---

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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549


FORM 10-Q/A

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934For
the Quarterly Period Ended: March 31, 2008

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

Commission File Number:
000-30771

INTERACTIVE MOTORSPORTS ANDENTERTAINMENT CORP.(Exact name of registrant as
specified in charter)

|                                                                |  |                            
|--------------------------------------------------------------- |  | ---------------------------
|Indiana                                                         |  | 35-2205637                 
|(State
 or other jurisdiction of incorporation or organization) |  | (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 check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x  No o

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934).

|                          |  |                     |  |                                                                      |  |                            
|------------------------- |  | ------------------- |  | -------------------------------------------------------------------- |  | ---------------------------
|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer o(do not check if
 smaller
 reporting company) |  | Smaller reporting company x

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934).

Yes o  No x

As
of June 13, 2008, there were 105,503,910 (par value $0.0001) common shares
issued and outstanding.

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INDEX
TO QUARTERLY REPORT ON FORM 10-Q/A

|               |  |                                                                                                                        |  |     
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                                        |  | PAGE
|               |  |                                                                                                                        |  |     
|SECTION        |  |                                                                                                                        |  |     
|               |  |                                                                                                                        |  |     
|PART I         |  |                                                                                                                        |  |     
|               |  |                                                                                                                        |  |     
|ITEM 1.        |  | Unaudited
 Condensed Financial Statements and Notes to Financial Statements                                            |  |     
|               |  | Consolidated Balance Sheets at March 31, 2008 and
 December 31, 2007                                                   |  | 3   
|               |  | Consolidated Statements of Operations for the Three
 Months Ended March 31, 2008 and December 31, 2007                 |  | 5   
|               |  | Consolidated Statements of Changes in Shareholders
 Deficit for the Period Ended March 31, 2008 and December 31, 2007 |  | 6   
|               |  | Consolidated Statements of Cash Flows for the Three
 Months Ended March 31, 2008 and December 31, 2007                 |  | 7   
|               |  | Notes to Consolidated Financial Statements                                                                             |  | 9   
|ITEM 2.        |  | Managements Discussion and Analysis of Financial
 Condition and Results of Operations                                 |  | 13  
|ITEM 3.        |  | Quantitative and Qualitative Disclosures About Market
 Risk                                                            |  | 19  
|ITEM 4.        |  | Internal Controls and Procedures                                                                                       |  | 19  
|               |  |                                                                                                                        |  |     
|PART II        |  |                                                                                                                        |  |     
|               |  |                                                                                                                        |  |     
|ITEM 1.        |  | Legal
 Proceedings                                                                                                     |  | 20  
|ITEM 1A.       |  | Risk Factors                                                                                                           |  | 21  
|ITEM 2.        |  | Unregistered Sales of Equity Securities and Use of
 Proceeds                                                           |  | 22  
|ITEM 3.        |  | Defaults Under Senior Securities                                                                                       |  | 22  
|ITEM 4.        |  | Submission of Matters to a Vote of Security Holders                                                                    |  | 22  
|ITEM 5.        |  | Other Information                                                                                                      |  | 22  
|ITEM 6.        |  | Exhibits                                                                                                               |  | 23  
|               |  |                                                                                                                        |  |     
|SIGNATURES     |  | 24                                                                                                                    
|               |  |                                                                                                                        |  |     
|EXHIBIT
 INDEX |  | 25                                                                                                                    

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

2

---



PART I

Item 1. Condensed Financial Statements

INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND
SUBSIDIARIESConsolidated
Balance Sheets

ASSETS

|                                                                                                                   |  |                |           |                   |   |           | 
|------------------------------------------------------------------------------------------------------------------ |  | -------------- | --------- | ----------------- | - | --------- | 
|                                                                                                                   |  | March 31, 2008 |           | December 31, 2007 |  
|                                                                                                                   |  |                |           |                   |  
|                                                                                                                   |  | (Unaudited)    |           | (Audited)         |  
|Current Assets                                                                                                     |  |                |           |                   |   |           | 
|Cash                                                                                                               |  | $              | 74,476    |                   | $ | 133,731   | 
|Accounts Receivable, Net of
allowance for bad debt of $78,776 in
 March 31, 2008 and $238,781 in December 31, 2007 |  |                | 184,926   |                   |   | 203,095   | 
|Inventory                                                                                                          |  |                | 310,443   |                   |   | 319,062   | 
|Prepaid
Expenses                                                                                                   |  |                | 18,561    |                   |   | 16,314    | 
|                                                                                                                   |  |                |           |                   |   |           | 
|Total Current
Assets                                                                                               |  |                | 588,406   |                   |   | 672,202   | 
|                                                                                                                   |  |                |           |                   |   |           | 
|Property and Equipment                                                                                             |  |                |           |                   |   |           | 
|Total Property
and Equipment, Net                                                                                  |  |                | 802,157   |                   |   | 858,306   | 
|                                                                                                                   |  |                |           |                   |   |           | 
|Other Assets                                                                                                       |  |                |           |                   |   |           | 
|Deposits                                                                                                           |  |                | 4,442     |                   |   | 18,036    | 
|                                                                                                                   |  |                |           |                   |   |           | 
|Total Other
Assets                                                                                                 |  |                | 4,442     |                   |   | 18,036    | 
|                                                                                                                   |  |                |           |                   |   |           | 
|                                                                                                                   |  |                |           |                   |   |           | 
|Total Assets                                                                                                       |  | $              | 1,395,005 |                   | $ | 1,548,544 | 
|                                                                                                                   |  |                |           |                   |   |           | 

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

3

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND
SUBSIDIARIESConsolidated Balance
Sheets (Continued)

LIABILTIES AND SHAREHOLDERS EQUITY (DEFICIT)

|                                                    |  |                |             |                   |   |             |  
|--------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | ----------- | -
|                                                    |  | March 31, 2008 |             | December 31, 2007 |  
|                                                    |  |                |             |                   |  
|                                                    |  | (Unaudited)    |             | (Audited)         |  
|Current
 Liabilities                                |  |                |             |                   |   |             |  
|Accounts
Payable                                    |  | $              | 945,146     |                   | $ | 871,649     |  
|Accrued Payroll
Expense                             |  |                | 12,227      |                   |   | 73,467      |  
|Accrued Sales
Tax Payable                           |  |                | 10,819      |                   |   | 41,514      |  
|Gift Cert.
& Customer Deposits                      |  |                | 31,702      |                   |   | 29,595      |  
|Deposits on
Simulator Sales                         |  |                | 1,066,956   |                   |   | 1,011,158   |  
|Accrued
Liabilities                                 |  |                | 391,461     |                   |   | 386,571     |  
|Notes Payable -
Related parties                     |  |                | 50,000      |                   |   | 50,000      |  
|Notes
payable                                       |  |                | 2,299,888   |                   |   | 2,064,672   |  
|                                                    |  |                |             |                   |   |             |  
|Total Current
Liabilities                           |  |                | 4,808,199   |                   |   | 4,528,626   |  
|                                                    |  |                |             |                   |   |             |  
|Long-term
 Liabilities                              |  |                |             |                   |   |             |  
|Notes
payable                                       |  |                | 1,339,579   |                   |   | 1,574,456   |  
|                                                    |  |                |             |                   |   |             |  
|                                                    |  |                |             |                   |   |             |  
|Total
Liabilities                                   |  |                | 6,147,778   |                   |   | 6,103,082   |  
|                                                    |  |                |             |                   |   |             |  
|                                                    |  |                |             |                   |   |             |  
|Shareholders
 Equity (Deficit)                     |  |                |             |                   |   |             |  
|Common
Stock                                        |  |                | 10,120      |                   |   | 10,120      |  
|Additional Paid
in Capital                          |  |                | 5,582,011   |                   |   | 5,582,011   |  
|Retained
Deficit                                    |  |                | (10,344,904 | )                 |   | (10,160,262 | )
|                                                    |  |                |             |                   |   |             |  
|Total
Shareholders Equity (Deficit)                |  |                | (4,752,773  | )                 |   | (4,568,131  | )
|                                                    |  |                |             |                   |   |             |  
|                                                    |  |                |             |                   |   |             |  
|Total
 Liabilities & Shareholders Equity (Deficit) |  | $              | 1,395,005   |                   | $ | 1,534,950   |  
|                                                    |  |                |             |                   |   |             |  

