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


                                   FORM 10-QSB


                   (X) QUARTERLY REPORT PURSUANT TO SECTION 13
                                OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
               For the quarterly period ended: September 30, 2004

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

                        Commission File Number: 000-30771


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


                                     Indiana
         (State or other jurisdiction of incorporation or organization)

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

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

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


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

As of November 9, 2004, there were 87,003,140 (par value $0.0001) common shares
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Exhibit Index on page 25.


<PAGE>




<TABLE>


                    INDEX TO QUARTERLY REPORT ON FORM 10-QSB



                                                                                                              Page
Section                                                                                                     Number

<S>                                                                                                            <C>
NOTE ON FORWARD LOOKING INFORMATION                                                                            3
BASIS OF PRESENTATION..........................................................................................4

                                     PART I

Item 1.    Unaudited Financial Statements and Notes to Financial Statements
                  Consolidated Balance Sheets at September 30, 2004 and December 31, 2003......................5
                Consolidated Statements of Operations for the Three Months Ended
                  September 30, 2004 and2003 ..................................................................7
                Consolidated Statements of Operations for the Nine Months Ended
                  September 30, 2004 and 2003    ..............................................................8
                Consolidated Statement of Shareholders' Equity
                  for the Nine Months Ended September 30, 2004.................................................9
                Consolidated Statements of Cash Flows for the Nine Months
                   Ended September 30, 2004 and 2003...........................................................10
                  Notes to Consolidated Financial Statements...................................................12
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations...............16
Item 3.    Internal Controls and Procedures....................................................................24


                                     PART II

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


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

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

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

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

</TABLE>



<PAGE>





                       NOTE ON FORWARD-LOOKING INFORMATION

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

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


<PAGE>




                              BASIS OF PRESENTATION

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

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

As Perfect Line had revenues, operations, and business activity, for financial
reporting purposes, Perfect Line is considered the acquirer, and therefore the
predecessor, and the Company is considered the acquiree for accounting and
reporting purposes. Due to the fact that the merger is being treated as a
reverse acquisition, the equity of the Company has been recapitalized for
financial reporting purposes. The operations of Interactive Motorsports and
Entertainment Corp. have been included in consolidation from August 2, 2002
through September 30, 2004.

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



<PAGE>



                                     PART I

Item 1. Condensed Financial Statements

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>

                                     ASSETS

<CAPTION>
                                                                            September 30,         December 31,
                                                                                2004                  2003
                                                                         -----------------     -----------------
                                                                         (Unaudited)


CURRENT ASSETS

<S>                                                                      <C>                   <C>
   Cash and cash equivalents                                             $         115,736     $         249,005
   Trade accounts receivable                                                       143,021                39,459
   Other receivable                                                                      -                10,000
   Merchandise inventory                                                            41,018                48,875
   Prepaid insurance and other expenses                                             84,736                33,996
                                                                         -----------------     -----------------

     Total Current Assets                                                          384,511               381,335
                                                                         -----------------     -----------------

PROPERTY AND EQUIPMENT, NET                                                        741,964               869,014
                                                                         -----------------     -----------------

OTHER ASSETS

   Deposits                                                                         41,990                39,953
   Other intangible assets, net                                                     27,695                11,542
                                                                         -----------------     -----------------

       Total Other Assets                                                           69,685                51,495
                                                                         -----------------     -----------------

     TOTAL ASSETS                                                        $       1,196,160     $       1,301,844
                                                                         =================     =================





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



</TABLE>



<PAGE>


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

<TABLE>

                  LIABILTIES AND SHAREHOLDERS' EQUITY (Deficit)

<CAPTION>
                                                                            September 30,         December 31,
                                                                                2004                  2003
                                                                         -----------------     -----------------
                                                                         (Unaudited)


CURRENT LIABILITIES

<S>                                                                      <C>                   <C>
   Accounts payable                                                      $       1,522,913     $       1,561,830
   Accrued payroll and payroll taxes                                                80,616                98,858
   Sales tax payable                                                                29,378                51,308
   Gift certificates and customer deposits, net                                     32,413               113,087
   Deposits on simulator sales                                                     728,723               352,692
   Accrued expenses                                                                674,953               776,314
   Notes payable - related parties                                                 196,000               200,000
   Notes payable                                                                   973,987               500,000
                                                                              ------------            ----------

       Total Current Liabilities                                                 4,238,983             3,654,089
                                                                         -----------------     -----------------

LONG TERM LIABILITIES

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

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

     TOTAL LIABILITIES                                                           4,238,983             3,699,839
                                                                         -----------------     -----------------

COMMITMENT AND CONTINGENCIES

SHAREHOLDERS' EQUITY (Deficit)

   Convertible preferred stock, $0.0001 par value,
     10,000,000 shares authorized, -0- and 2,272,728
     shares issued and outstanding                                                       -                   227
   Common stock; $0.0001 par value, 200,000,000 shares
     authorized, 87,003,140 and 74,314,183 shares issued
     and outstanding, respectively                                                   8,700                 7,431
   Additional paid-in capital                                                    4,463,164             4,029,002
   Retained deficit                                                             (7,514,687)           (6,434,655)
                                                                         -----------------     -----------------

       Total Shareholders' equity (deficit)                                     (3,042,823)           (2,397,995)
                                                                         -----------------     -----------------

     TOTAL LIABILITIES AND SHAREHOLDERS'
       EQUITY (Deficit)                                                  $       1,196,160     $       1,301,844
                                                                         =================     =================

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

<PAGE>


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

<TABLE>

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

<S>                                                                                  <C>               <C>
TOTAL REVENUES                                                                       $ ,609,412        $  ,775,945
                                                                             ------------------- ------------------

