                         1,111,408          1,579,077
                                                                           ------------------  -----------------

     Total Operating Expenses                                                       4,025,740          5,701,242
                                                                           ------------------  -----------------

OPERATING LOSS                                                                       (932,568)       (1,720,178)
                                                                           ------------------  ----------------

INTEREST EXPENSE                                                                      155,321             59,432
                                                                           ------------------  -----------------

LOSS BEFORE INCOME TAX                                                             (1,087,889)       (1,779,610)
                                                                           ------------------  ----------------

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

NET LOSS                                                                   $       (1,087,889) $     (1,779,640)
                                                                           ==================  ================

BASIC NET LOSS PER COMMON SHARE                                            $            (0.01) $          (0.03)
                                                                           ==================  ================

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                                                      86,383,101         61,334,144
                                                                           ==================  =================


</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
<CAPTION>
                                            Preferred Stock            Common Stock       Paid-In       Retained    Shareholders'
                                          Shares         Amount      Shares      Amount   Capital       Deficit     Equity (Deficit)
                                          --------      ---------    --------    -------   --------     ----------   ---------------


<S>                 <C> <C>                <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 (unaudited)                      -               -          10,000         1       2,299             -             2,300

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

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

Issuance of common stock for
  extinguishments of accrued liabilities
  (unaudited)                               -               -         842,361        85     115,535             -           115,620

Fair value of options granted (unaudited)   -               -               -        -      276,122             -           276,122

Issuance of common stock for
  payment of interest (unaudited)           -               -         157,922        16      16,146             -            16,162

Issuance of common stock  for
  consulting services (unaudited)           -               -         250,000        24      14,976             -            15,000

Net loss for the six months ended
  June 30, 2004 (unaudited)                 -               -               -         -           -        (1,087,889)   (1,087,889)
                                            ------------    ------   ----------     -----    -------        -----------    --------

Balance at June 30, 2004 (unaudited)        -               -      87,003,140    8,700    4,463,164        (7,522,544)   (3,050,680)
                                            ============    =====  ==========    ======   =========       =============   ========

</TABLE>

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

<PAGE>

<TABLE>

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


                                                                                    For the Six Months Ended
                                                                                               June 30,
                                                                            -----------------------------------------------
                                                                                    2004                      2003
                                                                            --------------------        ----------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                         <C>                 <C>
   Net loss                                                                 $       (1,087,889) $       (1,779,610)
   Adjustments to reconcile net loss to net cash used
     by operating activities:
     Depreciation and amortization                                                     189,786             184,624
     Common stock issued for services                                                    3,462              16,680
     Common stock issued for interest                                                   25,000                   -
     Amortization of notes payable discount                                             67,792                   -
     Provision for inventory obsolescence                                                    -              10,000
   Net changes in operating assets and liabilities:
     (Increase) decrease in trade accounts and other receivable                        (78,721)             46,505
     Decrease in merchandise inventory                                                  25,471              63,284
     Increase in prepaid expenses and other assets                                        (333)               (836)
     Increase in deposits                                                               (2,036)             (1,942)
     Increase in accounts payable                                                      109,549             766,755
     Decrease in accrued payroll and payroll taxes                                     (40,989)            (55,037)
     Decrease in sales tax payable                                                     (18,115)            (14,483)
     Decrease in gift certificates and customer deposits                               (13,293)            (24,000)
     Increase (decrease) in accrued expenses                                           111,442            (159,721)
     Increase decrease in accrued property taxes                                             -               2,942
     Increase in deposits on simulator sales                                           338,678                   -
                                                                            ------------------  ------------------

       Net Cash Used by Operations                                                    (370,196)           (944,839)
                                                                            ------------------ -------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of property and equipment                                                 (183,848)           (109,207)
                                                                            ------------------     ----------------

       Net Cash Used by Investing Activities                                          (183,848)           (109,207)
                                                                            ------------------ --------------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Loans from and (repayments to) related parties                                      (50,000)            200,000
   Proceeds from issuance of notes payable                                             604,000                   -
   Bridge loan proceeds                                                                      -             500,000
                                                                            ------------------  ------------------

       Net Cash Provided by Financing Activities                                       554,000             700,000
                                                                            ------------------  ------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                           (44)           (354,046)

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $          248,961  $          228,859
                                                                            ==================  ==================

