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


                                   FORM 10-KSB


              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                            For the fiscal year ended
                                December 31, 2004

                        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 []

Issuer's Revenues for its most recent fiscal year: $7,071,834

As of March 22, 2005, the aggregate market value of the voting stock held by
non-affiliates of the Issuer, 32,192,470 shares, was $2,253,473. The market
value of Common Stock of the Issuer, par value $0.0001 per share, was computed
by reference to the average of the closing bid and asked prices of one share on
such date which was $0.07.

The number of shares of the issuer's Common Stock, par value $0.0001 issued and
outstanding as of March 22, 2005, was 87,715,910.

                        Exhibit Index located on Page 44

<PAGE>




<TABLE>

<CAPTION>
                      INDEX TO ANNUAL REPORT ON FORM 10-KSB
                                                                                                              Page
Section                                                                                                     Number

<S>                                                                                                           <C>
BASIS OF PRESENTATION..........................................................................................4

                                     PART I

Item 1.    Description of Business............................................................................. 5
Item 2.    Description of Properties........................................................................... 9
Item 3.    Legal Proceedings...................................................................................10
Item 4.    Submission of Matters to a Vote of Security Holders.................................................10

                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters............................................10
Item 6.         Management's Discussion and Analysis of Financial Condition and Results of Operations..........11
Item 7.    Financial Statements and Notes to Financial Statements
                Report of Independent Registered Public Accounting Firm........................................19
                  Consolidated Balance Sheet at December 31, 2004 .............................................20
                Consolidated Statements of Operations for the Years Ended
                  December 31, 2004 and December 31, 2003......................................................22
                Consolidated Statements of Changes in Shareholders' Equity
                  for the Years Ended December 31, 2004 and December 31, 2003..................................23
                Consolidated Statements of Cash Flows for the Year Ended
                  December 31, 2004 and December 31, 2003 .....................................................25
                  Notes to Consolidated Financial Statements...................................................27
Item 8.    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ...............38
Item 8A.   Controls and Procedures.............................................................................38

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons........................................39
Item 10.   Executive Compensation..............................................................................40
Item 11.   Security Ownership of Certain Beneficial owners and Management......................................41
Item 12.   Certain Relationships and Related Transactions......................................................42
Item 13.   Exhibits and Reports on Form 8-K....................................................................42
Item 14.   Principal Accountant Fees and Services..............................................................42


SIGNATURES ....................................................................................................44

EXHIBITS ......................................................................................................45

CERTIFICATIONS  ...............................................................................................50


</TABLE>


<PAGE>





                       NOTE ON FORWARD-LOOKING INFORMATION

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

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


<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
until December 31, 2004.

All information in this Form 10-KSB 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. Description of Business

Overview

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. The Company is 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. Under an exclusive license from America's
fastest growing sport, NASCAR, the NASCAR Silicon Motor Speedway (NSMS)
customers experience driving in a NASCAR race car that simulates the motion,
sights and sounds of an actual NASCAR event.

The Company leverages its strategic relationships and proprietary assets, which
include (a) sophisticated racing simulation technology, (b) an exclusive
licensing agreement with NASCAR, and (c) license agreements with other racing
entities including race tracks, race teams, and race sponsors to create a
dynamic, diversified business.

For the year ended December 31, 2004, the Company's racing centers and revenue
share simulators generated revenue of approximately $7.0 million. Over the last
18 months, management has revised the Company's business model from an owned and
operated, mall based racing center concept to primarily a revenue share and
leasing business. The revenue share model is one where the Company owns the race
car simulators and the software, and the revenue share partner (mall retailer,
family entertainment center, amusement park, casino, museum, etc.) provides the
space and the labor for the experience. The revenue that is generated is shared
between the two parties, and minimum guarantees to the Company normally apply.

Major Agreements: During 2004, the Company entered into lease/revenue share
arrangements as well as entered into transactions for the sale of simulators.
The lease/revenue arrangements involve four types of locations (including
ongoing service agreements for locations of simulators which are sold) and four
types of arrangements. The Company entered into lease/revenue arrangements for
fixed locations with (i) new facility operators for new locations; (ii) new
facility operators to assume the Company's operations under presently existing
Company locations; (iii) new operations for mobile arrangements for use with the
Nextel experience; and (iv) simulator equipment sales. A brief description of
each of those is listed below.

Perfect Line's race simulators, including those owned by Race Car Simulation
Corp., are currently featured in the following locations.
<TABLE>

Locations

<CAPTION>
Company Owned (36 Simulators):

              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           Nyack, NY                 5,700             12 racecars



Revenue Share (123 Simulators):


             Location                      Market              Sq. Ft.          Simulators
     ----------------------         -------------------     -----------         ----------
1)       Opry Mills                 Nashville, TN             6,007             10 racecars
2)       Gurnee Mills               Chicago, IL               6,111              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
<PAGE>

Revenue Share (123 Simulators) (continued):
-------------------------------------------
             Location                      Market              Sq. Ft.          Simulators

7)       RiverTown Crossing         Grand Rapids, MI          6,100               8 racecars
8)       Jordan Creek Town Ctr      Des Moines, IA            4,000               8 racecars
9)       NASCAR SpeedPark           Sevierville, TN           1,584               6 racecars #
10)      NASCAR SpeedPark           St. Louis, MO             1,496               6 racecars #
11)      NASCAR SpeedPark           Toronto, Canada           1,500               6 racecars #
12)      NASCAR Speedpark  (a)      Myrtle Beach, SC          1,600               6 racecars #
13)      Gate A Sports              Cleveland, OH             2,470               5 racecars
14)      Playcenter (b)             Sao Paulo, Brazil         1,000               4 racecars
15)      Burdick Driver's Village   Syracuse, NY              3,472               8 racecars #
16)      Big River Entertainment (b)Memphis, TN               5,000              12 racecars
17)      Bass Pro Shop              Harrisburg, PA              500               2 racecars

        a. Scheduled to open Q2
        b. Scheduled to open TBD

Mobile Units (14 Simulators):

1)  Nextel Mobile Experience        2004-06 NASCAR Nextel Cup series events      6 racecars #
2)  Perfect Line/NTI Experience     Joint Venture Mobile Experience              2 racecars
3)  Nextel Mini Experiences         Nextel regional marketing                    6 racecars #