COST OF SALES
   COGS - Merchandise                                                                    54,427             54,200
   Group Sales Expenses                                                                   2,658             15,464
   COGS - Sale of Simulators                                                            122,230               0.00
                                                                             ------------------- ------------------

     Total Cost of Sales                                                                179,315             69,664
                                                                             ------------------- ------------------

GROSS PROFIT                                                                          1,430,097          1,706,281
                                                                             ------------------- ------------------

OPERATING EXPENSES
   Payroll Related Expenses                                                             609,868          1,030,929
   Occupancy Expenses                                                                   336,284            722,739
   Other Operating Expenses                                                             346,774            417,882
                                                                             ------------------- ------------------

     Total Operating Expenses                                                         1,292,926          2,171,550

OPERATING INCOME                                                                        137,171          (465,269)
                                                                             ------------------- ------------------

INTEREST EXPENSE                                                                        129,316             21,000

INCOME (LOSS) BEFORE INCOME TAX                                                           7,855          (486,269)
                                                                             ------------------- ------------------

PROVISION FOR INCOME TAX                                                                   0.00               0.00
                                                                             ------------------- ------------------

NET INCOME (LOSS)                                                             $           7,855   $      (486,269)
                                                                             =================== ==================



BASIC INCOME (LOSS) PER COMMON SHARE                                         $             0.00  $          (0.01)
                                                                             =================== ================

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                                                        87,003,140         69,700,074
                                                                             ==================  =================


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

<PAGE>


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

<TABLE>

<CAPTION>
                                                                             For the Nine Months Ended
                                                                                        September 30,
                                                                           -------------------------------------------
                                                                                  2004                2003
                                                                           ------------------  ------------------

<S>                                                                             <C>               <C>
TOTAL REVENUES                                                                  $     4,702,585   $       5,757,009
                                                                             ------------------- -------------------

COST OF SALES
   COGS - Merchandise                                                                   215,506             312,714
   Group Sales Expenses                                                                  11,733              49,738
   COGS - Sale of Simulators                                                            122,230                0.00
                                                                             ------------------- -------------------

     Total Cost of Sales                                                                349,469             362,452
                                                                             ------------------- -------------------

GROSS PROFIT                                                                          4,353,116           5,394,557
                                                                             ------------------- -------------------

OPERATING EXPENSES
   Payroll Related Expenses                                                           2,351,603           3,444,914
   Occupancy Expenses                                                                 1,508,882           2,430,920
   Other Operating Expenses                                                           1,288,027           1,704,170
                                                                             ------------------- -------------------

     Total Operating Expenses                                                         5,148,512           7,580,004

OPERATING LOSS                                                                        (795,396)         (2,185,447)
                                                                             ------------------- -------------------

INTEREST EXPENSE                                                                        284,636              80,432

INCOME (LOSS) BEFORE INCOME TAX                                                     (1,080,032)         (2,265,879)
                                                                             ------------------- -------------------

PROVISION FOR INCOME TAX                                                                   0.00                0.00
                                                                             ------------------- -------------------

NET INCOME (LOSS)                                                              $    (1,080,032)    $    (2,265,879)
                                                                             =================== ===================



BASIC INCOME (LOSS) PER COMMON SHARE                                         $            (0.01) $          (0.04)
                                                                              ==================  ================

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                                                        86,591,289         64,195,886
                                                                             ==================  =================


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

<PAGE>


        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
             Consolidated Statement of Shareholders'Equity (Deficit)
<TABLE>

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



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

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

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

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

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

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

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

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

Net loss for the nine months ended
  September 30, 2004 (unaudited)           -               -               -           -            -       (1,080,032)  (1,080,032)
                                            ----------------------------------------------------------------------------------------

Balance at September  30, 2004 (unaudited) -           $   -          87,003,140 $ 8,700   $  4,463,164    $(7,514,687)  (3,042,823)

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

</TABLE>

<PAGE>

<TABLE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<CAPTION>
                                                                                        For the Nine Months Ended
                                                                                            September 30,
                                                                            -------------------------------------------------
                                                                                    2004                      2003
                                                                            --------------------           ----------------


CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                         <C>                         <C>
   Net loss                                                                 $       (1,080,032)         $(2,265,879)
   Adjustments to reconcile net loss to net cash used
     by operating activities:
     Depreciation and amortization                                                     304,195             293,392
     Common stock issued for services                                                    3,462              20,580
     Common stock issued for interest                                                   25,000                   -
     Amortization of notes payable discount                                            146,109                   -
     Provision for inventory obsolescence                                                    -              10,000
   Net changes in operating assets and liabilities:
     (Increase) decrease in trade accounts and other receivable                        (93,562)             72,360
     Decrease in merchandise inventory                                                   7,857              82,656
     Increase in prepaid expenses and other assets                                     (50,740)            (52,155)
     Increase in intangibles                                                           (19,700)                  -
     (Increase) Decrease in deposits                                                    (2,036)              4,058
     Increase in accounts payable                                                     (38,917)             837,906
     Increase (Decrease) in accrued payroll and payroll taxes                          (18,242)              8,204
     Decrease in sales tax payable                                                     (21,930)            (18,782)
     Decrease in gift certificates and customer deposits                               (80,674)            (21,962)
     Increase (decrease) in accrued expenses                                            14,509              44,776
     Increase decrease in accrued property taxes                                             -                 434
     Increase in deposits on simulator sales                                           376,031                   -
                                                                            ------------------  ------------------

       Net Cash Used by Operations                                                    (528,670)           (984,412)
                                                                            ------------------ -------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of property and equipment                                            (312,055)                (113,659)
   Sale of property and equipment                                                  153,456                       -


       Net Cash Used by Investing Activities                                     (158,599)                (113,659)
                                                                            ------------------ --------------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from issuance of secured notes with warrants                                     -             740,000
   Loans from and (repayments to) related parties                                      (50,000)                  -
   Proceeds from issuance of notes payable                                             604,000                   -
   Bridge loan proceeds                                                                      -
                                                                            ------------------  ------------------