</TABLE>

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

<PAGE>

<TABLE>

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




                                                                             For the Six Months Ended
                                                                                       June 30,
                                                                            -------------------------------------------
                                                                               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                                            $          276,122  $                -
   Common stock issued for capitalized loan fees                            $           15,000  $                -

</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 June 30, 2004 and the unaudited consolidated statements of
              operations and statements of cash flows for the three and six
              months ended June 30, 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 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 six months ended June 30, 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

              On June 9, 2004, the Company issued 250,000 shares of its common
              stock for consulting services valued at $15,000. On June 1, 2004
              and June 25, 2004, the Company issued 8,117 and 149,805 shares of
              its common stock for payment of interest on the bridge financing
              respectively.

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 $419,000 during the three months ended
              June 30, 2004. 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 5,152,272 shares of the Company's common stock
              were granted during the three months ended June 30, 2004. The
              options were valued at $142,658 and will be amortized to interest
              expense over their life which expires March 1, 2005. Amortization
              of option discount of $53,312 was included in interest expense for
              the three months ended June 30, 2004.
<PAGE>

NOTE 3 -      DEBT AND CREDIT ARRANGEMENTS (continued)

               The notes are secured by 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 believes the
               projected level of cash receipts from Revenue Share sites,
               existing lease contracts, contracts to purchase Simulator
               systems, and from simulator and merchandise sales will likely be
               sufficient to fund the daily operations of the business through
               2004, although there can be no assurance.

               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. One full quarter of financials has not
               yet occurred under the revised business model and assigned leases
               (lease assignments occurred from May through July), so management
               has not yet had the opportunity to prove the model. However,
               preliminary financials from July of 2004, the first month of its
               third quarter, along with signed revenue share agreements and
               simulator sale orders, give management reason to be confident in
               stating that the Company will achieve positive EBITDA and
               quarterly profitability for the foreseeable future. The Company
               completed its first sale of simulators in the month of July, and
               management believes that sales will continue into the future.

               For the period ending June 30,, 2004, the Company's revenue
               channels generated revenue of approximately $3.1 million.
               Operating prior to the lease assignments and without the
               necessary capital to properly market and merchandise these
               stores, sales performance resulted in a net loss of approximately
               $1.09 million for the six month period. Performance for the three
               months ending June 30, 2004 resulted in a loss of approximately
               $568,000 on revenue of approximately $1.5 million for the
               quarter. The Company assigned five of its mall leases to Checker
               Flag Lightning and moved the assets from a sixth mall location to
               another more favorable revenue share location by the end of July,
               2004. As of this filing, each of the landlords has orally
               approved the terms of the assignments and each has permitted the
               conversion of the stores to Checker Flag Lightning, including
               physical improvements to the site, while the final agreements are
               in various stages of draft
<PAGE>

               NOTE 5 -    MANAGEMENT PLANS

               forms. Management believes the improved financials resulting from
               the lease assignments and the increased revenue share and lease
               business will enhance the Company's ability to secure long term
               debt or equity financing. The payables due to the landlords (the
               vast majority of the current outstanding payables) were addressed
               in the lease assignments to Checker Flag Lightning and various
               payment plans are in place which are favorable to the Company.

               The primary source of funds available to the Company going
               forward are receipts from customers for simulator and merchandise
               sales in its owned and operated racing centers, percentage of
               gross revenues from simulator races and minimum guarantees from
               revenue share sites, profits from the sale of simulators to third
               parties, 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 $750,000 in new Notes and options issued between
               February and June, 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
               $604,000 from the Notes and options financing received in the
               first six months of 2004 and earmarked for operations has been
               depleted and the Company believes the projected level of cash
               receipts from Revenue Share sites, existing lease contracts,
               contracts to purchase Simulator systems, and from simulator and
               merchandise sales will likely be sufficient to fund the daily
               operations of the business through 2004, although there can be no
               assurance. Under the restructured business model, sales for the
               first six months of 2004 are 22.3% lower than for the same period
               one year ago, while occupancy costs and payroll costs are 31.3%
               and 27.8% lower respectively, resulting in a reduction in the net
               loss of 38.9% or $691,751 for the comparable six month periods.
               With five mall leases assigned to Checker Flag Lightning and a
               sixth moving to an improved location by the end of July, 2004,
               management reconfirms its earlier statement that the assignments
               will result in a positive EBITDA for the company.