Sales of Simulators (20 Simulators):

    ___Buyer___            _____Market____              Simulators
       --------                 ------                   ----------
1)   Roltex                Moscow, Russian Federation   8 racecars *
2)   Tonne Mgmt            Wisconsin Dells, WI          4 racecars *
3)   Ft. Gordon            Ft. Gordon, GA               2 racecars
4)   I-Vision Tech.        Abu Dhabi, UAE               4 racecars *
5)   I-Vision Tech.        Abu Dhabi, UAE               2 racecars


# Denotes asset sold to Race Car Simulation Corporation
* Denotes that simulators are not yet installed
</TABLE>


Pricing

An individual race typically costs $8.50 and quantity discounts are offered with
purchases of multiple races. Customers pay an average of $25 per hour to use a
simulator during leagues and competitions. Depending on the program or package,
the targeted yield for group sales averages between $300 and $800 per hour for
the use of the entire racing center. Prices of merchandise range from $16 for a
hat up to $200 for high-end leather jackets. Prices for the die-cast and
collectable cars range between $15 and $65. The Company's owned locations
provide the only means to generate revenues from merchandise sales. The Company
does not receive any payments from the revenue share sites for merchandise
sales.

History

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.
<PAGE>

Perfect Line, LLC, a predecessor to Perfect Line, Inc., 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 current business model has proved
successful as indicated by the Company's first quarterly operating profit for
the quarter ending September 30, 2004, and first quarterly net profit for the
quarter ended December 31, 2004, as well as its first net profit for the year
ending December 31, 2004.

On December 31, 2004, the Company entered into an Asset Purchase Agreement
pursuant to which it sold thirty-four (34) of its existing race car simulators
to Race Car Simulation Corporation ("RCS"), a wholly owned subsidiary of Dolphin
Direct Equity Partners, LP ("Dolphin") for an aggregate purchase price of
$1,536,600. The Agreement also grants RCS an option to purchase an additional
ten (10) new race car simulators for an aggregate purchase price of $1,320,000.

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 network 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 Mark
Martin, to rising stars like Matt Kenseth and Kurt Busch. These licensing
agreements and the use of NASCAR related identities and marks provide immediate
name recognition, credibility, and authenticity to NSMS.


The Company has integrated these license agreements with sophisticated
proprietary racing simulator technology to create a network of NASCAR-themed,
family-oriented, racing entertainment and retail merchandise centers. Many
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 Racing Centers, 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

<PAGE>

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 $2.1 billion in 2004. The
Company's NSMS racing centers are the largest network of officially licensed,
NASCAR-branded interactive entertainment stores in the world, and offer its
customers the most popular NASCAR merchandise available. Although the Company's
owned locations provide its only direct means to generate revenues from
merchandise sales, the Company's experience has been that increases in
merchandise sales have a spillover effect on the level of simulator revenue each
site generates. The Company does not receive any payments from the revenue share
sites for merchandise sales. 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, has been the spokesman and
technical advisor for NASCAR Silicon Motor Speedway. He has been featured in
promotions, advertising and point-of-sale material and also has made 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 results 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 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. This model led to an agreement with Checker Flag Lightning in March
of 2004 to assign six of the Company's mall leases with the intent to convert
each of them to the new mall model. 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, and a 4000 square foot site featuring 6 simulators at Gurnee
Mills, just north of Chicago, Illinois.

The Company recently established a new revenue stream through mobile leases that
management believes will be beneficial to the Company in the future. At the 2004
Daytona 500, 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 through the 2006 season. For 2005, Nextel is
leasing an additional three mini mobile experiences that they will use for
promotional events around the country, each featuring two of the Company's
simulators.


The Company has made technological improvements to the simulation, resulting in
an enhanced racing experience. In addition, two popular racetracks, Bristol and
Indianapolis, were introduced to the simulation experience late in 2002 and
early in 2003. Other software improvements were implemented, including on-line
programs such as MySpeedway. MySpeedway is a feature on IMTS's website
(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 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. Other projects
include a smaller version of our patented motion platform that will allow more
customer throughput, a 3D version of our racing experience and a concept called

<PAGE>

Wheel to Real where we recreate actual NASCAR races in graphic form using data
from the race cars for replay experiences and interactive features. Although the
individuals involved in research and development have other responsibilities
with the Company, management estimates that approximately $243,000 was spent in
the year ending December 31, 2004 on research and development activities.

In order to meet the ongoing demand for the Company's simulators, the Company
has submitted purchase orders for 50 new race car simulator bodies and motion
base platforms with Elan Motorsports Technologies who can manufacture and
assemble the simulators at a rate of 2 per week. 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.

Racing Center Dynamics

Simulator Racing - The racing centers generate revenues from repeat customers
that in 2004 represented approximately 88% of IMTS's company owned store
revenue, and approximately 52% of the Company's total revenues. Approximately
50% of the Company's first time drivers are non-destination walk-ins. A typical
customer is a college-educated male over the age of 20 with household income in
excess of $50,000. Repeat customers cite challenge and competition as primary
reasons for returning to its racing centers.

Merchandise - The sale of NASCAR licensed merchandise at the Company's owned and
operated racing centers extends beyond customers participating in the race
experience. The most popular price points are under $25, predominantly hats and
t-shirts, and represent a significant portion of the merchandise sales, many of
which are simply "souvenirs" or impulse pick-up items purchased by passers-by.
The "collectibles" portion of the inventory is generally sold to regular
customers who depend on NSMS to stock the collectable die-cast models and
premium merchandise.

Staffing -- A General Manager and one to two Assistant General Managers run each
mall based racing center. A Supervisor ensures the service level within its
entertainment experience is executed at the highest level. Each store also
employs an on-site Technical Manager who ensures the computer network and
physical racecar simulators are maintained at all times. Many of the smaller
revenue share racing centers employ one or two operators for the experience in
addition to their existing management staff. The mobile units require two
operators.

Training -The Company provides extensive training programs for both employees
and managers. New employees are given a thorough orientation on all policies and
procedures during a three to five day training program. New managers must
complete an extensive training program that covers all aspects of each racing
center.