       Net Cash Provided by Financing Activities                                       554,000             740,000
                                                                            ------------------  ------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (133,269)          (358,071)

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $          115,736  $          224,834
                                                                            ==================  ==================


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

<PAGE>


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

<CAPTION>
                                                                                   For the Nine Months Ended
                                                                                         September 30,
                                                                            ----------------------------------------------
                                                                               2004                     2003
                                                                            ---------------      --------------------


SUPPLEMENTAL CASH FLOW DISCLOSURES:

<S>                                                                         <C>                 <C>
   Cash paid for interest                                                   $           87,332  $           43,883
   Cash paid for income taxes                                               $                -  $                -

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

   Common stock issued for accrued liabilities                              $          115,620  $                -
   Accrued interest converted to notes payable                              $              250  $                -
   Discount on convertible notes                                            $          276,122  $                -
   Common stock issued for capitalized loan fees                            $           15,000  $                -


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

<PAGE>



        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                    September 30, 2004 and December 31, 2003



NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.       Unaudited Interim Financial Information

              The accompanying unaudited condensed consolidated balance sheets
              of Interactive Motorsports and Entertainment Corp. (the "Company")
              at September 30, 2004 and the unaudited consolidated statements of
              operations and statements of cash flows for the three and nine
              months ended September 30, 2004 and 2003, have been prepared by
              the Company's management and do not include all the information
              and notes to the financial statements necessary for a complete
              presentation of the financial position, results of operations, and
              cash flows in conformity with generally accepted accounting
              principles. In the opinion of management, all adjustments
              necessary for a fair presentation of the results of operations and
              financial position have been included and all such adjustments are
              of a normal recurring nature. Although management believes the
              disclosures are adequate to make the information presented not
              misleading, it is suggested that these condensed consolidated
              financial statements be read in conjunction with the audited
              financial statements and the notes thereto included in the
              Company's latest annual financial statements included in the
              Company's annual report on Form 10-KSB. The results of operations
              for the nine months ended September 30, 2004 are not necessarily
              indicative of the results that may be expected for the full year
              ending December 31, 2004 or any future period.

b.       Use of Estimates

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

NOTE 2 -      DEBT AND CREDIT ARRANGEMENTS

              Pursuant to a note and option purchase agreement and security
              agreement dated February 2, 2004, the Company has issued notes
              payable in the amount of $419,000 during the three months ended
              June 30, 2004. The notes are due February 2, 2005, but may be
              prepaid after six months from their date of issuance. Each note
              comes with an option to purchase common shares of the Company
              equal to the amount of notes purchased divided by the fair market
              value of the Company's stock on the date of issuance of the note.

              Options to purchase 5,152,272 shares of the Company's common stock
              were granted during the three months ended June 30, 2004. The
              options were valued at $142,658 and will be amortized to interest
              expense over their life which expires March 1, 2005. Amortization
              of option discount of $78,316 was included in interest expense for
              the three months ended September 30, 2004.

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

<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                    September 30, 2004 and December 31, 2003

NOTE 3 -       REVENUE SHARING AGREEMENTS

               On March 18, 2004, the Company entered into an agreement with
               Michigan based Checker Flag Lightning, LLC to convert seven of
               its nine corporate owned racing centers into revenue share
               stores. The agreement shifts the burden of occupancy and labor
               costs to Checker Flag, and provides the Company to be paid a
               minimum revenue share income for each site. As of September 30,
               2004, five of the seven sites listed in the Agreement have been
               converted, and a sixth site is in the process of being relocated
               to what management anticipates will be a better mall location.

NOTE 4 -       MANAGEMENT PLANS

               The accompanying consolidated financial statements have been
               prepared in accordance with accounting principles generally
               accepted in the United States of America and contemplate the
               Company's ability to continue as a going concern. The
               consolidated financial statements do not include any adjustments
               that might result if the Company is unable to obtain additional
               financing. Absent additional funding, the Company believes that
               under the revised business model the projected level of cash
               receipts from Revenue Share sites, existing lease contracts,
               contracts to purchase Simulator systems, and from simulator and
               merchandise sales will likely be sufficient to fund the daily
               operations of the business for the foreseeable future, although
               there can be no assurance.

               In July of 2003, management revised the Company's business model,
               changing the focus from Company owned and operated mall-based
               racing centers to revenue share racing centers (mall merchandise
               retailers, family entertainment centers, amusement parks,
               casinos, auto malls, etc.), mobile lease programs such as the
               Nextel Experience and the purchase of simulators, primarily
               outside of the U.S. Without the burden of occupancy costs and
               labor costs, management believed this would be a profitable model
               going forward, and the profitability of this quarter bears that
               out. The fourth quarter will be the first full quarter under the
               restructured mall leases, and with new revenue share locations
               scheduled for installation and the pipeline of demand continuing
               to grow, management is optimistic that the Company's
               profitability will likewise continue to grow, although there can
               be no assurances.

               Performance for the three months ending September 30, 2004
               resulted in the first quarterly profit in the company's short
               history of approximately $8,000 on revenue of approximately $1.6
               million. For the year to date period ending September 30, 2004,
               the Company's revenue channels generated revenue of approximately
               $4.7 million. Sales performance resulted in a net loss of
               approximately $1.080 million for the nine month period, an
               improvement of $1.186 million over the comparable period in 2003.
               The Company assigned five of its mall leases to Checker Flag
               Lightning and is in the process of moving the assets from a sixth
               mall location to another revenue share location by the end of
               2004 which is anticipated to be more favorable. As of this
               filing, one of the landlords who has orally approved the terms of
               their assignment has yet to complete the final documents.