               With the cash flow improving, and in the opinion of management
               under control, and various purchase and revenue share agreements
               signed that establish a much greater value for the Company's
               assets than the balance sheet shows, the Company is more
               confident than ever that it will be successful in raising
               additional working capital through a collateralized debt
               offering,. While the company believes that these financing
               efforts will be successful, there are no assurances. Management
               believes that some combination of simulator sales (from existing
               inventory of owned and unencumbered simulators), along with
               collateralized debt financing may 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 desired level of
               financing has not yet been achieved. Absent additional funding,
               the Company believes it may have sufficient cash flow to sustain
               daily operations, but additional financing is required to fully
               implement the desired level of growth in its revised business
               model. The Company's ability to raise the desired 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
<PAGE>

               financing goals. Nonetheless, management believes that the recent
               mall lease conversions to revenue share locations, combined with
               some combination of simulator sales (from existing inventory of
               owned and unencumbered simulators) and the increased revenues
               from the recently signed third party revenue share agreements
               will allow the Company to achieve positive EBITDA and monthly
               profitability.  While management is pursuing various forms of
               Financing, there can be no assurance that additional financing
               will be available or, if available, that it will be on terms
               acceptable to the Company.

               Currently, the Company is exploring collateralized debt financing
               with several sources and is in various stages of discussion with
               each. The Company has interest from parties interested in an
               equity investment in the Company, but management's first priority
               is secured debt financing using as collateral its simulator
               inventory and its recent sales and revenue share transactions to
               establish a market value of $75,000 per simulator.




<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., is
a world leader in race  simulation  that owns and  operates  two NASCAR  Silicon
Motor Speedway  ("NSMS") racing centers with a total of 24 simulators  under its
revised business model, and has agreements for revenue share sites featuring 119
simulators and lease  agreements for an additional 8 simulators.  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 range from 2 to 12 racecar  simulators
per  location  and many sites  offer what the  Company  believes  to be the best
selling NASCAR driver merchandise available to the market.

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 30  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

For the six month period ending June 30, 2004,  the Company's  revenue  channels
generated  revenue of approximately  $3.1 million.  Operating prior to the lease
assignments and without the necessary capital to properly market and merchandise
these stores,  sales performance  resulted in a net loss of approximately  $1,09
million for the 6 month  period.  Performance  for the 3 months  ending June 30,
2004 resulted in a loss of  approximately  $568,000 on revenue of  approximately
$1.5 million for the quarter.  The Company  assigned  five of its mall leases to
Checker  Flag  Lightning  and moved the  assets  from a sixth mall  location  to
another more favorable  location by the end of July, 2004.  Management  believes
the improved  financials  resulting from the lease assignments and the increased
revenue share and lease  business  will enhance the Company's  ability to secure
long term debt or equity financing.  The payables due to the landlords (the vast
majority  of the  current  outstanding  payables)  were  addressed  in the lease
assignments  to Checker Flag  Lightning  and various  payment plans are in place
which are favorable to the Company. As of this filing, each of the landlords has
orally  approved  the  terms  of the  assignments  and each  has  permitted  the
conversion  of  the  stores  to  Checker  Flag  Lightning,   including  physical
improvements  to the site,  while the final  agreements are in various stages of
draft forms.

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>

Locations


Company Owned (24 simulators):
<TABLE>

<CAPTION>
              Location                     Market              Sq. Ft.          Simulators
       --------------------         -------------------     -----------         ----------
<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 (119 simulators):


             Location                      Market              Sq. Ft.          Simulators
     ----------------------         -------------------     -----------         ----------
1)       Opry Mills                 Nashville, TN             6,007             10 racecars
2)       Woodfield (1)              Chicago, IL               6,111              6 racecars
3)       Palisades Center           Nyack, NY                 5,700             12 racecars
4)       Concord Mills              Charlotte, NC             7,865             12 racecars
5)       Mall of Georgia            Atlanta, GA               5,895              8 racecars
6)       Katy Mills                 Houston, TX               6,172              8 racecars
7)       Riverchase Galleria        Birmingham, AL            6,188              8 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(2) Syracuse, NY             3,472              8 racecars
14)      Playcenter(3)              Sao Paulo, Brazil         1,000              4 racecars
15)      Jordan Creek Town Ctr      Des Moines, Iowa          4,000              8 racecars
16)      NASCAR SpeedPark(4)        Toronto, Ontario          1,500              6 racecars