Employees -- As of March 1, 2005 the Company had 68 employees including 32
full-time and 36 part-time. The Company considers its relations with its
employees to be excellent.

Item 2. Description of Properties

The Company is headquartered at 5624 West 73rd Street in Indianapolis, Indiana
where the Company leases approximately 4,800 square feet. The facility consists
primarily of office and storage areas and is leased from an unrelated third
party. The headquarters' lease expires September 14, 2005. The Company also
maintains an engineering office at 2065 Martin Avenue in Santa Clara, California
where it leases approximately 1,800 square feet of office space. The engineering
office lease expires on April 30, 2005. The Company believes its headquarters
and engineering space is adequate for the present time and is reviewing options
for relocating or extending its leases at these locations.

The three NASCAR Silicon Motor Speedway racing centers owned and operated by the
Company are:

                                                            Square
    Location                   Market                       Footage

    Mall of America            Minneapolis, Minnesota         5,899
    Universal CityWalk         Los Angeles, California        5,067
    Palisades Center           Suburban New York City         5,700



<PAGE>

Item 3. Legal Proceedings

From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. The Company was notified
from a third party in November of 2004 of a possible infringement on a patent
related to the adjustments of the car parameters on race car simulators which
was introduced by the Company in 2003. Management has had discussions with the
third party, and since the car parameters feature is limited to certain racing
centers and the incremental revenue generated from this feature is not material,
management believes a reasonable resolution can be agreed to between the
parties. As of the filing of this Annual Report on Form 10-KSB, the Company is
not aware of any material legal actions directed against the Company.

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

None, not applicable.


                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities.

Dividend Policy

To date, the Company has not paid dividends on its common stock. The payment of
dividends, if any, is within the discretion of the Board and will depend upon
the Company's earnings, capital requirements and financial condition, and other
relevant factors. The Board does not intend to declare any dividends in the
foreseeable future.

Holders of Record

As of March 22, 2005 there were approximately 295 holders of record of our
Common Stock consisting of 87,715,910 shares issued and outstanding. The number
of holders of record was calculated by reference to reports from the Company's
stock transfer agent.

Share Price History

The Company's common stock (the "Common Stock") has traded on the
over-the-counter market in what is commonly referred to as the "OTC Bulletin
Board" or the "OTCBB" under the trading symbol "IMTS" since August 14, 2002. The
following table sets forth the high and low bid prices of the Common Stock for
the periods indicated. The price information contained in the table was obtained
from the OTCBB web site and other sources we consider reliable. Note that such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and the quotations may not necessarily represent
actual transactions.

                               Common Stock Price
Quarter Ended                High                 Low                Close

March 31, 2003                .48                 .16                 .18
June 30, 2003                 .26                 .13                 .21
September 30, 2003            .18                 .09                 .09
December 31, 2003             .10                 .04                 .08
March 31, 2004                .24                 .09                 .10
June 30, 2004                 .14                 .05                 .07
September 30, 2004            .07                 .04                 .05
December 31, 2004             .09                 .05                 .07

<PAGE>
Issuance of Securities

In connection with the Company's merger with and into PIH on August 2, 2002, a
total of 11,300,000 shares of Interactive Motorsports and Entertainment Corp.
common stock were issued to shareholders of PIH in exchange for their shares of
common stock of that company.

On August 2, 2002, 4,745,456 shares of the Company's Preferred Stock were issued
for cash consideration of $2,610,050. The Convertible Preferred Stock was all
converted to common stock, with 2,472,728 shares of Convertible Preferred Stock
converted to 12,724,183 shares of common stock in 2003, and 2,272,728 shares of
Convertible Preferred Stock were converted to 11,363,640 shares of common stock
in 2004.

In 2003, a total of 140,000 shares of common stock were issued under a Form S-8
filed on February 13, 2003 for consulting services.

On March 7, 2003, the Company entered into a short term financial agreement
whereby the Company borrowed $700,000 for working capital purposes. The
Agreement also involved the issuance of warrants for 2,941,176 common shares.
The warrants had a strike price of $0.17, and expired on June 30, 2004.

In 2004, a total of 935,726 shares of common stock were issued per the terms of
the 2003 Bridge Notes.

In 2004, a total of 260,000 shares of common stock were issued for services
rendered.

In 2004, a total of 842,361 shares of common stock were issued for payment of
prior year accruals under the 2003 Bridge Notes.

Between February and June, 2004, the Company sold a series of notes collectively
referred to as the 2004 Note and Option Purchase Agreement in the total amount
of $750,000. The Agreement also involved the issuance of options for
approximately 6,904,395 common shares. The options had a strike price equal to
the closing price of IMTS stock on the date the note was purchased, which ranged
from $.08 to $.21 per share. 2,604,395 of the options expired on March 1, 2005,
while the remaining 4,300,000 options are in the process of being exercised per
the terms of the 2004 Note and Option Purchase Agreement.

On December 31, 2004, the Company entered into an Asset Purchase Agreement
pursuant to which it sold thirty-four (34) of its existing race car simulators
to Race Car Simulation Corporation ("RCS"), a wholly owned subsidiary of Dolphin
Direct Equity Partners, LP ("Dolphin"). Terms of the transaction included the
issuance warrants to Dolphin for the purchase of 5,161,500 shares of common
stock. The warrants have a strike price of $.10 per share, and expire on
12/31/2009. The transaction also required the payment of $84,000 and the
issuance of warrants for 150,000 shares of common stock to Northeast Securities
for their services in the transaction. The warrants also have a strike price of
$.10 per share, and expire on 12/31/2009. At December 31, 2004, none of these
warrants had been exercised.

Item 6. 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.

Overview

The Company generated its first quarterly operating profit in the third quarter
of 2004, its first quarterly net profit in the fourth quarter of 2004 and its
first annual profit in the year ending December 31, 2004. Since inception on May
31, 2001 and through December 31, 2004, the Company has accumulated aggregate

<PAGE>

losses totaling $(6,425,786), which includes the net profit of $8,869 for the
twelve months ended December 31, 2004, the net loss of $(3,525,581) for the
twelve months ended December 31, 2003, the net loss of $(2,189,220) for the
twelve months ended December 31, 2002 and the net loss of $(719,854) for the
period from inception to December 31, 2001.