               Management believes the Company's demonstration of profitability
               resulting from the lease assignments and the increased revenue
               share and lease business will enhance the Company's ability to
               secure long term debt or equity financing. The payables due to
               the landlords (the vast majority of the current outstanding
               payables) were addressed in the lease assignments to Checker Flag
               Lightning and various
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                    September 30, 2004 and December 31, 2003

               payment plans are in place which management believes are
               favorable to the Company.

               The primary source of funds available to the Company going
               forward are receipts from customers for simulator and merchandise
               sales in its owned and operated racing centers, percentage of
               gross revenues from simulator races and minimum guarantees from
               revenue share sites, revenues from leases for mobile units,
               profits from the sale of simulators to third parties, proceeds
               from equity offerings including the $2,610,050 received in August
               2002, proceeds from debt offerings including the $700,000 in
               Secured Bridge Notes and warrants issued in March 2003 (reduced
               to $550,000 as of this filing), and the $750,000 in new Notes and
               options issued between February and June, 2004, loans from
               shareholders, credit extended by vendors, and possible future
               financings.

               As of the filing of this Form 10-QSB, the net proceeds of
               $604,000 from the Notes and options financing received in 2004
               and earmarked for operations has been depleted and the Company
               believes that under the revised business model the projected
               level of cash receipts from Revenue Share sites, existing lease
               contracts, contracts to purchase Simulator systems, and from
               simulator and merchandise sales will likely be sufficient to fund
               the daily operations of the business for the foreseeable future,
               although there can be no assurance. Under the restructured
               business model, sales for the first nine months of 2004 are 18.3%
               lower than for the same period one year ago, while occupancy
               costs and payroll costs are 37.9% and 31.7% lower respectively,
               resulting in a reduction in the net loss of 52.3% or $1,185,847
               for the comparable nine month periods. These significant
               financial improvements demonstrate that the new business model
               has, at least initially, proven to be successful.

               With the cash flow improved under the new business model, and in
               the opinion of management under control, and various purchase and
               revenue share agreements signed that assist in establishing
               market value for the Company's assets which are significantly
               greater than the balance sheet shows, the Company is more
               confident that it will be successful in raising additional
               working capital through a collateralized debt offering or through
               other means. While the company believes that these financing
               efforts will be successful, there are no assurances. Management
               believes that some combination of simulator sales (from existing
               inventory of owned and unencumbered simulators), along with
               collateralized debt financing may generate enough capital to
               sustain as well as grow the business, although there can be no
               assurances.

               While the desired level of financing has not yet been achieved,
               the Company believes it may have sufficient cash flow to sustain
               daily operations, but additional financing is required to fully
               implement the desired level of growth in its revised business
               model. The Company's ability to raise the desired financing will
               depend on many factors. Management believes that the recent mall
               lease conversions to revenue share locations, the now proven
               profitability of the new business model, combined with some
               combination of simulator sales (from existing inventory of owned
               and unencumbered simulators) and the increased revenues from the
               recently signed third party revenue share agreements will allow
               the Company to continue to achieve positive quarterly EBITDA and
               profitability. While management is pursuing various forms of
               financing, there can be no assurance that additional financing
               will be available or, if available, that it will be on terms
               acceptable to the Company.
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                    September 30, 2004 and December 31, 2003


               Currently, the Company is exploring collateralized debt financing
               with several sources and is in various stages of discussion with
               each. Certain parties have expressed interest in an equity
               investment in the Company, but management's first priority is
               secured debt financing using as collateral its simulator
               inventory and its recent sales and revenue share transactions to
               establish a market value of $75,000 per simulator for existing
               inventory, and $100,000 or more for new simulators that are
               currently being manufactured.





<PAGE>

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

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

Interactive Motorsports and Entertainment Corp. ("IMTS" or the "Company"), an
Indiana corporation, through its wholly owned subsidiary, Perfect Line, Inc., is
a world leader in race simulation that owns and operates three NASCAR Silicon
Motor Speedway ("NSMS") racing centers with a total of 36 simulators under its
revised business model, and has agreements for revenue share sites featuring 128
simulators and lease agreements for an additional 8 simulators and 4 more are
expected for 2005. Orders have been placed for 30 simulator purchases. NSMS
customers experience driving in a NASCAR race car that simulates the motion,
sights and sounds of an actual NASCAR event. Located in high profile, high
traffic locations, the Company's racing centers range from 2 to 12 racecar
simulators per location and many sites offer what the Company believes to be the
best selling NASCAR driver merchandise available to the market.

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience. At the 2004 Daytona 500 in February, Nextel debuted The
Nextel Experience, a mobile fan interactive experience that features six of the
Company's race simulators. The Nextel Experience will have a prominent location
at each of the NASCAR Nextel Cup events for at least the next three seasons.
Nextel has contracted for a second mobile experience that they use for
promotional events that features two of the Company's simulators, and is
expected to contract for two additional 2-simulator mobile experiences for 2005.
Nextel and other potential clients are also considering the Company's new 3D
version of the experience under a right of first refusal for a patented 3D
process that does not require glasses.

For the nine month period ending September 30, 2004, the Company's revenue
channels generated revenue of approximately $ 4.7million. Sales performance
resulted in a net loss of approximately $1.080 million for the 9 month period,
an improvement of almost $1.2 million over the loss incurred during the same
period in 2003. Performance for the 3 months ending September 30, 2004 resulted
in a profit of approximately $8,000 on revenue of approximately $1.6 million for
the quarter. The Company assigned five of its mall leases to Checker Flag
Lightning and is in the process of moving the assets from a sixth mall location
to what management believes to be a more favorable location by the end of
November, 2004. Management believes the proven profitability of the new business
model resulting from the lease assignments and the increased revenue share and
lease business will enhance the Company's ability to secure long term debt or
equity financing. The payables due to the landlords (the vast majority of the
current outstanding payables) were addressed in the lease assignments to Checker
Flag Lightning and various payment plans are in place which management believes
are favorable to the Company.