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

4

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND
SUBSIDIARIESConsolidated
Statement of Operations
(Unaudited)

|                                                 |  |                                     |             |      |   |             |  
|------------------------------------------------ |  | ----------------------------------- | ----------- | ---- | - | ----------- | -
|                                                 |  | For the Three Months EndingMarch 31 |            
|                                                 |  |                                     |            
|                                                 |  | 2008                                |             | 2007 |  
|                                                 |  |                                     |             |      |  
|Revenues                                         |  |                                     |             |      |   |             |  
|Company Store
Sales                              |  | $                                   | 286,320     |      | $ | 457,843     |  
|Revenue Share
Sales                              |  |                                     | 136,265     |      |   | 98,845      |  
|Simulator
Leases                                 |  |                                     |            |      |   | 6,333       |  
|Sales of
Simulator Systems                       |  |                                     | 346,608     |      |   | 786,608     |  
|Special Event
Sales                              |  |                                     | 60,799      |      |   | 71526       |  
|                                                 |  |                                     |             |      |   |             |  
|Total
Revenues                                   |  |                                     | 829,992     |      |   | 1,421,156   |  
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Cost of Sales                                    |  |                                     |             |      |   |             |  
|COGS -
Merchandise                               |  |                                     | 161         |      |   | 10,817      |  
|Group Sales
Expenses                             |  |                                     |            |      |   | 787         |  
|COGS - Sale of
Simulators                        |  |                                     | 6,992       |      |   | 378,000     |  
|COGS 
Special Events                            |  |                                     | 30,059      |      |   | 18,829      |  
|Inventory
Adjustments                            |  |                                     |            |      |   | 526         |  
|                                                 |  |                                     |             |      |   |             |  
|Total Cost of
Sales                              |  |                                     | 37,212      |      |   | 408,960     |  
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Gross Profit                                     |  |                                     | 792,780     |      |   | 1,012,195   |  
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|General & Admin Expenses                         |  |                                     |             |      |   |             |  
|Payroll Related
Expenses                         |  |                                     | 319,922     |      |   | 361,338     |  
|Occupancy
Expenses                               |  |                                     | 185,200     |      |   | 277,294     |  
|Other Operating
Expenses                         |  |                                     | 223,919     |      |   | 239,948     |  
|Depreciation                                     |  |                                     | 88,370      |      |   | 73,880      |  
|                                                 |  |                                     |             |      |   |             |  
|Total Operating
Expenses                         |  |                                     | 817,412     |      |   | 952,460     |  
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Operating Profit (Loss)                          |  |                                     | (24,632     | )    |   | 59,736      |  
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Interest
Expense                                 |  |                                     | (160,009    | )    |   | (148,650    | )
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Net Loss before Income Tax Expense               |  |                                     | (184,642    | )    |   | (88,914     | )
|                                                 |  |                                     |             |      |   |             |  
|Income Tax
Expense                               |  |                                     |            |      |   |            |  
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Net Loss                                         |  | $                                   | (184,642    | )    | $ | (88,914     | )
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Net Profit (Loss) per
 share  basic and diluted |  | $                                   | (0.00       | )    | $ | (0.00       | )
|                                                 |  |                                     |             |      |   |             |  
|                                                 |  |                                     |             |      |   |             |  
|Weighted Average Shares
 Outstanding             |  |                                     | 101,199,146 |      |   | 96,397,506  |  
|                                                 |  |                                     |             |      |   |             |  
|Diluted Common Shares
 Outstanding               |  |                                     | 113,556,646 |      |   | 107,289,006 |  
|                                                 |  |                                     |             |      |   |             |  

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

5

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND
SUBSIDIARIESStatement
of Shareholders Deficit
(Unaudited)

|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  
|-------------------------------------------------------------- |  | ------------- | ----------- | ---------------------------- | - | ----------------- |  | -------------------------------------- | --------- |  | - | ----------- | - | - | ---------- | -
|                                                               |  | Common
 Stock |             | Additional
 Paid-In
 Capital |   | Retained
 Deficit |  | Total
 Shareholders
 Equity (Deficit) |          
|                                                               |  |               |             |                              |   |                  
|                                                               |  | Shares        |             | Amount                       |   |                   |  |                                       
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |  
|Balance at December 31,
2007                                   |  |               | 101,199,146 |                              | $ | 10,120            |  | $                                      | 5,582,011 |  | $ | (10,160,262 | ) | $ | (4,568,131 | )
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  
|Warrant issued for 2008 Notes
Payable (unaudited)              |  |               |            |                              |   |                  |  |                                        |          |  |   |            |   |   |           |  
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  
|Common stock issued for payment
of Loan Interest (unaudited)   |  |               |            |                              |   |                  |  |                                        |          |  |   |            |   |   |           |  
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  
|Net loss for the three months
ended March 31, 2008 (unaudited) |  |               |            |                              |   |                  |  |                                        |          |  |   | (184,642    | ) |   | (184,642   | )
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  
|Balance at March 31, 2008
(unaudited)                          |  |               | 98,999,788  |                              | $ | 9,900             |  | $                                      | 5,551,892 |  | $ | (10,344,904 | ) | $ | (4,752,773 | )
|                                                               |  |               |             |                              |   |                   |  |                                        |           |  |   |             |   |   |            |  

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

6

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND
SUBSIDIARIESConsolidated
Statements of Cash Flows
(Unaudited)

|                                                                             |  |                                      |          |      |   |          |  
|---------------------------------------------------------------------------- |  | ------------------------------------ | -------- | ---- | - | -------- | -
|                                                                             |  | For the Three Months Ended
 March 31 |         
|                                                                             |  |                                      |         
|                                                                             |  | 2008                                 |          | 2007 |  
|                                                                             |  |                                      |          |      |  
|CASH
 FLOWS FROM OPERATING ACTIVITIES                                        |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Net
Loss                                                                     |  | $                                    | (184,642 | )    | $ | (88,914  | )
|Adjustments to
reconcile net loss to net
 cash used by operating activities: |  |                                      |          |      |   |          |  
|Depreciation
and amortization                                                |  |                                      | 88,370   |      |   | 73.880   |  
|Amortization of
notes payable discount                                       |  |                                      | 8,560    |      |   | 7,018    |  
|Amortization of
Dolphin Financing
 Agreement                                 |  |                                      | (129,967 | )    |   | (111,968 | )
|Common stock
issued for interest                                             |  |                                      |         |      |   |         |  
|Net changes in
operating assets and
 liabilities:                            |  |                                      |          |      |   |          |  
|(Increase)
decrease in trade accounts and
 other receivable                  |  |                                      | 18,170   |      |   | (46,031  | )
|(Increase)
decrease in inventory                                             |  |                                      | 8,618    |      |   | (19,257  | )
|(Increase)
decrease in prepaid expenses
 and other assets                    |  |                                      | (2,247   | )    |   | 4,108    |  
|(Increase)
decrease in deposits                                              |  |                                      |         |      |   | (33,045  | )
|Increase
(decrease) in accounts payable                                      |  |                                      | 73,497   |      |   | 97,680   |  
|Increase
(decrease) in accrued payroll and
 payroll taxes                    |  |                                      | (61,240  | )    |   | (54,565  | )
|Increase
(decrease) in sales tax payable                                     |  |                                      | (30,695  | )    |   | 10,133   |  
|Increase
(decrease) in gift certificates
 and customer deposits              |  |                                      | 2,107    |      |   | 5,547    |  
|Increase
(decrease) in accrued expenses                                      |  |                                      | 4,892    |      |   | 71,292   |  
|Increase
(decrease) in deposits on
 simulator sales                          |  |                                      | 55,797   |      |   | 12,168   |  
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Net Cash Used
by Operating Activities                                        |  |                                      | (148,780 | )    |   | (71,954  | )
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|CASH
 FLOWS FROM INVESTING ACTIVITIES                                        |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Purchase of
property and equipment                                           |  |                                      | (34,080  | )    |   |         |  
|Sale of
property and equipment                                               |  |                                      | 1,859    |      |   | 7,458    |  
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Net Cash Used
by Investing Activities                                        |  |                                      | (32,221  | )    |   | 7,458    |  
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|CASH
 FLOWS FROM FINANCING ACTIVITIES                                        |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Proceeds from
issuance of notes payable                                      |  |                                      | 200,000  |      |   |         |  
|Payments of
notes payable                                                    |  |                                      | (78,254  | )    |   | (47,205  | )
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Net Cash
Provided by Financing Activities                                    |  |                                      | 121,746  |      |   | (47,205  | )
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|DECREASE
 IN CASH                                                            |  |                                      | (59,255  | )    |   | (111,701 | )
|                                                                             |  |                                      |          |      |   |          |  
|CASH,
 BEGINNING OF PERIOD                                                   |  |                                      | 133,731  |      |   | 216,323  |  
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|CASH,
 END OF PERIOD                                                         |  | $                                    | 74,476   |      | $ | 104,622  |  
|                                                                             |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|SUPPLEMENTAL CASH FLOW
 DISCLOSURES:                                         |  |                                      |          |      |   |          |  
|                                                                             |  |                                      |          |      |   |          |  
|Cash paid for
interest                                                       |  | $                                    | 84,136   |      | $ | 57,942   |  
|Cash paid for
income taxes                                                   |  | $                                    |         |      | $ |         |  