        (1) Six simulators are moving to Checker Flag Lightning store at Gurnee Mills in Gurnee, IL
        (2) Scheduled to open in August, 2004
        (3) Scheduled to open TBD
        (4) Scheduled to open in November, 2004


Mobile Units (8 simulators):

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


Sales of Simulators (30 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
5)  Fort Gordon                Ft. Gordon, GA                   2 racecars


</TABLE>
<PAGE>

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 a world leader in race simulation, in the business of owning and
operating simulated racing centers, selling racing related merchandise,  revenue
sharing with partners in malls,  amusement parks, family entertainment  centers,
casinos and auto malls,  leasing for mobile fan interactive  experiences and the
selling simulators to third parties.

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  utilized 136 of the
simulators,  between July 2001 and August 2002.  The Company then  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 create
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.

<PAGE>
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. Many 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.

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 Grandville, 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 Grandville,
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 recently opened a 3,500 square foot retail merchandise and
entertainment center featuring 8 of the Company's simulators in the new Jordan
Creek Town Center in West 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 30 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.

<PAGE>
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
(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.

In order to meet the ongoing demand for the Company's simulators, the Company
has submitted purchase orders for 50 new race car simulators with Elan
Motorsports Technologies who will manufacture and assemble the simulators at a
rate of 2 per week beginning in September. The manufacturing will be funded by a
combination of advance deposits due from customers and the financing that the
Company anticipates generating due to the Company's recent financial
improvements.

Overview of Financial Position and Results of Operations

During the six months ended June 30, 2004, the Company had total revenues of
$3,093,172 compared to $3,981,064 for the six months ended June 30, 2003. The
decrease in revenue of 22.3% is attributed to: a) the closing of two racing
centers (Arbor Place and Crossgates Mall), b) the conversion of 4 company store
locations to revenue share locations (Grandville MI, Charlotte NC, Nashville TN,
and Houston TX) 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 remaining stores.

The company accelerated its turnaround plan in the three months ending June 30,
2004. Although sales declined 20.3% as compared to the three months ending June
30, 2003, operating expenses declined at an even faster rate, resulting in a
52.6% decrease in the operating loss for the quarter ending June 30, 2004 as
compared to the same period in 2003. Payroll expenses declined 29.9% and rent
expense declined 34.6% when comparing the second quarter 2004 to the second
quarter 2003. The net loss for the quarter ending June 30,2004 of ($567,512) was
44.5% lower than the ($1,023,175) loss for the same quarter one year ago.

For the six months ending June 30,2004, sales declined 22.3% as compared to the
six months ending June 30, 2003. Again, operating expenses declined at an even
faster rate, resulting in a 45.8% decrease in the operating loss for the six
months ending June 30, 2004 as compared to the same period in 2003. Payroll
expenses declined 27.8% and rent expense declined 31.3% when comparing the first
six months of 2004 to the first six months of 2003. The net loss for the first
half of 2004 of ($1,087,889) was 38.9% lower than the ($1,779,610) loss for the
first same period one year ago. 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 June 30, 2004, the Company has accumulated
aggregate losses totaling ($7,522,544).

<PAGE>

The Company's cash flow position from operations also improved, albeit not to
the level necessary to fund ongoing operations. Cash generated from operations
for the six months ending June 30, 2004 improved by almost $575,000 from the
same six month period in 2003. Cash used by operations improved to $370,196 as
compared to $944,839 for the first six months of 2003. Additionally, the Company
relied less on its trade payables to fund operations during the first six months
of 2004 than during the same period in 2003. Accounts payable increased by only
$109,549 during the first half of 2004, as compared to increasing by $766,755
during the first half of 2003. Cash flow from all sources (operations, investing
activities and financing activities) was sufficient to fund the company during
the six months ending June 30, 2004, as compared to a cash flow deficit of
$354,046 generated from all sources for the six months ending June 30, 2003. The
cash position remained virtually unchanged from December 31, 2003 to June 30,
2004, as compared to a $354,046 reduction in the cash position from December,
2002 to June 30, 2003.

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, $691,000 received from deposits for the
purchase of racecar simulators by third parties, $604,000 received in the first
six months of 2004 from the net proceeds of Notes, and $1,353,000 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.