The Company has established four primary sources of revenues: (i) company owned
and operated racing centers; (ii) lease/revenue share arrangements of two types
- (a) new facility operators for new locations, and (b) new facility operators
to assume the Company's operations under presently existing Company locations;
(iii) new operators for mobile arrangements such as with the Nextel experience;
and (iv) simulator equipment sales. A brief description of each of those is
listed below.



<PAGE>
Locations

<TABLE>

Company Owned: (Total of 36 Simulators)

<CAPTION>
              Location                     Market              Sq. Ft.          Simulators
       --------------------         -------------------     -----------         ----------

<C>                                                           <C>               <C>
1)       Mall of America            Minneapolis, MN           5,899             12 racecars
2)       Universal CityWalk         Los Angeles, CA           5,000             12 racecars
3)       Palisades Center           West Nyack, NY            5,700             12 racecars


Revenue Share:  (Total of 128 Simulators)


             Location                      Market              Sq. Ft.          Simulators
     ----------------------         -------------------     -----------         ----------
1)       Opry Mills                 Nashville, TN              6,007            10 racecars
2)       Gurnee MIlls               Chicago, IL                4,000             6 racecars
3)       Concord Mills              Charlotte, NC              7,865            12 racecars
4)       Katy Mills                 Houston, TX                6,172             8 racecars
5)       Mall of Georgia            Atlanta, GA                5,895             8 racecars
6)       Riverchase Galleria        Birmingham, AL             6,188             8 racecars
7)       RiverTown Crossing         Grand Rapids, MI           6,100             8 racecars
8)       Jordon Creek Town Ctr.     DeMoines, IA               4,000             8 racecars
9)       NASCAR SpeedPark           Sevierville, TN            1,584             6 racecars
10)      NASCAR SpeedPark (5)       Myrtle Beach, SC           1,600             6 racecars
11)      NASCAR SpeedPark           St. Louis, MO              1,496             6 racecars
12)      NASCAR SpeedPark (1)       Toronto, Ontario, CAN      1,600             6 racecars
13)      Cowboy Pizza               Monterey, CA                 968             4 racecars
14)      Burdick Driver's Village   Syracuse, NY               3,472             8 racecars
15)      Playcenter(2)              Sao Paulo, Brazil          1,000             4 racecars
16)      Peabody Place (3)          Memphis, TN                5,000            12 racecars
17)      Bass Pro Outdoor (4)       Harrisburg, PA               600             2 racecars
18)      Ent. Dest. of Indiana (5)  Evansville, IN              2100             6 racecars

(1) Scheduled to open in December, 2004
(2) Scheduled to open TBA
(3) Scheduled to open December, 2004
(4) Scheduled to open November, 2004
(5) Scheduled to open March, 2005


Mobile Units: (Total of 14 Simulators)

1)  Nextel Mobile Experience         2003-05 NASCAR Nextel Cup series events    6 racecars
2)  Nextel Mini Mobile Experiences (1)       Various markets                    6 racecars
3)  Perfect Line/National Tour JV (1)        Various markets                    2 racecars
         (1) signed agreement for 2 of the mini experiences and the JV experience expected but not signed on date of filing

Sales of Simulators: (Total of 32 Simulators)

        Buyer                     Market                        Simulators
       --------                   ------                        ----------
1)  Roltex (1)                    Moscow, Russian Federation     8 racecars
2)  Yello Properties (2)          London, United Kingdom        12 racecars
3)  Tonne Mgmt (3)                Wisconsin Dells, WI            4 racecars
4)  I-Vision Technologies         Abu Dhabi, UAE                 4 racecars
5)  Fun City (4)                  Burlington, IA                 2 racecars
6)  Ft. Gordon Military Base (5)  Ft. Gordon, GA                 2 racecars

(1) shipping scheduled for December, 2004
(2) installation schedule TBD
(3) installation scheduled for March, 2005
(4) installation scheduled for March, 2005 (signed agreement expected but not received on date of filing)
(5) installation scheduled for December, 2004


</TABLE>
<PAGE>

History

Perfect Line, LLC, the predecessor of the Company's wholly owned subsidiary
Perfect Line, Inc. ("Perfect Line"), was formed in 2001 as a Delaware limited
liability company and merged with and into Perfect Line, Inc. on August 1, 2002.
Perfect Line is a world leader in race simulation, in the business of owning and
operating simulated racing centers, selling racing related merchandise, revenue
sharing with partners in malls, amusement parks, family entertainment centers,
casinos and auto malls, leasing for mobile fan interactive experiences and the
selling simulators to third parties.

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

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

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

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience and simulator purchases. Without the burden of occupancy
costs and labor costs, management believes the new business model proved
successful as indicated by the Company's first quarterly profit for the quarter
ending September 30, 2004.

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

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

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

<PAGE>

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

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

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

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

The Company first tested the revenue share business model with the Burroughs and
Chapin Company of Myrtle Beach, South Carolina, by installing 6 simulators at
their Smokey Mountain NASCAR SpeedPark in April of 2003, and 5 simulators at
their Myrtle Beach Pavilion Amusement Park's Ocean Front Arcade in May of 2003.
The success of these two revenue share racing centers inspired management to
revise the Company's business model beginning in July of 2003, changing the
focus from Company owned and operated racing centers to revenue share racing
centers located within malls, family entertainment centers, amusement parks,
casinos, auto malls, etc. Revenue share locations will provide IMTS the
opportunity to install simulators in existing or planned entertainment venues
and share proportionately in the sales generated with owner-operators. The
Company provides the simulators at cost (expected to be financed through a third
party leasing firm, although no agreements have been reached) and the host
organization (owner-operator) provides the space, required site build-out, and
day-to-day operations staffing. The Company currently has agreements for 128
simulators in 19 revenue share locations.