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

7

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT
CORP. AND SUBSIDIARIESNotes to the Consolidated Financial
Statements

|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1 
 BASIS OF PRESENTATION                    
|                                                   
|                                                    | The
 Companys financial statements are prepared using accounting principles
 generally accepted in the United States of America applicable to a going
 concern which contemplates the realization of assets and liquidation of
 liabilities in the normal course of business. The Company has historically
 incurred losses, which raises substantial doubt about the Companys ability
 to continue as a going concern. The accompanying financial statements do not
 include adjustments relating to the recoverability and classification of
 asset carrying amounts or the amount and classification of liabilities that
 might result from the outcome of this uncertainty.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                    | The
 accompanying unaudited condensed consolidated balance sheets of Interactive
 Motorsports and Entertainment Corp. (the Company) at March 31, 2008 and
 December 31, 2007 and the unaudited consolidated statements of operations and
 statements of cash flows for the three months ended March 31, 2008 and March
 31, 2007 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-K. The results of operations for
 the three months ended March 31, 2008 are not necessarily indicative of the
 results that may be expected for the full year ending December 31, 2008 or
 any future period.
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                    | a.
 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                    | b.
 Accounting for the Sale of Simulators                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                    | The
 Company records the sale of simulators using the percentage of completion
 method of accounting. The percentage of completion for any given sales
 contract is determined by the ratio of costs incurred to date to the total
 estimated cost for each site build. Costs incurred consist of purchased
 components, outside services, and outside contract labor cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|NOTE 3 - DEBT AND CREDIT ARRANGEMENTS              
|                                                   
|                                                    | On
 February 2, 2004 and June 6, 2004, Perfect Line, Inc. issued notes bearing an
 interest rate of 9.6% payable in the total amount of $750,000. Each note came
 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. The notes became due on February 2, 2005, and $260,000
 of the notes was paid in full at that time. A note holder of an additional
 $344,000 of the notes elected to receive a cash payment of $16,000 and
 exercise options granted with the note purchase for full payment of the note
 per the terms of the 2004 Agreement. The note holder of the final $146,000 in
 notes has been repaid $58,500 as of April 17, 2007, and the balance was
 assigned to two unrelated third parties, one in the amount of $75,000 and the
 other in the amount of $12,500. The term of the note was extended by 24
 months, and the pre-payment terms were amended to reflect that there will be
 no pre-payment option, while all other terms remained the same, including the
 expiration of the option 30 days past the maturity date.                                                                                                                                                                                                                                                                                

8

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT
CORP. AND SUBSIDIARIESNotes to the Consolidated Financial Statements

|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3 - DEBT AND CREDIT
 ARRANGEMENTS (continued)
|                                                  
|                                                   | On
 December 31, 2004, March 31, 2005 and April 15, 2005, the Company entered
 into three Asset Purchase Agreements with Race Car Simulation Corp.(RCSC),
 a subsidiary of Dolphin Direct Equity Partners, LP (Dolphin), pursuant to
 which it sold forty-four (44) of its race car simulators that were located in
 existing revenue share locations, or had been installed in new revenue share
 sites. The sale is accounted for as a borrowing in accordance with the
 guidance provided in paragraphs 21-22 of SFAS 13. While this transaction
 generated an aggregate purchase price of $2,856,600, it also depleted monthly
 revenue share payments to the Company generated by the simulators that were
 sold. In May of 2007, RCSC filed a complaint against National Tour, Inc. and
 its chief executive officer, Johnny Capels, personally. RCSC claimed that
 National Tour, backed by a personal guarantee by Johnny Capels, owed the
 company at least $193,000 in lease payments plus interest and other costs
 under the lease agreements between the parties. The lease agreements involve
 twelve (12) of the Companys simulators which were part of the 44 considered
 a borrowing under GAAP guidelines, and may be a contingent liability for
 the Company under the terms of its guarantee to RCSC under the asset purchase
 agreement. The Company has an obligation under a Performance Guarantee clause
 of their agreement with RCSC to guarantee certain contracted revenue share or
 lease payments through 2007, and also has the obligation to find new revenue
 share or lease partners for the RCSC simulators under a Most Favored
 Nations clause in the agreement with RCSC In November of 2007, the Company
 removed an additional 8 of RCSCs SMS simulators from the Syracuse, NY site
 to Incredible Pizza sites in Oklahoma City, OK and Dallas, TX (four in each
 site). See Part 2, Item 1 Legal Proceedings for details on the complaint
 filed by RCSC.
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                   | Pursuant
 to the Note and Option Purchase Agreement and Security Agreement dated
 November 2005 (2005 Agreement), the Company issued notes bearing an
 interest rate of 12% payable in the total amount of $122,500. These notes
 were issued between October 13, 2005 and November 4, 2005. Each note came
 with an option to purchase common shares of the Company equal to the amount
 of notes purchased divided by the exercise price of the option. The notes
 were due on October 1, 2007, and the Company has asked the note holders to
 extend the note under the same terms until additional funding is in place.
 There is no assurance that one or more of the note holders will not demand
 payment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                   | The
 value of the options was amortized to interest expense over their life which
 expired on November 1, 2007. Amortization of option discount for the options
 related to the 2005 Agreement of $6,226 and $7,831 was included in interest
 expense for the twelve months ended December 31, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                   | On
 July 14, 2006, the Company entered into Note and Warrant Purchase and
 Security Agreements with ten (10) investors in a private placement which is
 exempt from the registration provisions of the Securities Act of 1933, as
 amended, pursuant to Reg. D and Rule 506 adopted thereunder. The Notes,
 totaling $950,000,were issued by Perfect Line, will be fully paid down July
 17, 2010, and bear interest at a rate of 16% per annum (increased from 15% on
 September 21, 2007) for the total interest amount over the four year period
 of $326,194. The principle balance of the notes on December 31, 2007, was
 $671,180. Each note came with an option to purchase common shares of the
 Company equal to two and one half times the amount of notes purchased divided
 by the exercise price of the option. The principle and interest on the Notes
 are payable weekly over a four year term and are secured by a first security
 interest in 20 of the simulators owned by Perfect Line.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                   | The
 value of the options will be amortized to interest expense over their life
 which expires on July 13, 2010. Amortization of option discount for the
 options related to the 2006 Agreement of $15,180 and $6,958 was included in
 interest expense for the years ended December 31, 2007, and December 31,
 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