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, $700,000 borrowed in March 2003, $604,000 in net proceeds borrowed
between February 2004 and June 2004, $1.957 million received in the form of
deposits for the placement of race car simulators in revenue share locations, or
for the future purchase by third parties of racecar simulators, and $988,171 by
delaying payments to its vendors. See further discussion under "Liquidity and
Capital Resources" and "Risk Factors" below.

During the twelve months ended December 31, 2004, the Company had total revenues
of $7,071,834 compared to $7,557,978 for the twelve months ended December 31,
2003. The December 31, 2004 asset sale to Race Car Simulation Corp. referenced
above contributed approximately $1.3 million to 2004 revenues. The 6.43 %
decrease in revenue is due primarily to the implementation of the Company's
revised business model during 2004. Most of the Company store locations at
December 31, 2003 were converted to Checker Flag Lightning, Inc. revenue share
locations in 2004. This resulted in the Company recognizing just a portion of
the revenue generated by the location as revenue share income, with little
related expense, rather than recognizing all the revenue generated at a
location, but also recognizing the payroll, rent and operating expenses
associated with the location as well. The resultant reduction in revenue from
store sites was offset for the most part by the realization of new revenue
streams from the Company's leasing and sales activities, and from the addition
of new revenue share locations beyond the original converted store locations.

Review of Consolidated Financial Position

Cash and Cash Equivalents: The Company had $1,334,673 in cash and cash
equivalents as of December 31, 2004 compared with $249,005 at December 31, 2003,
an increase of $1,085,668. This increase in cash for the year ended December 31,
2004 relates principally to the sale of 34 simulators on December 31, 2004 for
which the Company received $1,424,600.

Trade Accounts Receivable: The higher balance of $428,726 at December 31, 2004
is primarily revenue share and credit card receivables while the $39,459 balance
at December 31, 2003 is primarily credit card receivables only. The increase is
attributable to the increase is the Company's revenue share business, coupled
with the slowness of payment by the Checker Flag organization.

Inventory:  At December 31, 2004, inventory of $259,931 consisted of merchandise
inventory  of $27,298 and  simulator  inventory of  $242,632.  In addition,  the
inventory  has a very  conservative  $20,000  reserve  against  it.  Merchandise
inventory  decreased  by $21,577  from  December  31, 2003 due  primarily to the
conversion  of company  store sites to revenue  share sites,  thus  reducing the
outlets from which the Company sells  merchandise from nine to three.  Simulator
inventory  available for placement in new revenue share sites,  or available for
sale,  did not exist at December 31, 2003,  and results from our agreement  with
Elan Motorsports Technologies to build 50 new simulators for future deployment.

Accounts Payable: The balance of accounts payable of $418,815 at December 31,
2004 represents a reduction of $1,143,015 from the balance at December 31, 2003
of $1,561,830. This reduction is primarily attributable to the reclassification
of back rent and utilities due to the landlords of the revenue share sites that
were converted from company store locations in 2004, and to the payment of
accounts payable in the normal course of business. This back rent liability is
now classified as an accrued expense so as to provide a clearer picture of the
accounts payable associated with the Company's revised business model

Accrued Liabilities: The balance at December 31, 2003 of $776,314 increased by
$382,615 in 2004 to $1,158,929 due primarily to the reclassification of a
portion of the back rent and utilities due to the landlords of the revenue share
sites that were converted from company store locations in 2004. Also driving the
increase were the establishment of accruals for warranty expenses on sold
simulators of $47,915. Accrued licensing fees of $80,000 at December 31, 2003
decreased to $71,750 at December 31, 2004.

Notes Payable: On March 7, 2003, the Company entered into a short term financial
agreement (the Secured Bridge Notes) whereby the Company borrowed $700,000 for
working capital purposes. The Agreement also involved the issuance of warrants
for 2,941,176 common shares. The warrants had a strike price of $0.17, and
expired on June 30, 2004.

Two of the four Secured Bridge Notes continue to maintain a balance totaling
$550,000, of which $200,000 was repaid on January 3, 2005. One of the four

<PAGE>

Secured Bridge Notes dated March, 2003 was paid in full in 2004, and another of
the notes, along with an additional Company obligation, was transferred to a
third party controlled by a major Company shareholder and rolled into the 2004
Note and Option Purchase Agreement described below.

Between February and June, 2004, the Company sold a series of notes collectively
referred to as the 2004 Note and Option Purchase Agreement in the total amount
of $750,000. These notes generated $604,000 in cash, while $146,000 of the notes
were the result of a transfer to a third party controlled by a major Company
shareholder of a prior company obligation under the Secured Bridge Notes
described above. The Agreement also involved the issuance of options for
approximately 6,904,395 common shares. The options had a strike price equal to
the closing price of IMTS stock on the date the note was purchased, which ranged
from $.08 to $.21 per share. 2,604,395 of the options expired on March 1, 2005,
while the remaining 4,300,000 options are in the process of being exercised per
the terms of the 2004 Note and Option Purchase Agreement.

Other Liabilities: 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.
At December 31, 2004, the payroll accrual was a week and a half payroll. Gift
certificates at December 31, 2004 decreased by $70,199 compared to December
2003. This decrease can be attributed to the reduction in the number of company
locations from which gift certificates are sold and redeemed.

Review of Consolidated Results of Operations

Sales for the twelve months ended December 31, 2004 were $486,144 lower than for
the 12 month period ending December 31, 2003 due primarily to the implementation
of the Company's  revised  business model during 2004. Most of the Company store
locations at December 31, 2003 were  converted to Checker Flag  Lightning,  Inc.
revenue share locations in 2004. This resulted in the Company recognizing just a
portion of the  revenue  generated  by the  location  in 2004 as  revenue  share
income,  with little related  expense,  rather than  recognizing all the revenue
generated  at a  location,  as was the case in 2003,  but also  recognizing  the
payroll,  rent and operating expenses  associated with the location as well. The
resultant  reduction in revenue from store sites was offset for the most part by
the  addition of new revenue  share sites beyond the  original  converted  store
locations, and the realization of new revenue streams from the Company's leasing
and sales  activities.  The December 31, 2004 asset sale to Race Car  Simulation
Corp.  referenced  above  contributed  approximately  $1.3  million to revenues.