The Company and Checker Flag Lightning of Grandville, Michigan, tested the
conversion of one of the Company's mall racing centers to a Checker Flag
Lightning retail merchandise and entertainment center beginning in November of
2003. The lease at the racing center within RiverTown Crossing in Grandville,
Michigan was assigned to Checker Flag Lightning and the store was remodeled by
reducing the number of simulators to 8 from 10, and building out the retail
merchandise space to fill nearly half of the 6100 square feet with NASCAR
merchandise. The success of this model led to an agreement with Checker Flag
Lightning in March of 2004 to assign seven of the Company's mall leases with the
intent to convert each of them to the new mall model. Five of those assignments
have been completed, and one site is being moved to a new location. The seventh
site is on hold pending other options with that landlord. In addition, Checker
Flag Lightning recently opened a 3,500 square foot retail merchandise and
entertainment center featuring 8 of the Company's simulators in the new Jordan
Creek Town Center in West Des Moines, Iowa. The layout and design of this new
center is expected to be the model for future Checker Flag Lightning mall
centers.

The Company recently established two new revenue streams that management
believes will be beneficial to the Company in the future, mobile leases and
sales of simulator equipment. A total of 30 simulators have been ordered for
purchase, primarily from overseas (United Kingdom, Russian Federation and United
Arab Emirates). At the 2004 Daytona 500 in February, Nextel debuted The Nextel
Experience, a mobile fan interactive experience that features six of the
Company's race simulators. The Nextel Experience has had and will have a
prominent location at each of the NASCAR Nextel Cup events for at least the next
three seasons. For 2005, Nextel is expected to contract for three mini mobile
experience that they will use for promotional events that features two of the
Company's simulators in each mini experience.

<PAGE>

The Company has made technological improvements to the simulation, resulting in
an enhanced racing experience. In addition, two popular racetracks, Bristol and
Indianapolis, were introduced to the simulation experience late in 2002 and
early in 2003. Other software improvements were implemented, including on-line
programs such as MySpeedway. MySpeedway is a feature on IMTS's website
(www.smsonline.com) that allows customers to find their recent lap times, and
analyze their results to improve their performance by comparing their times to
those of other racers throughout the country. Car parameters were introduced in
August 2003 allowing racers to set up their cars to their personal preferences.
Adjustable parameters include traction control, anti-lock brakes, spoiler angle,
steering ratio, front anti-roll bar, engine, transmission gearing, and rear end
ratio.

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

The Company has established a subsidiary, Race Car Simulators, Inc., which, upon
the receipt of future funding will develop, manufacture, and sell its
motion-based simulators to the commercial entertainment/amusement market.
Exploiting this opportunity may create another attractive revenue stream for the
Company. Race Car Simulators, Inc. has hired an experienced sales manager, Mr.
Rich Wheeler, and has a representation agreement with veteran international
amusement park executive Mr. Alain Baldacci for several international markets
including Brazil, Japan, Australia, Argentina, Chile, and Korea.

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

Overview of Financial Position and Results of Operations

During the nine months ended September 30, 2004, the Company had total revenues
of $4,702,585 compared to $5,757,009 for the nine months ended September 30,
2003. The decrease in revenue of 18.3% is attributed to: a) the closing of two
racing centers (Arbor Place and Crossgates Mall), b) the conversion of 6 company
store locations to revenue share locations (Charlotte NC, Nashville TN, Houston
TX, Atlanta, GA, and Birmingham, AL and Chicago, IL, The Chicago location was
closed and is being relocated to another mall in the Chicago area) c) the
company's lack of capital, resulting in 1) an inability to properly advertise
and promote the racing centers, and 2) an inability to purchase merchandise
inventory at levels necessary to adequately stock its remaining stores.

The company continued to execute its turnaround plan in the three months ending
September 30, 2004, posting its first quarterly profit in the company's history.
Although sales declined by 9.4% as compared to the three months ending September
30, 2003, operating expenses declined by 40.5%, resulting in a $137,171
operating profit for the quarter ending September 30, 2004. This operating
profit represents a $602,440 swing from the $465,269 operating loss for the
quarter ending September 30, 2003 Payroll expenses declined 40.8% and rent
expense declined 53.5% when comparing the third quarter 2004 to the third
quarter 2003. Interest expense for the three months ending September 30, 2004
was $129,316 as compared to $21,000 for the comparable quarter in 2003. The net
profit for the quarter ending September 30,2004 of $7,855 was $494,124 higher
than the ($486,269) loss for the same quarter one year ago. September 2004
marked the fourth consecutive month that the company was able to generate
positive EBITDA. EBITDA for the three months ending September 30, 2004 was
$229,458 as compared to a negative ($357,098) for the same period ending
September 30,2003. The company achieved another milestone during the quarter,
completing its first ever sale of simulators to a client in Abu Dhabi, UAE.

For the nine months ending September 30, 2004, sales declined 18.3% as compared
to the nine months ending September 30, 2003. Again, operating expenses declined
at an even faster rate, resulting in a 63.6% decrease in the operating loss for
the nine months ending September 30,2004 as compared to the same period in 2003.
Payroll expenses declined 31.7% and occupancy expense declined 37.9% when
comparing the first nine months of 2004 to the first nine months of 2003. As a
result of net note issuances, interest expense increased from $80,432 for the
nine months ending September 30, 2003 to $284,636 for the same period in 2004.
The net loss for the first three quarters of 2004 of ($1,080,032) was 52.3%
lower than the ($2,265,879) loss for the same nine month period one year ago.
<PAGE>

Since inception on May 31, 2001 and through September 30, 2004, the Company has
accumulated aggregate losses totaling ($7,514,687).