9

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INTERACTIVE MOTORSPORTS AND ENTERTAINMENT
CORP. AND SUBSIDIARIESNotes to the Consolidated Financial Statements

|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3 - DEBT AND CREDIT
 ARRANGEMENTS (continued)
|                                                  
|                                                   | On
 April 12, 2007, the Company entered into a Mutual Release and Settlement
 Agreement with Mall of Georgia, LLC. The terms of the agreement released the
 Company from any future lease obligations at the site and set the financial
 settlement was payable in six (6) installments between May, 2007 and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                   | June,
 2008. On December 31, 2007, the balance due was $177,346, and a $20,000
 payment due in December had been missed. $95,580 is directly attributable to
 Perfect Line with the remainder of the note attributable to unpaid rent due
 from lease assignee, Checker Flag Lightning, LLC.. The Company has filed a
 Motion for Partial Summary Judgment against Checker Flag Lightning, LLC in
 the amount of $357,352. See Part I, Item 3, Legal Proceedings for more
 details.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                   | On
 September 25, 2007 and October 4, 2007, the Company entered into Note and
 Warrant Purchase and Security Agreements with ten (10) investor in a private
 placement which is exempt from the registration provisions of the Securities
 Act of 1933, as amended, pursuant to Reg. D and Rule 506 adopted thereunder. The
 Notes, totaling $500,000, were issued by Perfect Line, will be fully paid
 down September 27, 2011 and bear interest at a rate of 16% per annum for the
 total interest amount over the four (4) year period of $176,443. The
 principle balance of the notes on December 31, 2007, was $475,009. Each note
 came with an option to purchase common shares of the Company equal to two and
 one half times the amount of notes purchased divided by the exercise price of
 the option. The principle and interest on the Notes are payable weekly over a
 four year term and are secured by a first security interest in 8 of the
 simulators owned by Perfect Line.
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                   | The
 value of the options will be amortized to interest expense over their life
 which expires on September 27, 2012. Amortization of option discount for the
 options related to the 2007 Agreement of $735 was included in interest
 expense for the year ended December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                   | On
 October 31, 2007, Perfect Line and MOAC Mall Holdings, LLC, the Mall of
 America landlord, agreed to a stipulation agreement whereby Perfect Line
 signed a promissory note totaling $310,553 payable in seven (7) payments
 between December 15, 2007 and October 1, 2008. On March 31, 2008, the
 December, February, March and April payments totaling $160,978 had not been
 made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                   | On
 February 6, 2008, the Company entered into a Second Amended and Restated
 Secured Bridge Note with Ropart Asset Management due December 31, 2008 and
 increased the note amount from $600,000 to $800,000, and the collateral was
 increased by 2 SMS simulators.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

10

---



INTERACTIVE MOTORSPORTS AND ENTERTAINMENT
CORP. AND SUBSIDIARIESNotes to the Consolidated Financial Statements

NOTE 3 - DEBT AND CREDIT
ARRANGEMENTS (continued)

| |                                           
| | ------------------------------------------
| | Notes Payable consisted of
 the following:

|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---------- | ------------------- | - | ---------- | -
|                                                                                                                                                                                                |  | For
 the Period Ended |           
|                                                                                                                                                                                                |  |                       |           
|                                                                                                                                                                                                |  | March
 31,
 2008      |            | December
 31,
 2007 |  
|                                                                                                                                                                                                |  |                       |            |                     |  
|Note
 payable to investor bearing interest at 12%, due at an undetermined date in
 2007. Secured by certain simulators of the Company and a personal guaranty of
 the President of the Company. |  | $                     | 800,000    |                     | $ | 600,000    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Note
 payable to individuals, bearing interest at 12%, due October 1, 2007. Secured
 by certain simulators of the Company.                                                                      |  |                       | 122,500    |                     |   | 122,500    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Note
 payable to a landlord, payable in six (6) installments, due June 2008.                                                                                                                    |  |                       | 177,346    |                     |   | 177,346    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Note
 payable to a landlord, payable in seven (7) installments, due October 2008.                                                                                                               |  |                       | 310,554    |                     |   | 310,554    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Note
 payable to individuals, bearing interest at 9.6%, due April 17 2009. Secured
 by certain simulators of the Company.                                                                       |  |                       | 87,500     |                     |   | 87,500     |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Borrowing
 transaction with RCS bearing imputed interest at 15%, 5 year term.                                                                                                                   |  |                       | 1,156,767  |                     |   | 1,286,728  |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Note
 payable to individuals, bearing interest at 16%, due July 13, 2010. Secured
 by certain simulators of the Company.                                                                        |  |                       | 616,719    |                     |   | 671,180    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Note
 payable to individuals, bearing interest at 16%, due September 13, 2011.
 Secured by certain simulators of the Company.                                                                   |  |                       | 451,217    |                     |   | 475,010    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Less:
 unamortized discount & debt offering costs                                                                                                                                               |  |                       | (83,132    | )                   |   | (91,691    | )
|Total
 Notes Payable                                                                                                                                                                            |  |                       | 3,689,467  |                     |   | 3,639,128  |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Less:
 Current Portion                                                                                                                                                                          |  |                       | (2,349,888 | )                   |   | (2,064,672 | )
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Total
 Notes Payable  Long Term Portion                                                                                                                                                        |  | $                     | 1,339,579  |                     | $ | 1,574,455  |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Future
 maturities of notes payable as of December 31,                                                                                                                                          |  |                       |            |                     |   |            |  
|2008                                                                                                                                                                                            |  | $                     | 2,115,011  |                     |   | 2,064,672  |  
|2009                                                                                                                                                                                            |  |                       | 1,089,402  |                     |   | 1,089,402  |  
|2010                                                                                                                                                                                            |  |                       | 383,526    |                     |   | 383,526    |  
|2011                                                                                                                                                                                            |  |                       | 101,528    |                     |   | 101,528    |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  
|Total
 Notes Payable                                                                                                                                                                            |  | $                     | 3,389,467  |                     |   | 3,639,128  |  
|                                                                                                                                                                                                |  |                       |            |                     |   |            |  

11

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INTERACTIVE MOTORSPORTS AND ENTERTAINMENT
CORP. AND SUBSIDIARIESNotes to the Consolidated Financial Statements

|                                    |                                                                                                                                                                                                          
|----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 4 -
 SIMULATOR SALE AGREEMENTS
|                                   
|                                    | The
 Company completed the sale of three SMS simulators to Scheels All Sports in
 the first quarter of 2008. Installation is not expected until third quarter
 of 2008.                                  
|                                    |                                                                                                                                                                                                          
|NOTE 5 -
 SUBSEQUENT EVENTS        
|                                   
|                                    | On
 May 19, 2008, the Company entered into a Third Amended and Restated Secured
 Bridge Note with Ropart Asset Management due December 31, 2008 and increased
 the note amount from $800,000 to $950,000.

12

---



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.

Information on Forward-Looking Statements

This
Form 10-Q/A 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 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.

Recently Issued Accounting Standards

None

13

---



History

IMTS
is headquartered in Indianapolis, Indiana. In June 2001, Perfect Line, LLC
(d/b/a NASCAR Silicon Motor Speedway) was formed to purchase, for approximately
$1.5 million, the assets of SEI, including intellectual property and the
contents of 14 of the 15 NSMS racing centers, which included 170 simulators.
SEI showed these assets on its books at approximately $30 million. 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 the funding was used to retire the Companys bank note and the balance
was used for working capital.

In
July of 2003, management began the process of revising the Companys business
model, changing the focus from the inherited Company owned and operated
mall-based racing centers to revenue share, lease and purchased simulators for
mall merchandise retailers, family entertainment centers, amusement parks,
casinos, auto malls, etc., as well as for experiential mobile marketing
programs such as the Nextel Experience and the DaimlerChrysler auto show
exhibits.