During 2004, the Company dramatically reduced the rate of decline in company
store sales. Same store sales for the three company stores at December 31, 2004
declined by 6.4% from year earlier levels, as compared to the 16% decline when
comparing same store sales for the three company stores at December 31, 2002 and
2003. We believe company store sales decreased in 2004 due to a lack of
marketing expenditures, and the lack of sufficient quantities of merchandise
inventory at key periods during the year to maximize the opportunity the retail
component of the stores provides.

Operating expenses for the year ended December 31, 2004 declined by
approximately 38% from the period ending December 31, 2003. These expenses
represented approximately 88% of net sales and approximately 140% for the
comparable period in 2003. Implementation of the Company's revised business
model resulted in a reduction in operating expenses of approximately $3.78
million, with reductions occurring primarily in payroll and occupancy costs as
the Company converted company owned stores to revenue share locations.

Additionally, interest expense declined by approximately $96,000 as the Company
was able to secure financing at more attractive rates in 2004 than were
available in 2003.

EBITDA  of  $1,199,055  for  the  period  ending  December  31,  2004  increased
dramatically  as  compared  to  EBITDA of  ($2,294,930)  for the  period  ending
December  31,  2003.  This  improvement  is diretly  attributable  to the profit
generated  by the Company in 2004,  and  particularly  to the  December 31, 2004
asset sale to Race Car Simulation Corp. referenced above.

Qualitative and Quantitative Disclosures of Market Risk

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

Critical Accounting Policies

The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Notes to Consolidated Financial

<PAGE>

Statements for the year ended December 31, 2004 included in Item 7 in this Form
10-KSB. The Company has consistently applied these policies in the year ended
December 31, 2004. Management does not believe that operations to date have
involved uncertainty of accounting treatment, subjective judgment, or estimates,
to any significant degree.

Internal Controls

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, management has
reviewed the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to this
annual report (the "Evaluation Date"). Management believes that such disclosure
controls and procedures as of the Evaluation Date were adequate to ensure that
employees and others with material information relating to the Company make that
information known to management. To management's knowledge, there were no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the Evaluation Date.

Liquidity and Capital Resources

The various sources of funds available to the Company are receipts from revenue
share sites, payments on leased simulators, receipts collected on the sale of
simulator assets, deposits collected on future sales or revenue share sites, and
from customers in our company owned stores for simulator rides and merchandise
sales, proceeds from equity offerings including the $2,610,050 received in
August 2002, loans from related parties including net proceeds of $687,500
received in March, 2003, and net proceeds received between February 2004 and
June 2004 totaling $604,000, credit extended by vendors, and possible future
financings.

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 current business model has proved
successful as indicated by the Company's first quarterly operating profit for
the quarter ending September 30, 2004, by its first quarterly net profit for the
quarter ended December 31, 2004, and by its profit for the year ending December
31, 2004.

On December 31, 2004, the Company entered into an Asset Purchase Agreement
pursuant to which it sold thirty-four (34) of its race car simulators to Race
Car Simulation Corporation ("RCS"), a wholly owned subsidiary of Dolphin Direct
Equity Partners, LP ("Dolphin") for an aggregate purchase price of $1,536,600.
The Agreement also grants RCS an option to purchase an additional ten (10) race
car simulators for an aggregate purchase price of $1,320,000.

During the year ended December 31, 2004, the operating activities of the Company
generated net cash of $1,035,683 compared to net cash used of $858,169 for the
comparable period in 2003. The drivers for the $1.9 million swing in cash
generated from operations can be attributed to the dramatic $3.5 million
improvement in profitability, coupled with the $1.2 million generated from
deposits on future simulator sales. Much of this improvement in profitability
and in the level of deposits on future simulator sales were a consequence of the
December 31, 2004 asset sale to Race Car Simulation Corp. referenced earlier.
These cash generators were offset by increases in accounts receivable from
revenue share locations of approximately $395,000, increases in inventory
related to the production and delivery of new race car simulators of
approximately $211,000, and a net collective decrease in accounts payable and
accrued expenses of approximately $352,000.

During the year ended December 31, 2004, the Company used $504,015 of net cash
in investing activities compared with $221,481 of net cash used in investing
activities during the comparable period in 2003. In 2004, the net cash used
relates primarily to the capitalization of the costs associated with the
installation of simulators in new revenue share locations, and the costs of
components for simulators currently in production.

During the year ended December 31, 2004, the Company generated $554,000 of cash
from financing activities compared with $745,750 of cash generated during the
comparable period in 2003. Two of the four Secured Bridge Notes dated March,
2003 continue to maintain a balance totaling $550,000, of which $200,000 was
repaid on January 3, 2005. One of the four Secured Bridge Notes dated March,
2003 was paid in full in 2004, and another of the notes was rolled into the 2004
Note and Option Purchase Agreement described below.
<PAGE>

Between February and June, 2004, the Company sold a series of notes collectively
referred to as the 2004 Note and Option Purchase Agreement in the total amount
of $750,000. These notes generated $604,000 in cash, while $146,000 of the notes
were the result of a rollover of a prior company obligation under the 2003
Secured Bridge Notes as described above.

As of December 31, 2004, the Company had cash and cash equivalents totaling
$1,334,673 compared to $249,005 at December 31, 2003. Current assets totaled
$2,058,820 at December 31, 2004 compared to $381,335 on December 31, 2003.
Current liabilities totaled $4,618,647 on December 31, 2004 compared with
$3,656,540 on December 31, 2003. As such, these amounts represent an overall
increase in working capital of $715,378 from December 31, 2003.

Inflation

We do not expect the impact of inflation on our operations to be significant.