The Company's cash flow position from operations also improved, albeit not to
the level necessary to fund historical operations. Cash generated from
operations for the nine months ending September 30, 2004 improved by almost
$456,000 from the same nine month period in 2003. Cash used by operations
improved to $528,670 as compared to $984,412 for the first nine months of 2003.
Additionally, the Company relied less on its trade payables to fund operations
during the first nine months of 2004 than during the same period in 2003.
Accounts payable decreased by $38,917 during the first nine months of 2004, as
compared to increasing by $837,906 during the same period in 2003. Cash flow
from all sources (operations, investing activities and financing activities) was
insufficient to fund the company during the nine months ending September 30,
2004, but the insufficiency of $133,269 was 62.8% less than the cash flow
deficit of $358,071 generated from all sources for the nine months ending
September 30, 2003. The cash position fell $133,269 from December 31, 2003 to
September 30, 2004, as compared to a $358,071 reduction in the cash position
from December, 2002 to September 30, 2003.

The Company has funded its retained losses through the initial investment of
$650,000 in May 2001, $400,000 of capital contributed in February 2002,
approximately $2.6 million received in August 2002 from the sale of Preferred
Stock, the $700,000 borrowed March 2003, $766,000 received from deposits for the
purchase of racecar simulators by third parties, $604,000 received in the first
six months of 2004 from the net proceeds of Notes, and $1,300,000 by delaying
payment to its vendors. The Company is in the process of considering additional
debt and/or equity financing to fund current operating deficits and the
Company's growth plan. See further discussion under the "Liquidity and Capital
Resources" section below.

Review of Consolidated Financial Position

Cash and Cash Equivalents: The Company had $115,736 in cash and cash equivalents
as of September 30, 2004 compared with $249,005 at December 31, 2003, a decrease
of $133,269. This decrease in the company's position of cash during the nine
months was due principally to the improvement in bottom line performance, sale
of notes totaling $604,000, the receipt of $513,778 in deposits from third
parties committing to the future purchase of racecar simulators, and the
investment of $158,599 in fixed assets for allocation into new revenue share
locations. See further discussion under the "Liquidity and Capital Resources"
section below.

Trade Accounts Receivable: As the new business model is implemented, management
believes this component of the balance sheet will increasingly reflect the
revenue due to the Company from our revenue share sites. The increase in Trade
Receivables of $93,562 from December 31, 2003 to September 30, 2004 is due to
the timing difference of when the revenue from our Revenue Share sites is
recognized, and when payment is due during the following month.

Merchandise Inventory: At September 30, 2004, merchandise inventory decreased by
$7,857 from December 31, 2003 levels due primarily to the conversion of six
company store locations to Revenue Share locations during the period. In
addition, the company continued to be deficient in the capital necessary to
stock its remaining stores to the level necessary to generate increases in
revenue from the sale of merchandise.

Notes Payable: Between February and June, 2004 the Company sold secured notes
totaling $750,000 and granted options in connection therewith as further
discussed in Note 2 to the Consolidated Financial Statements. Of the total
amount received, $276,122 was attributed to options and the remainder of
$473,878 was attributed to the notes. The notes bear interest at a rate of 9.6%
per annum. All amounts due under the notes are due and payable February 2, 2005.
Proceeds from the March, 2003 Bridge Note in the amount of $145,750 were used to
acquire a like amount of the 2004 notes.

Deposits on Simulator Sales: During the nine month period ending September 30,
2004, the Company entered into three more agreements for the purchase of its
proprietary racecar simulators, and collected $513,778 in deposits per the terms
of these agreements. The company has fulfilled its commitment under one of these
agreements, and has applied the corresponding $147,478 deposit toward the
purchase price of the simulators. Additionally, the $100,000 deposit received in
a prior period was applied to lease payments that became due on January 1, 2004,
April 1, 2004, and a portion of a lease payment due on July 1, 2004. The
$100,000 deposit has now been fully applied against lease payments that have
become due.
<PAGE>

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

During the nine months ended September 30, 2004, the Company had total revenues
of $4,702,585 compared to $5,757,009 for the nine months ended September 30,
2003. The decrease in revenue of 18.3% is attributed to: a) the closing of two
racing centers (Arbor Place and Crossgates Mall), b) the conversion or
relocation of 6 company store locations to revenue share locations (Charlotte
NC, Nashville TN, Houston TX, Atlanta GA, Birmingham AL and Chicago, IL. The
Chicago location was closed and is being relocated to another mall in the
Chicago area), c) the company's lack of capital, resulting in 1) an inability to
properly advertise and promote the racing centers, and 2) an inability to
purchase merchandise inventory at levels necessary to adequately stock its
remaining stores.

Operating expenses for the nine months ended September 30, 2004 were
approximately 109% of net sales and approximately 132% of net sales for the
comparable period in 2003. The primary reasons for the decrease in 2004 are the
decreases in employee compensation expenses, and occupancy expense. In the
period ending September 30, 2004, employee compensation expenses decreased by
$1,093,311 as compared to the period ending September 30, 2003, due to
reductions in the corporate staff, the store manager ranks, the elimination of
the Group Sales division, and the conversion of 6 company store locations to
Revenue Share locations. The reductions in rent expense of $922,038 in the first
nine months of 2004 as compared to the same period in 2003 are the result of
store closures, store conversions to revenue share locations, and the
renegotiation of leases at the remaining store locations.

Despite the reduction in revenue for the period as compared to the same period
last year, the net loss for the nine months ending September 30, 2004 of
$1,080,032 was $1,185,847 less than the loss for the same period ending
September 30, 2003. This was the result of the implementation of the new
business model and cost containment activities enacted by management beginning
in the second half of 2003 and continuing through the first nine months of 2004.