Review of Consolidated Financial Position

Cash and Cash Equivalents: The Company had $248,961 in cash and cash equivalents
as of June 30, 2004 compared with $249,005 at December 31, 2003, an decrease of
$44. This stable position of cash during the half was due principally to the
improvement in bottom line performance, sale of notes totaling $604,000, and the
receipt of $338,678 in deposits from third parties committing to the future
purchase of racecar simulators. See further discussion under the "Liquidity and
Capital Resources" section below.

Trade Accounts Receivable: As the new business model is implemented, management
believes this component of the balance sheet will increasingly reflect the
revenue due to the Company from our revenue share sites. The increase in Trade
Receivables of $78,721 from December 31, 2003 to June 30, 2004 is due to the
timing difference of when the revenue from our Revenue Share sites is
recognized, and when payment is due during the following month.

Merchandise Inventory: At June 30, 2004, merchandise inventory decreased by
$25,471 from December 31, 2003 levels due primarily to the conversion of three
company store locations to Revenue Share locations during the period. In
addition, the company continued to be deficient in the capital necessary to
stock its remaining stores to the level necessary to generate increases in
revenue from the sale of merchandise.

Notes Payable: Between February and June, 2004 the Company sold secured notes
totaling $750,000 and granted options in connection therewith as further
discussed in Note 3 to the Consolidated Financial Statements. Of the total
amount received, $276,122 was attributed to options and the remainder of
$473,878 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 the March, 2003 Bridge Note in the amount of $145,750 were used to
acquire a like amount of the 2004 notes.

Deposits on Simulator Sales: During the six month period ending June 30, 2004,
the Company entered into three more agreements for the purchase of its
proprietary racecar simulators, and collected $390,678 in deposits per the terms
of these agreements. Additionally, the $100,000 deposit received in a prior
period was applied to lease payments that became due on January 1, 2004, and
April 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.

<PAGE>

Review of Consolidated Results of Operations

During the six months ended June 30, 2004, the Company had total revenues of
$3,093,172 compared to $3,981,064 for the six months ended June 30, 2003. The
decrease in revenue of 22.3% is attributed to: a) the closing of two racing
centers (Arbor Place and Crossgates Mall), b) the conversion of 4 company store
locations to revenue share locations (Grandville MI, Charlotte NC, Nashville TN,
and Houston TX) 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 remaining stores.

Operating expenses for the six months ended June 30,, 2004 were approximately
130% of net sales and approximately 143% 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 June 30, 2004,
employee compensation expenses decreased by $672,250 as compared to the period
ending June 30, 2003, due to reductions in the corporate staff, the store
manager ranks, the elimination of the Group Sales division, and the conversion
of 4 company store locations to Revenue Share locations. 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 six months ending June 30, 2004 of $1,087,889
was $691,751 less than the loss for the same period ending June 30, 2003. This
was the result of the implementation of the new business model and cost
containment activities enacted by management beginning in the second half of
2003 and continuing through the first six months of 2004.

Liquidity and Capital Resources

The primary source of funds available to the Company are receipts from customers
for simulator and merchandise sales in its owned and operated racing centers,
percentage of gross revenues from simulator races and minimum guarantees from
revenue share sites, 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 $750,000 in new
Notes and options issued between February and June, 2004, loans from
shareholders, credit extended by vendors, and possible future financings. Going
forward, the Company anticipates profits from the sale of simulators, with the
first complete sale of simulators occurring in July of 2004.

As of the filing of this Form 10-QSB, the net proceeds of $604,000 from the
Notes and options financing received in the first six months of 2004 and
earmarked for operations has been depleted and the Company believes the
projected level of cash receipts from Revenue Share sites, existing lease
contracts, contracts to purchase Simulator systems, and from simulator and
merchandise sales will likely be sufficient to fund the daily operations of the
business through 2004, although there can be no assurance. Under the
restructured business model, sales for the first six months of 2004 are 22.3%
lower than for the same period one year ago, while occupancy costs and payroll
costs are 31.3% and 27.8% lower respectively, resulting in a reduction in the
net loss of 38.9% or $691,751 for the comparable six month periods. With five
mall leases assigned to Checker Flag Lightning and a sixth moving to an improved
location by the end of July, 2004, management reconfirms its earlier statement
that the assignments will result in a positive EBITDA for the company.