Risk Factors

The Company is subject to certain risk factors due to the organization and
structure of the business, the industry in which we compete and the nature of
our operations. These risk factors include the following:

Operating History, Operating Losses, and Accumulated Deficit

Perfect Line, LLC was formed in June 2001 for the purpose of acquiring certain
of the assets of SEI, a bankrupt corporation, and modifying and improving the
business model under which SEI operated, as more fully described under Overview
above. While the concept is a modification and improvement upon the prior model,
the modified business model was only in place for less than two full years, but
also proved to be unprofitable. It is for that reason, among others, that the
Company designed and implemented a revised business model focusing on revenue
share locations and to a lesser extent, sales of the race car simulators. This
current business model has proved to be a great success as evidenced by the
Company's financial performance in 2004 as compared to prior years. Nonetheless,
Perfect Line has a limited operating history and is subject to numerous risks,
expenses, problems, and difficulties typically encountered in establishing any
business. For the 5 months ended December 31, 2001, Perfect Line had sales of
$3,533,402, and a loss of $(719,854). For the year ended December 31, 2002,
Perfect Line generated net sales of $9,636,278, resulting in a net loss of
$(2,189,220). As of December 31, 2003 and for the twelve months then ended,
Perfect Line had net sales of $7,557,978 generating a net loss of $(3,525,581).
At December 31, 2004, the Company recorded its first profitable year, with net
income of $8,869 on revenues of $7,071,834. This overall financial performance
resulted in an accumulated deficit of $(6,425,786) as of December 31, 2004 for
the Company. Management believes the Company can maintain its profitability in
the future, based upon revenues generated from owned and operated racing
centers, revenue share locations, mobile leases and equipment sales. Despite the
Company's obvious improvement in its financial performance in 2004, there can be
no assurance that the Company will be profitable for fiscal 2005 or thereafter
or that the Company's cash flow will allow it to continue to expand and fund its
operations.

Dependence on Discretionary Consumer Spending and Competition

Much of the revenue anticipated by the Company will ultimately be the result of
discretionary spending by consumers. If the current trepidation in the economy
continues for an extended time or worsens, either overall or in the locations in
which Company racing centers and revenue share sites are located, the amount of
discretionary spending may be reduced which would have a negative effect on the
Company results from operations and its financial position. In addition, if the
popularity of NASCAR diminishes, it is likely that the Company will experience a
similar reduction in simulator usage and merchandise sales that will have a
negative impact on the Company and its future.

There is considerable competition for consumer entertainment dollars. The
Company feels its patented technology, high-traffic, premium locations, licenses
with NASCAR and various teams, drivers, and tracks combined with the NASCAR
retail store-within-a-store concept create significant points of difference
between its competitors and NSMS. However, there can be no assurance that these
factors will be sufficient to assure successful product development into the
marketplace.

<PAGE>
Significant Capital Requirements and Need for Additional Financing

The Company will need financing in order to fund its growth under the revenue
share model, and it needs to replace the revenue share income that was given up
as a result of the recent asset sale of 34 simulators currently in revenue share
sites to Race Car Simulation Corporation. As of March 1, 2005, the Company had
built, or partially built, 189 simulators, of which 42 have been sold and
shipped, 40 are in company owned and operated sites, and 75 are in active
revenue share sites. The remaining 32 (17 refurbished and 15 new) are at the
warehouse or at Elan being prepared to place into the current pipeline of
contracted asset purchases or revenue share sites. It is also contemplated that
some of the 75 simulators in current revenue share sites may be moved to more
profitable revenue share or lease sites. As an example, the Company recently
moved four simulators from the Cowboy Pizza site in Monterey, CA to the Great
Lakes Mall site in Mentor, OH (Cowboy Pizza was unable to obtain the funding for
the restaurant build-out at the site, and therefore did not meet minimum revenue
share guarantees). Going forward, the business model calls for advances on asset
purchases that will cover the manufacturing costs, and financing will be
required to manufacture the revenue share simulators that will be owed by the
Company and installed into a revenue share partner's site.

Dependence on Revenue Share Partners For Timely Payments

The Company relies on the timely payments from its revenue share partners in
order to meet operational cash flow needs. The Company has also made certain
guarantees to Race Car Simulation Corporation of minimum levels of revenue share
payments from the revenue share partners where the assets were sold to Race Car
Simulation Corporation. At the year ending December 31, 2004, Checker Flag
Lightning was behind on payments in the amount of $255,662, and the Company has
been negotiating with CFL to resolve this issue amicably. At the time of this
filing, no resolution had occurred.

Dependence on Updated Technology and Licenses/Leases

The Company will likely have a need to routinely update and upgrade its
simulation technology. If the Company is not able to retain appropriate
personnel with the skills and ability to maintain its simulators, it will likely
have a material adverse effect on the Company. The Company will also need to
routinely upgrade the appearance of the simulators to closely approximate that
of the then current NASCAR sponsors. This updating may involve significant time
and expense and, in certain instances, require additional license agreements
from new teams and/or sponsors. The Company will also need to renew existing
licensing agreements with NASCAR teams and/or drivers. The Company currently has
executed either contracts or term sheets with fourteen teams and/or drivers. The
Company has established licensing relationships with a significant number of
racetracks at which NASCAR events are held. The Company has license agreements
with International Speedway Corp (ISC), Speedway Motorsports International (SMI)
and the Indianapolis Motor Speedway (IMS), and has incorporated to date six
NASCAR tracks into its proprietary software. The Company has the rights to many
more prominent NASCAR tracks, and plans to add tracks to its software once
funded. The Company has entered into an exclusive location based entertainment
license agreement with NASCAR to utilize its logo. The license agreement permits
the continued use of the NASCAR logo in the Las Vegas NASCAR Cafe and the
Daytona USA simulator and provides that it is not a breach of the exclusivity
clause for those two venues to continue to use their current simulator
experiences. The license requires the Company to utilize its best efforts to
maintain a minimum of eight entertainment stores. The Company's confidential
licensing agreement with NASCAR required an annual royalty payment in 2002 and
quarterly royalty payments commencing in 2003 through 2009 based on simulator,
merchandise, food, beverage, sponsor, and remote site revenues at varying
percentages. The licensing agreement was amended on December 31, 2004, and the
Company was able to reduce its minimum royalty guarantees. The exclusivity is
subject to a minimum guarantee by July of 2007, and the license is up for
renewal on December 31, 2009.

Dependence on Small Number of Key Management Personnel

We do not have employment agreements with any of our employees. Our future
success depends, in part, on the continued service of our key executive,
management, and technical personnel. If key officers or employees are unable or
unwilling to continue in their present positions, our business and our ability
to raise capital could be harmed.