In
late 2004, the Company raised funds through debt financing and began
manufacturing new SMS simulators in 2005 to meet the demand. In late 2005 it
introduced the new Reactor simulator, a more portable, mobile and affordable
model for the market.

Funding
the operations through revenues from the business and through primarily debt
financing, the Company has laid the groundwork for a focus on the experiential
mobile marketing industry and the out-of-home, multi-site interactive gaming
opportunity. A recent license with iRacing.com, owned by John Henry (principle
owner of the Boston Red Sox), and David Kaemmer (co-founder of Papyrus Racing
Games), owners of the Papyrus NASCAR Racing 2003, will potentially allow the
Company to complete its modeling of the multi-player/multi-site virtual league
gaming, although there can be no assurance that the project will be successful.

Overview

Interactive
Motorsports and Entertainment Corp. (IMTS or the Company), an Indiana
corporation, is a world leader in race simulation. Operating through its wholly
owned subsidiary, Perfect Line, Inc., the Company manufactures two versions of
race car simulators and sells racing experiences to the public through revenue
sharing and marketing agreements for the out-of-home- interactive gaming
market. The Company contracts with operators in malls, amusement parks, family
entertainment centers, casinos, and with third parties for trade shows and
mobile fan interactive experiences. Under team and track licenses from
Americas fastest growing sport, NASCAR, simulator customers experience driving
in a NASCAR racecar that simulates the motion, sights and sounds of an actual
NASCAR event. The Company owns and operates a racing center at the Mall of America
in Minneapolis, MN, featuring 12 simulators as well as a selection of popular
NASCAR merchandise. The Company is positioning itself to be a world leader in
the out-of-home multi-player/multi-site virtual league market, and the
experiential mobile marketing industry.

The
Company currently has two versions of racecar simulators, the SMS and the
Reactor. In marketing these two products it leverages its strategic
relationships and proprietary assets, which include sophisticated racing
simulation technology (including 2 patents, and license agreements with NASCAR
race tracks and race teams), to offer a unique and affordable race simulation
experience.

The
Companys business strategy currently targets: 1) end customers in fixed site
venues who are gamers and/or NASCAR enthusiasts, and 2) experiential marketing
clients, including but not limited to NASCAR sponsors, who use the experience
to draw attention to their product display and to collect potential customer
data and drive them to a website. In addition, under a new multi-year
proprietary software license agreement with iRacing.com, exclusive for the
out-of-home race simulation category, the anticipated multi-player/multi-site
virtual league offering is expected to engage the hardcore customers to compete
in leagues and competitions on a regularly scheduled basis, although there can
be no assurances.

14

---



Through strategic alliances the Company currently has access to over
twenty retail locations nationally, as well as eight experiential mobile
marketing units traveling around the country. IMTS plans significant growth in
product placement to fully exploit the available fixed and mobile marketing
venues both domestically and internationally, although there can be no
assurances.

Perfect Lines race simulators, including those owned by Race Car
Simulation Corp., are currently featured in the following locations:

Locations

Company Owned (12 Simulators):

|         |                  |      |      |        |                  |         |       |            |       
|-------- | ---------------- | ---- | ---- | ------ | ---------------- | ------- | ----- | ---------- | ------
|Location |                  | Year |      | Market |                  | Sq. Ft. |       | Simulators
|         |                  |      |      |        |                  |         |       |           
|1)       | Mall of
 America |      | 2001 |        | Minneapolis,
 MN |         | 5,899 |            | 12 SMS

Revenue Share (80 Simulators):

|         |                            |      |      |        |                           |         |       |            |       
|-------- | -------------------------- | ---- | ---- | ------ | ------------------------- | ------- | ----- | ---------- | ------
|Location |                            | Year |      | Market |                           | Sq. Ft. |       | Simulators
|         |                            |      |      |        |                           |         |       |           
|1)       | NASCAR
 SpeedPark          |      | 2003 |        | Sevierville,
 TN          |         | 1,500 |            | 6 SMS#
|2)       | NASCAR
 SpeedPark          |      | 2003 |        | St. Louis,
 MO            |         | 1,500 |            | 6 SMS#
|3)       | Bass Pro
 Outdoor          |      | 2004 |        | Harrisburg,
 PA           |         | 500   |            | 2 SMS 
|4)       | Jordan Creek
 Town Center  |      | 2004 |        | Des Moines,
 IA           |         | 4,000 |            | 8 SMS 
|5)       | NASCAR SpeedPark           |      | 2005 |        | Toronto,
 Canada          |         | 1,500 |            | 6 SMS#
|6)       | Bass Pro
 Outdoor          |      | 2005 |        | Clarksville,
 IN          |         | 750   |            | 3 SMS 
|7)       | NASCAR
 SpeedPark          |      | 2006 |        | Myrtle
 Beach, SC         |         | 1,600 |            | 6 SMS#
|8)       | Bass Pro
 Outdoor          |      | 2006 |        | Springfield,
 MO          |         | 500   |            | 3 SMS 
|9)       | Bass Pro
 Outdoor          |      | 2006 |        | San Antonio,
 TX          |         | 500   |            | 2 SMS 
|10)      | Bass Pro
 Outdoor          |      | 2007 |        | Mesa, AZ                  |         | 500   |            | 2 SMS 
|11)      | Bass Pro
 Outdoor          |      | 2007 |        | Rancho
 Cucamonga, CA     |         | 500   |            | 2 SMS 
|12)      | Wing
 Warehouse Sports B&G |      | 2007 |        | Akron, OH                 |         | 1200  |            | 4 SMS 
|13)      | Incredible
 Pizza          |      | 2007 |        | Euless, TX
 (Dallas)      |         | 1200  |            | 4 SMS 
|14)      | Incredible
 Pizza          |      | 2007 |        | War Acres,
 OK            |         | 1200  |            | 4 SMS 
|15)      | Incredible
 Pizza          |      | 2007 |        | Pasadena, TX              |         | 1200  |            | 4 SMS 
|16)      | Incredible
 Pizza          |      | 2007 |        | Lafayette,
 LA            |         | 500   |            | 2 SMS*
|17)      | Miramar
 Speed Circuit     |      | 2007 |        | San Diego,
 CA            |         | 500   |            | 1 SMS 
|18)      | Rapid City                 |      | 2007 |        | Rapid City,
 SD           |         | 1200  |            | 2 SMS 
|19)      | Bass Pro
 Outdoor          |      | 2008 |        | Denham
 Springs, LA       |         | 500   |            | 2 SMS 
|20)      | MB2 Raceway                |      | 2008 |        | Los Angeles,
 CA          |         | 500   |            | 2 SMS*
|21)      | Bass Pro
 Outdoor          |      | 2008 |        | Birmingham,
 AL           |         | 750   |            | 3 SMS*
|22)      | Bass Pro
 Outdoor          |      | 2008 |        | Calgary,
 Alberta, Canada |         | 500   |            | 2 SMS*
|23)      | Bass Pro
 Outdoor          |      | 2008 |        | Richmond, VA              |         | 500   |            | 2 SMS*
|24)      | Wheatfield
 Lanes          |      | 2008 |        | Wheatfield,
 IN           |         | 500   |            | 2 SMS 

Mobile Units (40 Simulators):

|      |                                |      |      |        |                      |  |  |            |            
|----- | ------------------------------ | ---- | ---- | ------ | -------------------- |  |  | ---------- | -----------
|Buyer |                                | Year |      | Market |                      |  |  | Simulators
|      |                                |      |      |        |                      |  |  |           
|1)    | DaimlerChrysler                |      | 2005 |        | European
 Auto Shows |  |  |            | 2 SMS      
|2)    | H&H
 Motorsports/IMTS          |      | 2006 |        | Mobile
 Experience   |  |  |            | 2 Reactors 
|3)    | Florida
 Simulated Racing Net. |      | 2006 |        | Mobile
 Experience   |  |  |            | 4 Reactors 
|4)    | Exhibit
 Enterprises (Dodge)   |      | 2006 |        | Mobile
 Experience   |  |  |            | 4 Reactors 
|5)    | Exhibit
 Enterprises (Dodge)   |      | 2006 |        | Mobile
 Experience   |  |  |            | 4 Reactors 
|6)    | DGI, Inc
 (Nextel)             |      | 2006 |        | Mobile
 Experience   |  |  |            | 6 Reactors 
|7)    | DGI, Inc
 (Toyota)             |      | 2006 |        | Mobile
 Experience   |  |  |            | 4 Reactors 
|8)    | DGI, Inc
 (Nextel, Toyota)     |      | 2007 |        | Mobile
 Experience   |  |  |            | 14 Reactors