With the cash flow improving, and in the opinion of management under control,
and various purchase and revenue share agreements signed that establish a much
greater value for the Company's assets than the balance sheet shows, the Company
is more confident than ever that it will be successful in raising additional
working capital through a collateralized debt offering,. While the company
believes that these financing efforts will be successful, there are no
assurances that agreements can be reached on terms acceptable to management.
Management believes that some combination of simulator sales (from existing
inventory of owned and unencumbered simulators), along with collateralized debt
financing will generate enough capital to sustain the business until permanent
financing can be obtained, although there can be no assurances.

<PAGE>

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 desired level of financing has not yet been achieved. Absent
additional funding, the Company believes it may have sufficient cash flow to
sustain daily operations, but additional financing is required to fully
implement the desired level of growth in its revised business model. The
Company's ability to raise the desired 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 recent mall lease conversions to
revenue share locations, combined with some combination of simulator sales (from
existing inventory of owned and unencumbered simulators) and the increased
revenues from the recently signed third party revenue share agreements will
allow the Company to achieve positive EBITDA and monthly profitability. While
management is pursuing various forms of financing, 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 six months ended June 30, 2004, the operating activities of the
Company used net cash of $370,196 compared to net cash used of $944,839 for the
comparable period in 2003. The majority of the increase in cash provided by
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 six months ended June 30, 2004, the Company used $183,848 of net cash
in investing activities compared with $109,207 of net cash used in investing
activities during the comparable period in 2003. In 2004, the net cash used
relates primarily to the refurbishment of existing simulators for placement in
new revenue share locations, and to purchase the necessary components to effect
the sale of 4 simulator systems to a client in Abu Dhabi, UAE.

During the six months ended June 30, 2004, the Company generated $554,000 of net
cash in financing activities, compared with $700,000 in the comparable period in
2003. The Company will continue to use the debt and equity markets to raise
sufficient capital to fund its growth opportunities as it continues to implement
its new business model, focusing on revenue share opportunities.

The Company intended 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. To that end, all of
the $554,000 of net cash provided through financing activities during the six
month period ending June 30, 2004 representing the receipt of proceeds from the
issuance of the Secured Note and Option Agreement has been fully used to fund
daily operations, including simulator refurbishments for future growth.
Additionally, the Company has consumed all of the $745,750 cash provided through
financing activities during the year ended December 31, 2003 representing 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 September 30, 2004, one purchaser of $50,000 has
been repaid in full by the Company, and $145,750 was converted during the first
six months of 2004 to the Company's recent Note and Option Agreement.

As of June 30, 2004, the Company had cash and cash equivalents totaling $248,961
compared to $249,005 at December 31, 2003. Current assets totaled $415,174 at
June 30, 2004 compared to $381,335 on December 31, 2003. Current liabilities
totaled $4,417,161 on June 30,, 2004 compared with $3,654,089 on December 31,
2003. As such, these amounts represent an overall decrease in working capital of
$729,233 for the six months ending June 30, 2004.


ITEM 3. 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 June 30, , 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 June 1, 2004, the Company issued 8,117 common shares to its former President
for the payment in full of the Stock Purchase Interest on the Bridge financing.

On June 10, 2004, the Company issued 75,000 common shares to Cameron &
Associates for consulting services provided.

On June 10, 2004, the Company issued 175,000 common shares to Steven Eisenberg
for consulting services provided.

On June 25, 2004, the Company issued 149,805 shares to Ropart Asset Management
Fund for the payment 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.

         * Incorporated by reference from form 10-QSB filed on May 17, 2004


<PAGE>

B. Reports on Form 8-K.

         99.7     Announcement that for the first time, the Company achieved
                  positive cash flow from operations for the first quarter, 2004
                  dated May 18, 2004.
         99.8     Announcement of the completion of the Company's $750,000 Note
                  and Purchase Agreement and Security Agreement dated June 10,
                  2004.
         99.9     Announcement of a letter to Shareholders dated June 28, 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: August 16, 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: August 16, 2004             By:       /s/ William R. Donaldson
                                  ----------------------------------------------
                                  William R. Donaldson
                                  Chairman of the Board and Chief Executive
                                  Officer
                                  (Principal Executive Officer)

Date: August 16, 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.