Our business is especially dependent upon the continued services of our Chairman
and Chief Executive Officer, William R. Donaldson. Should we lose the services
of Mr. Donaldson, our operations will be negatively impacted. The loss of the
services of Mr. Donaldson would have a material adverse effect upon our
business.
<PAGE>

Officers and Directors Have Limited Liability and Indemnification Rights

Our officers and directors are required to exercise good faith and high
integrity in the management of our affairs. Our certificate of incorporation and
bylaws, however, provide, that the officers and directors shall have no
liability to the stockholders for losses sustained or liabilities incurred which
arise from any transaction in their respective managerial capacities unless they
violated their duty of loyalty, did not act in good faith, engaged in
intentional misconduct or knowingly violated the law, approved an improper
dividend or stock repurchase, or derived an improper benefit from the
transaction. Our certificate of incorporation and bylaws also provide for us to
indemnify our officers and directors against any losses or liabilities they may
incur as a result of the manner in which they operate our business or conduct
our internal affairs, provided that the officers and directors reasonably
believe such actions to be in, or not opposed to, our best interests, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations.

Market and Capital Risks

Future issuance of Common Stock of the Company may lead to dilution in the value
of our common stock, a reduction in shareholder voting power, and allow a change
in control.

Stock issuances may result in reduction of market price of our outstanding
shares of common stock. If we issue any additional shares of common or preferred
stock, proportionate ownership of our common stock and voting power will be
reduced. Further, any new issuance of common or preferred shares may prevent a
change in our control or management.

Issuance of our preferred stock could depress the market value of current
shareholders. We have 10,000,000 authorized shares of convertible preferred
stock (with zero shares outstanding) that may be issued by action of our Board
of Directors. Our Board of Directors may designate voting control, liquidation,
dividend and other preferred rights to preferred stock holders. Our Board of
Directors' authority to issue preferred stock without shareholder consent may
have a depressive effect on the market value of our common stock. The issuance
of preferred stock, under various circumstances, could have the effect of
delaying or preventing a change in our control or other take-over attempt and
could adversely affect the rights of holders of our shares of common stock.

High-Risk Investment and Restrictions on Marketability

Our common stock has traded on the Over-the Counter Bulletin Board since August
2002. The bid price of our common stock has been less than $5.00 during this
period. As such, we are subject to the penny stock rules adopted by the
Securities and Exchange Commission that require brokers to provide extensive
disclosure to its customers prior to executing trades in penny stocks. These
disclosure requirements may cause a reduction in the trading activity of our
common stock.

Broker-dealer practices in connection with transactions in penny stocks are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00. Penny stock rules require a broker dealer prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer makes a special
written determination that the penny stock is a suitable investment for the
purchaser and receives the purchaser's written agreement to the transaction.

Because we are subject to the penny stock rules our shareholders may find it
difficult to sell their shares.
<PAGE>
                          Item 7. Financial Statements

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Interactive Motorsports and Entertainment Corp. and Subsidiaries
Indianapolis, Indiana

We have  audited  the  accompanying  consoliated  balance  sheet of  Interactive
Motorsports and Entertainment  Corp. and Subsidiaries,  as of December 31, 2004,
and the related  consolidated  statements of  operations,  shareholders'  equity
(deficit) and cash flows for the years ended  December 31, 2004 and 2003.  Those
consolidated  financial  statements  are  the  responsibiity  of  the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the conslidated  financial  statements referred to above present
fairly,  in  all material  respects,   the  financial  position  of  Interactive
Motorsports and Entertainment Corp. and Subsidiaries,  as of December 31, 2004,
and the  results of their  operations  and their cash flows for the years  ended
December 31, 2004 and 2003, in conformity with United States generally accepted
accounting principles.

HJ & Associates, LLC
Salt Lake City, Utah
March 1, 2005



<PAGE>
<TABLE>

                          Item 7. Financial Statements

<CAPTION>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheet

                                     ASSETS


                                                                                                  December 31,
                                                                                                      2004

CURRENT ASSETS

<S>                                                                                          <C>
   Cash                                                                                      $            1,334,673
   Accounts receivable                                                                                      428,726
   Inventory                                                                                                259,931
   Prepaid expenses                                                                                          35,490
                                                                                             ----------------------

    Total Current Assets                                                                                  2,058,820
                                                                                             ----------------------

TOTAL PROPERTY AND EQUIPMENT, NET (Note 4)                                                                  764,796
                                                                                             ----------------------

OTHER ASSETS

   Deposits                                                                                                  42,001
   Other intangible assets, net                                                                              11,599
                                                                                             ----------------------

    Total Other Assets                                                                                       53,600
                                                                                             ----------------------

Total Assets                                                                                 $            2,877,216
                                                                                             ======================

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


<PAGE>

<TABLE>

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

<CAPTION>
                  LIABILTIES AND SHAREHOLDERS' EQUITY (DEFICIT)


                                                                                                  December 31,
                                                                                                      2004

CURRENT LIABILITIES

<S>                                                                                          <C>
   Accounts payable                                                                          $              418,815
   Accrued payroll expense                                                                                   67,385
   Accrues sales tax payable                                                                                 26,722
   Gift certificates & customer deposits                                                                     42,888
   Deposits on simulator sales (Note13)                                                                   1,573,978
   Accrued liabilities (Note 12)                                                                          1,158,929
   Deferred revenue                                                                                          81,742
   Notes payable - related parties (Note 9)                                                                 186,537
   Notes payable                                                                                          1,061,651
                                                                                             ----------------------

    Total Current Liabilities                                                                             4,618,647
                                                                                             ----------------------

COMMITMENTS AND CONTINGENCIES (Note 8)

SHAREHOLDERS EQUITY (DEFICIT)

   Convertible preferred stock, $0.0001 par value, 10,000,000 shares
    authorized, zero shares outstanding                                                                           -
   Common stock, $0.0001 par value, 200,000,000 shares authorized
    87,715,910 shares issued and outstanding                                                                  8,772
   Additional paid in capital                                                                             4,675,583
   Retained deficit                                                                                      (6,425,786)
                                                                                             ----------------------