15

---



Sales of Simulators (70 Simulators):

|      |                              |      |      |        |                                        |  |            |            |           
|----- | ---------------------------- | ---- | ---- | ------ | -------------------------------------- |  | ---------- | ---------- | ----------
|Buyer |                              | Year |      | Market |                                        |  |            | Simulators
|      |                              |      |      |        |                                        |  |            |           
|1)    | Gurnee Mills                 |      | 2004 |        | Chicago, IL                            |  |            |            | 6 SMS!!   
|2)    | Concord
 Mills               |      | 2004 |        | Charlotte,
 NC                         |  |            |            | 12 SMS!!  
|3)    | Opry Mills                   |      | 2004 |        | Nashville,
 TN                         |  |            |            | 10 SMS!!  
|4)    | I-Vision
 Tech.              |      | 2004 |        | Abu Dhabi, UAE                         |  |            |            | 2 SMS     
|5)    | I-Vision
 Tech.              |      | 2005 |        | Abu Dhabi,
 UAE                        |  |            |            | 4 SMS     
|6)    | Ft. Gordon                   |      | 2005 |        | Ft. Gordon,
 GA                        |  |            |            | 2 SMS     
|7)    | Fun City                     |      | 2005 |        | Burlington,
 IA                        |  |            |            | 1 SMS     
|8)    | DaimlerChrysler              |      | 2005 |        | US Auto
 Shows                         |  |            |            | 2 SMS     
|9)    | Gate A
 Sports               |      | 2006 |        | Cleveland,
 OH                         |  |            |            | 5 SMS     
|10)   | Skycoaster
 of Florida       |      | 2006 |        | Kissimmee,
 FL                         |  |            |            | 6 SMS     
|11)   | Vacationland
 F.E.           |      | 2006 |        | Brainerd, MN                           |  |            |            | 4 SMS     
|12)   | NASCAR
 SpeedPark            |      | 2006 |        | Concord, NC                            |  |            |            | 3 Reactors
|13)   | George P.
 Johnson & Company |      | 2007 |        | Auburn
 Hills, MI (Shanghi experience) |  | 2 Reactors
|14)   | Prime Time
 FEC              |      | 2007 |        | Abilene, TX                            |  |            |            | 3 SMS     
|15)   | Miramar
 Speed Circuit       |      | 2007 |        | San Diego,
 CA                         |  |            |            | 1 SMS     
|16)   | Rapid City                   |      | 2007 |        | Rapid City,
 SD                        |  |            |            | 2 SMS     
|17)   | Road Story                   |      | 2008 |        | Austin, TX                             |  |            |            | 2 SMS*    
|18)   | Scheels                      |      | 2008 |        | Reno, NV                               |  |            |            | 3 SMS*    

|   |                                                                                                   
|-- | --------------------------------------------------------------------------------------------------
|#  | Denotes
 assets sold to Race Car Simulation Corporation with no current revenue stream
 to Company
|   |                                                                                                   
|*  | Denotes that
 simulators are not yet installed                                                    
|   |                                                                                                   
|!! | Denotes site
 that CFL has vacated and Company is in process of acquiring these simulators        

The balance of the 192 SMS simulators built since
inception are at the Companys warehouses or Elan Motorsports Technologies
where they were built. The Company has built a total of 44 Reactor simulators.

Review of
Consolidated Financial Position

Cash: The Company had $74,476 in cash as of March
31, 2008, compared with $133,731 at December 31, 2007, a decrease of $59,255.
This decrease in the companys position of cash during the first three months
of 2008 was due principally to payments to vendors and general operating
expenses. See further discussion under the Liquidity and Capital Resources
section below.

Trade Accounts Receivable:At the year ending December 31,
2007, the Company established a reserve of $78,776 for a portion of the debt
owed the Company by Ultimate Racing Experience. The Company continues to pursue
the collection of the debt owed the Company by Ultimate Racing Experience.

Inventory: At March 31, 2008, inventory decreased by
$8,618 from December 31, 2007 levels due primarily to the reclassification of
simulator parts in non-depreciated fixed assets to simulator inventory held for
sale. Simulators in inventory decreased by $3,867 from December 31, 2007,
levels to $306,698 at March 31, 2008. Merchandise inventory decreased by $4,751
from December 31, 2007, levels during the three month period ending March 31,
2008.

Notes
Payable: On March 31, 2008, the Company had an
aggregate balance of $3,689,467 for Notes Payable. The balance consisted of
$50,000 in related party agreements, $800,000 on the Ropart Note Payable,
$1,156,762 on the 2004 Race Car Simulator Corporation (RCS) borrowing,
$122,500 on the 2005 Agreement, $616,719 on the 2006 Agreements, $451,217 in
the 2007 Agreements and $492,269 on other agreements.

16

---



Deposits on Simulator Sales: During the three month period ending March
31, 2008, the Company recorded all or a portion of three simulator sales
transactions. This activity resulted in the increase of deposits on simulator
sales of $55,798 to $1,066,956 as compared to the balance at December 31, 2007.

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

THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2007

Revenues:
Revenues are comprised primarily of Company store sales, revenue share sales,
and simulator leases and sales.

Revenues for the three months ended March 31, 2008, decreased by
$591,164 or 41.6% to $829,992 from $1,421,156 for the comparable period in
2007. This was the result of decreased store sales (Universal CityWalk store
closed in January of 2008) and simulator sales in the three month period ending
March 31, 2008.

Cost
of Sales: Cost of sales as a percentage of total
revenues was 4% and 29% for the three months ended March 31, 2008 and 2007,
respectively. Cost of sales decreased $371,748 or 90.9% to $37,212 for the
three months ended March 31, 2008, from $408,960 for the comparable period in
2007. The primary reason for the decrease in cost of sales was due to the fact
that most of the simulator sales in 2007 were Reactor simulators that were
manufactured new for the sale, and three simulator sales in the period ending
March 31, 2008 were refurbished SMS simulators that required much less cost to
prepare for the installations..

Gross
Profit: Gross profit as a percentage of total revenue
was 96% and 71% for the three months ended March 31, 2008 and 2007,
respectively. Gross profit decreased $219,416 or 21.7% to $792,780 for the
three months ended March 31, 2008, from $1,012,196 for the comparable period in
2007. The decrease in gross profit margin was primarily associated with the decrease
in sales in the first quarter of 2008.

General
and Administrative: General and administrative
expenses decreased $135,050 or 14.2% to $817,412 for the three months ended
March 31, 2008, compared to $952,459 for the comparable period in 2007. The primary
reason for the decrease was a $92,094 decrease in other operating expenses.

Operating
Profit: The Companys loss from operations during the
three months ended March 31, 2008 was $24,632 compared to an operation profit
during the three months ended March 31, 2007 of $59,737.

Interest
Expense: Interest expense was $160,009 and $148,650
for the three months ended March 31, 2008 and 2007, respectively.

Net
Profit: The Companys net loss for the three months
ended March 31, 2008, was $184,642 compared to a net loss of $88,914 for the
same period in 2007.