Liquidity and Capital Resources

The primary source of funds available to the Company are receipts from customers
for simulator and merchandise sales in its owned and operated racing centers,
percentage of gross revenues from simulator races and minimum guarantees from
revenue share sites, the sale of simulators, proceeds from equity offerings
including the $2,610,050 received in August 2002, proceeds from debt offerings
including the $700,000 in Secured Bridge Notes and warrants issued in March
2003, and the $750,000 in new Notes and options issued between February and
June, 2004, loans from shareholders, credit extended by vendors, and possible
future financings.

As of the filing of this Form 10-QSB, the net proceeds of $604,000 from the
Notes and options financing received in the first six months of 2004 and
earmarked for operations has been depleted and the Company believes the
projected level of cash receipts under the revised business model from Revenue
Share sites, existing lease contracts, contracts to purchase Simulator systems,
and from simulator and merchandise sales will likely be sufficient to fund the
daily operations of the business for the foreseeable future, although there can
be no assurance. Under the restructured business model, sales for the first nine
months of 2004 are 18.3% lower than for the same period one year ago, while
occupancy costs and payroll costs are 37.9% and 31.7% lower respectively,
resulting in a reduction in the net loss of 52.3% or $1,185,847 for the
comparable nine month periods. With six mall leases assigned to Checker Flag
Lightning and a seventh moving to what management believes will be an improved
location by the end of November, 2004, management believes it has proven and
reconfirms its earlier indications that the assignments will result in a
positive EBITDA for the company.

<PAGE>

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

While the desired level of financing has not yet been achieved, the Company
believes it will likely have sufficient cash flow to sustain daily operations,
but additional financing is required to fully implement the desired level of
growth in its revised business model. The Company's ability to raise the desired
financing will depend on many factors. Management believes that the recent mall
lease conversions to revenue share locations, combined with some combination of
simulator sales (from existing inventory of owned and unencumbered simulators)
and the increased revenues from the recently signed third party revenue share
agreements will allow the Company to maintain and increase positive EBITDA and
profitability. While management is pursuing various forms of financing, there
can be no assurance that additional financing will be available or, if
available, that it will be on terms acceptable to the Company.

During the nine months ended September 30, 2004, the operating activities of the
Company used net cash of $528,670 compared to net cash used of $984,412 for the
comparable period in 2003. The majority of the increase in cash provided by
operations was due to a 52.3% decrease in the amount of the loss from
operations, and an increase in deposits on future simulator sales.

During the nine months ended September 30, 2004, the Company used $312,055 of
cash in investing activities compared with $113,659 of cash used in investing
activities during the comparable period in 2003. The first 9 months of 2004 also
saw the sale of $153,456 in simulators and equipment. In 2004, the cash used
relates primarily to the refurbishment of existing simulators for placement in
several new revenue share locations, and to purchase the necessary components to
effect the sale of 4 simulator systems to a client in Abu Dhabi, UAE.

During the nine months ended September 30, 2004, the Company generated $554,000
of net cash in financing activities, compared with $740,000 in the comparable
period in 2003. The Company will continue to use the debt and equity markets to
raise sufficient capital to fund its growth opportunities as it continues to
implement its new business model, focusing on revenue share opportunities.

The Company anticipates using debt and equity to raise sufficient capital to
fund the operating expenses until the completion of the landlord assignments and
revenues from simulator sales is received. To that end, all of the $554,000 of
net cash provided through financing activities during the nine month period
ending September 30, 2004 representing the receipt of proceeds from the issuance
of the Secured Note and Option Agreement has been fully used to fund daily
operations, including simulator refurbishments for future growth. Additionally,
the Company has consumed all of the $745,750 cash provided through financing
activities during the year ended December 31, 2003 representing the receipt of
proceeds from the issuance of the Secured Bridge Notes and warrants in March
2003, along with a promissory note in August 2003. The Secured Bridge Notes
matured at December 31, 2003, but two of the note holders representing $550,000
have entered into extension agreements pursuant to which the maturity of the
notes is extended to December 31, 2004, one purchaser of $50,000 has been repaid
in full by the Company, and $145,750 was converted during the first six months
of 2004 to the Company's recent Note and Option Agreement.

As of September 30, 2004, the Company had cash and cash equivalents totaling
$115,736 compared to $249,005 at December 31, 2003. Current assets totaled
$384,510 at September 30, 2004 compared to $381,335 on December 31, 2003.
Current liabilities totaled $4,238,983 on September 30, 2004 compared with
$3,654,089 on December 31, 2003. As such, these amounts represent an overall
decrease in working capital of $535,968 for the nine months ending September 30,
2004.




<PAGE>

ITEM 3. Controls and Procedures

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

                                     PART II

Item 1.  Legal Proceedings

From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. As of September 30, 2004
and as of the filing of this Interim Report on Form 10-QSB, the Company is not
aware of any material legal actions directed against the Company.

Item 2.  Changes in Securities

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.

Item 6.   Exhibits and Reports on Form 8-K

A. Exhibits.

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

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


<PAGE>

B. Reports on Form 8-K.

   99.10   Announcement of the on schedule completion of the conversion of five
           mall racing centers with Checker Flag Lightning. dated July 20, 2004.
   99.11   Announcement of the continued improvement of the Company's
           financial condition dated August 17, 2004 99.12 Announcement that the
           Company has ordered 50 new Simulators from Elan Motorsports dated
           August 26, 2004













                                   SIGNATURES

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

                 INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP.

Date: November 15, 2004        By:       /s/ William R. Donaldson
                                 ----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer


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


Date: November 15, 2004        By:       /s/ William R. Donaldson
                                 -----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer
                                (Principal Executive Officer)

Date: November 15, 2004        By:       /s/ William R. Donaldson
                                -----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer
                               (Principal Financial Officer)



<PAGE>


                                  EXHIBIT INDEX

Exhibits:

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