17

---



Liquidity and Capital Resources

The primary source of funds available to the Company are receipts from
customers for simulator and merchandise sales in its flagship owned and
operated racing center, percentage of gross revenues from simulator races and
minimum guarantees from revenue share and lease sites, the sale of simulators,
proceeds from equity offerings including the $2,610 million received in August
2002, proceeds from debt offerings including the $700,000 in Secured Bridge
Notes and warrants issued in March 2003, the $604,000 in net proceeds from
Notes and options issued between February and June, 2004, the additional loan
of a net $100,000 from one of the existing Bridge Loan note holders, $2.9
million borrowed in December 2004, $122,000 from the 2005 Note, net proceeds of
$855,000 borrowed in September of 2006, net proceeds of $427,500 borrowed in
September of 2007, loans from shareholders, credit extended by vendors, and
possible future financings.

The Company has a history of losses, and the report of our independent
accountants issued in connection with the audit of our financial statements
contained a qualification raising a doubt about our ability to continue as a
going concern. The Company currently is relying on prospective debt financing
arrangements, and on simulator sales revenue using its existing simulator
inventory to offset its operating costs and debt obligations over the next 12
months, or until enough revenue share simulators are in the market to provide
sufficient to cover these costs. As such, there is risk that the financing will
not be available, or available on terms acceptable to the Company, and there is
risk that the timing of the simulator sales will not coincide with the need for
cash to cover operating expenses and note payments. If no meaningful financing
is secured by the Company in the near term, it may jeopardize the Companys
ability to maintain agreements with creditors to hold off taking actions
against the Company for payments due.

The Company is pursuing some form of debt or equity financing
sufficient to complete its development of the multi-site league play, to
install its current inventory of SMS simulators into the marketplace and to
satisfy the Companys current and future liabilities and/or contingent
liabilities, but there is no assurance that such funding will be available, or
available on terms acceptable to the Company.

During the three months ending March 31, 2008, the operating activities
of the Company used net cash of $148,780 compared to net cash used of $71,954
for the comparable period in 2007. The drivers for the decrease in cash used
from operations can be attributed to the increase in prepaid expense, the
increase in accounts payable and the amortization of the Dolphin financing
agreement.

During the three months ending March 31, 2008, the Company used $32,221
of net cash in investing activities compared with $7,458 of net generated in
investing activities during the comparable period in 2007. The decrease in cash
from investing activities is primarily related to the purchase of simulators.

During the three months ending March 31, 2008, the Company generated a
net $121,746 of cash from financing activities compared with $47,204 of cash
used during the comparable period in 2007. The increase from financing
activities is primarily related to the issuance of $200,00 in notes less
payment of $78,254 in notes payable.

Cash flow from all sources (operations, investing activities and
financing activities) was insufficient to fund the company during the three
months ending March 31, 2008, and resulted in a $59,255 reduction in the
Companys cash position. This compares with $111,701 in cash reduction for all
sources for the period ending March 31, 2007.

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 $2.610 million received in August 2002, loans from related
parties including net proceeds of $687,500 received in March, 2003, and net
proceeds received between February 2004 and June 2004 totaling $604,000,
$122,500 in loan proceeds from the sale of the 2005 Notes between October and
November, net proceeds of $845,000 in loan proceeds from the sale of the 2006
Notes in July, net proceeds of $855,000 borrowed in September of 2006, net
proceeds of $450,000 borrowed in September and October of 2007, net proceeds of
$200,000 borrowed in February of 2008, $1.237 million received in the form of
deposits for the placement of race car simulators in revenue share locations,
or for the future purchase by third parties of race car simulators, and credit
extended by vendors.

18

---



As of March 31, 2008, the Company had cash totaling $74,476 compared to
$133,731 at December 31, 2007. Current assets totaled $588,406 at March 31,
2008 compared to $672,202 on December 31, 2007. Current liabilities totaled
$4,808,199 on March 31, 2008 compared with $4,528,626 on December 31, 2007. As
such, these amounts represent an overall decrease in working capital of
$363,369 for the three months ending March 31, 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

None, not
applicable.

Item 4. Internal Controls and Procedures

(a) Disclosure
Controls and Procedures.

We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Our disclosure controls and procedures were designed to provide
reasonable assurance that the controls and procedures would meet their
objectives.

As of March 31, 2008, we carried out the evaluation of the
effectiveness of our disclosure controls and procedures as defined by Rule
13a-15(e) under the Exchange Act under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer. Due to an identified material weakness as described in
Managements Report on Internal Controls Over Financial Reporting in Item 9A(b)
of the Companys 2007 10-K annual report, our Chief Executive Officer and Chief
Financial Officer concluded that, as of March 31, 2008, our disclosure controls
and procedures were not effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under
the Exchange Act is: (i) recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms, and (ii) accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Notwithstanding the existence the identified material
weaknesses in internal controls, we believe that the consolidated financial
statements fairly present, in all material respects, our consolidated balance
sheet as of March 31, 2008 and our consolidated statements of operations,
stockholders equity and cash flows for the period ending March 31, 2008 in
conformity with GAAP.

There has been no change in our internal control over financial
reporting during this first quarter of fiscal 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

19

---



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. The Companys
subsidiary Perfect Line, Inc. filed a complaint in the US District Court
Southern District of Indiana on December 6, 2006, against Checker Flag
Lightning, LLC and Mike Schuelke, seeking a Declaratory Judgment, Injunctive
Relief and Damages for failing to make the required payments (at least
$559,119) under certain lease agreements between Checker Flag Lightning and
Perfect Line. On April 18, 2007, the Company filed a Motion for Partial Summary
Judgment in the amount of $357,372 against CFL on Counts II and VI of the
Complaint (amounts that are owed since January 1, 2006). CFL filed its response
to the Summary Judgment and did not dispute the amounts due to Perfect Line,
however the case has been stayed pending the outcome of the Bankruptcy
Proceedings as described below.

A Petition for Involuntary Bankruptcy was filed by Perfect Line against
CFL on June 11, 2007. CFL filed a motion to dismiss the case based upon an
insufficient number of creditors. The Michigan Court allowed more time for
additional creditors to join the Petition, and the Involuntary Petition was
granted and a trustee has been appointed, and is proceeding to administer the
estate. Perfect Line has a first position security interest in 6 SMS simulators
at the Gurnee Mills location related to a $400,000 note with CFL, and has made
an offer to the bankruptcy trustee for 22 SMS simulators that were in CFL
sites. Another 8 SMS simulators that the Company owns are in the Jordan Creek
site, and will be installed in future revenue producing sites.

Checkered Flag Lightning was a lease assignee of Perfect Line for the
Riverchase Galleria racing center in Birmingham, Alabama. Since CFL vacated
this space in June of 2007, the landlord for this space informed Perfect Line
in July of 2006 of CFLs failure to pay an amount due at the end of 2006 of
$204,380. Approximately half of this amount was a previous Perfect Line
obligation that was to be paid by CFL under the terms of the revenue share
agreement between the parties, and the other half were more recent CFL
defaults. In July of 2007, the landlord did release the 8 SMS simulators and
related assets that were in this mall site to the Company, and they were
removed and stored in the Companys warehouse for future installations. The
landlords attorney asked the Company for proposed settlement terms at the time
the simulators were removed, and Company proposed a payment plan for $109,000
of the amount in question. The Company did not receive a response to the
proposal, and on March 11, 2008 (over 7 months after the proposal was
submitted), the Company received a complaint from the landlord asking for CFL
and Perfect Line to pay rents and other charges totaling $1,166,557. The
Company is in final stages of a settlement agreement with the Plaintiff whereby
the settlement amount will be $101,000, and will be paid over 12 months.

On December 31, 2004, March 31, 2005 and April 15, 2005, the Company
entered into three Asset Purchase Agreements with Race Car Simulation
Corp.(RCSC), a subsidiary of Dolphin Direct Equity Partners, LP (Dolphin),
pursuant to which it sold forty-four (44) of its race car simulators that were
located in existing revenue share locations, or had been installed in new
revenue share sites. The sale is accounted for as a borrowing in accordance
with the guidance provided in paragraphs 21-22 of SFAS 13. While this
transaction generated an aggregate purchase price of $2,856,600, it also
depleted monthly revenue share payments to the Company generated by the
simulators that were sold. In May of 2007, RCSC filed a complaint against
National Tour, Inc. and its chief executive officer, Johnny Capels, personally.
RCSC claimed that National Tour, backed by a personal guarantee by Johnny
Capels, owed the company at least $193,000 in lease payments plus interest and
other costs under the lease agreements between the parties. The lease
agreements involve twelve (12) of the Companys simulators which were part of
the 44 considered a borrowing under GAAP guidelines, and may be a contingent
liability for the Company under the terms of its guarantee to RCSC under the
asset purchase agreement. The Company has an obligation under a Performance
Guarantee clause of their agreement with RCSC to guarantee certain contracted
revenue share or lease payments through 2007, and also has the obligation to
find new revenue share or lease partners for the RCSC simulators under a Most
Favored Nations clause in the agreement with RCSC In November of 2007, the
Company removed an additional 8 of RCSCs SMS simulators from the Syracuse, NY
site to Incredible Pizza sites in Oklahoma City, OK and Dallas, TX (four in
each site). The Company and RCSC had been in discussions of how best to resolve
the guaranteed payments due under their agreement when on February 24, 2008,
the Company received a complaint from Dolphin and RCSC seeking $685,667 and
other damages from a breach of the Performance Guarantee, Most Favored Nations
and Non-Competition clauses of the agreements between the parties.

20

---



The Company filed its answer to the complaint on March 24, 2008,
refuting many of the claims. The Company plans to vigorously defend the claims,
and will argue that the payments guaranteed under the Performance Guarantee
will be paid to Dolphin on a delayed basis due to an unforeseen bankruptcy of
one of its customers, and unforeseen market conditions. The Company has
recently proposed a settlement agreement to Dolphin whereby their investment
and anticipated return is paid in fully by May of 2010. This is accomplished by
selling 12 of the RCSC simulators prior to that date.

On June 2, 2008, the Company received a complaint from Universal
Studios, LLC as a result of defaulting on a $25,000 payment due on March 1,
2008. The Plaintiff is seeking $194,000, which is the $150,000 due plus
penalties. They have called seeking a settlement agreement, but no settlement
offer has been drafted at this time.

As of the filing of this Quarterly Report on Form 10-Q/A, the Company
is not aware of any other material legal actions directed against the Company.

Item 1A. Risk Factors

Note
on Forward-Looking Information

This Form 10-Q/A 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(s), could, feel(s), believes, plan, estimate(s),
expect(s), should, intend(s), 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; (iv) the receipt of a going concern
opinion from the Companys independent public accountants; 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.

The Company has a history of losses, and the report of our independent
accountants issued in connection with the audit of our financial statements
contained a qualification raising a doubt about our ability to continue as a
going concern. The Company currently is relying on prospective debt financing
arrangements, and on simulator sales revenue using its existing simulator
inventory to offset its operating costs and debt obligations over the next 12
months, or until enough revenue share simulators are in the market to provide
sufficient to cover these costs. As such, there is risk that the financing will
not be available, or available on terms acceptable to the Company, and there is
risk that the timing of the simulator sales will not coincide with the need for
cash to cover operating expenses and note payments. If no meaningful financing
is secured by the Company in the near term, it may jeopardize the Companys
ability to maintain agreements with creditors to hold off taking actions
against the Company for payments due. See further discussion under Liquidity
and Capital Resources and Risk Factors below.

21

---



Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds

None, not applicable.

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.

22

---



Item 6. Exhibits

|   |                                                                           |                                                                                                                                                             
|-- | ------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Exhibits.                                                                 |                                                                                                                                                             
|  
|   | 3(i)                                                                      | Articles of
 Incorporation 1                                                                                                                                
|   | 3(ii)                                                                     | By-Laws1                                                                                                                                                    
|   | 10.1                                                                      | Form of
 Secured Bridge Notes 2                                                                                                                             
|   | 10.2                                                                      | Form of
 Procurement Contract 3                                                                                                                             
|   | 10.3                                                                      | Form of
 Master Revenue Sharing Agreement 3                                                                                                                 
|   | 10.4                                                                      | Asset
 Purchase Agreement with Race Car Simulation Corporation, a portfolio company
 of Dolphin Direct Equity Partners, LP 4                                
|   | 10.5                                                                      | Asset
 Purchase Agreement with Checker Flag Lightning, LLC (CFL), a Michigan
 limited liability corporation 5                                             
|   | 10.6                                                                      | Form of 2007
 Secured Promissory Note 6                                                                                                                     
|   | 10.7                                                                      | Form of 2007
 Common Stock Purchase Warrant 6                                                                                                               
|   | 10.8                                                                      | Form of 2008
 Secured Promissory Note 6                                                                                                                     
|   | 10.9                                                                      | Form of 2008
 Common Stock Purchase Warrant 6                                                                                                               
|   | 11.1                                                                      | Computation
 of Earnings (Loss) Per Share                                                                                                                   
|   | 21.1                                                                      | Subsidiaries                                                                                                                                                
|   | 31.1                                                                      | Certification
 of William R. Donaldson as Chief Executive Officer and Chief Financial
 Officer pursuant to Rule 13a-14 of the Security Exchange Act of 1934.
|   | 32.1                                                                      | Certification
 of William R. Donaldson as Chief Executive Officer pursuant to 18 U.S.C.
 Section 1350.                                                      
|   | 32.2                                                                      | Certification
 of William R. Donaldson as Chief Financial Officer and Treasurer pursuant to
 18 U.S.C. Section 1350.                                        
|   |                                                                           |                                                                                                                                                             
|   | 1)
 Incorporated by reference from Form 10-QSB filed on November 16, 2002
|   | 2)
 Incorporated by reference from Form 8-K filed on March 13, 2003      
|   | 3)
 Incorporated by reference from Form 10-QSB filed on May 17, 2004     
|   | 4)
 Incorporated by reference from Form 8-K filed on January 6, 2005     
|   | 5)
 Incorporated by reference from Form 8-K filed on January 6, 2007     
|   | 6)
 Incorporated by reference from Form 10-QSB filed on November 16, 2007
|   |                                                                          
|B. | Reports on
 Form 8-K.                                                    
|   |                                                                          
|   | None                                                                      |                                                                                                                                                             

23

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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:
 November 17, 2008 | /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:
 November 17, 2008 | /s/ William
 R. Donaldson                                                                               
|                         |                                                                                                         
|                         | William R.
 Donaldson
 Chairman of the Board and Chief
 Executive Officer
 (Principal Executive Officer)

|                         |                                                                                                         
|------------------------ | --------------------------------------------------------------------------------------------------------
|Date:
 November 17, 2008 | /s/ William
 R. Donaldson                                                                               
|                         |                                                                                                         
|                         | William R.
 Donaldson Chairman of the
 Board and Chief
 Executive Officer
 (Principal Financial Officer)

24

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EXHIBIT INDEX

|          |      |                                                                                                                                                             
|--------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits: |     
|         
|          | 10.6 | Form of 2007 Secured
 Promissory Note                                                                                                                       
|          | 10.7 | Form of 2007 Common Stock
 Purchase Warrant                                                                                                                 
|          | 10.8 | Form of 2008 Secured
 Promissory Note                                                                                                                       
|          | 10.9 | Form of 2008 Common Stock
 Purchase Warrant                                                                                                                 
|          | 11.1 | Computation
 of Earnings (Loss) Per Share                                                                                                                   
|          | 21.1 | Subsidiaries                                                                                                                                                
|          | 31.1 | Certification
 of William R. Donaldson as Chief Executive Officer and Chief Financial
 Officer pursuant to Rule 13a-14 of the Security Exchange Act of 1934.
|          | 32.1 | Certification
 of William R. Donaldson as Chief Executive Officer pursuant to 18 U.S.C. Section
 1350.                                                      
|          | 32.2 | Certification of William R. Donaldson as Chief Financial Officer and
 Treasurer pursuant to 18 U.S.C. Section 1350.                                         

25

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