    Total Shareholders' Equity (Deficit)                                                                 (1,741,431)
                                                                                             ----------------------

Total Liabilities & Shareholders' Equity (Deficit)                                           $            2,877,216
                                                                                             ======================

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


<PAGE>

<TABLE>

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

                                                                                          For the Years Ended
                                                                                                December 31
                                                                     ----------------------------------------------
                                                                                      2004                     2003
                                                                     -----------------------------------------------
REVENUES

<S>                                                                  <C>                     <C>
   Company owned stores                                              $           4,236,350   $            7,407,627
   Revenue share revenues                                                          975,296                  15,0351
   Leasing revenue                                                                 262,500                        -
   Sales of simulator systems                                                    1,597,688                        -
                                                                     ---------------------   ----------------------

     Total Revenues                                                              7,071,834                7,557,978
                                                                     ---------------------   ----------------------

COST OF SALES

   COGS - Merchandise                                                              279,519                  497,102
   Group sales expenses                                                             18,749                   84,623
   COGS - Sale of simulators                                                       185,607                        -
                                                                     ---------------------   ----------------------

     Total Cost of Sales                                                           483,875                  581,725
                                                                     ---------------------   ----------------------

GROSS PROFIT                                                                     6,587,959                6,976,253
                                                                     ---------------------   ----------------------

GENERAL & ADMINISTRATIVE EXPENSES

   Payroll related expenses                                                      2,920,426                4,483,588
   Occupancy expenses                                                            1,558,870                3,188,240
   Other operating expenses                                                      1,745,377                2,329,571
                                                                     ---------------------   ----------------------

     Total Operating Expenses                                                    6,224,673               10,001,399
                                                                     ---------------------   ----------------------

INCOME (LOSS) BEFORE OTHER INCOME
   (EXPENSE)                                                                       363,286               (3,025,146)
                                                                     ---------------------   ----------------------

OTHER INCOME (EXPENSE)

   Interest expense                                                               (404,746)                (500,435)
   Gain on extinguishments of debt                                                  50,329                        -
                                                                     ---------------------   ----------------------

     Total Other Income (Expense)                                                 (354,417)                (500,435)
                                                                     ---------------------   ----------------------

INCOME (LOSS) BEFORE INCOME TAXES                                                    8,869               (3,525,581)

INCOME TAX EXPENSE                                                                       -                        -
                                                                     ---------------------   ----------------------

NET INCOME (LOSS)                                                    $               8,869   $           (3,525,581)
                                                                     =====================   ======================

INCOME (LOSS) PER SHARE                                              $                0.00   $                (0.05)
                                                                     =====================   ======================

WEIGHTED AVERAGE SHARES OUTSTANDING                                  $          85,900,541   $           66,741,310
                                                                     =====================   ======================

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


<PAGE>

<TABLE>
<CAPTION>

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

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



Balance at
<S>        <C> <C>           <C>          <C>           <C>         <C>         <C>          <C>               <C>
  December 31, 2002          4,745,456    $      475    61,300,000  $      130  3,653,445    $ (2,909,074)     $     750,976

Common stock issued
  For extinguishment of
   debt                          -               -          20,000           2     (7,298)               -             7,300

Common stock issued
  for services                   -               -         120,000          12    (19,688)               -            19,700

Common stock issued
  for license fees               -               -         150,000          15    (32,985)               -            33,000

Conversion of preferred
  stock to common stock     (2,472,728)        (248)    12,724,183       1,272     (1,024)               -                 -

Fair value of warrants
  granted                        -               -           -               -   (316,610)               -           316,610

Net loss for the year
  Ended December 31, 2003        -               -           -               -          -       (3,525,581)      (3,525,581)
                             -----------    ------------    ------------   -------------     -------------    -------------

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

Common stock issued for
  2003 Bridge Loan Interest      -               -         935,726          94     78,112                -            78,206

Common stock issued
  for services                   -               -         260,000          26     17,248                -            17,274

Conversion of preferred
  stock to common stock     (2,272,728)         (227)   11,363,640        1,136      (909)               -                 -

Fair value of options and
   warrants granted              -               -               -           -    436,595                -           436,595
                             -----------    ------------    ------------   -------------     -------------    -------------

Subtotal                         -    $          -      86,873,549   $    8,687 4,560,048    $  (6,434,655)    $  (1,865,920)
                             -----------    ------------    ------------   -------------     -------------    -------------


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

</TABLE>


<PAGE>

<TABLE>



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

<S>                                         <C>               <C>          <C>               <C>              <C>
Balance Forward               -    $          -      86,873,549   $     8,687   4,560,048    $ (6,434,655)     $  (1,865,920)

Common stock issued
 for payment of prior year
 year accruals                -               -         842,361            84     115,535                -           115,619

Net income for the year
  Ended December 31,
   2004                       -               -            -               -          -              8,869             8,869
                             -----------    ------------    ------------   -------------     -------------    -------------

Balance at
  December 31, 2004             0    $          0      87,715,910   $    8,772  4,675,583    $  (6,425,786)    $  (1,741,431)
                             ==========    =======    ============   ==========  ============    =============     ===========

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

</TABLE>




<PAGE>

<TABLE>

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

For the Years Ended
                                                                                         December 31,
                                                                            ---------------------------------------------
                                                                               2004                     2003
                                                                            ---------------      --------------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                         <C>                 <C>
   Net Income (Loss)                                                        $            8,869  $       (3,525,581)
   Adjustments to reconcile net income (loss) to net cash
    used by operating activities:
     Depreciation and amortization                                                     409,005             413,606
     Common stock issued for services and interest                                      95,479              52,700
     Amortization of notes payable discount                                            376,435             316,610
     Gain on extinguishment of debt                                                    (50,329)                  -
     Bad debt expense                                                                   15,266                   -
   Net changes in operating assets and liabilities:
     (Increase) decrease in trade accounts and other receivable                       (394,533)             37,275
     (Increase) decrease in inventory                                                 (211,056)            112,584
     (Increase) decrease in prepaid expenses and other assets                          (38,242)             57,331
     Increase (decrease) in accounts payable                                          (990,886)          1,212,619
     Increase (decrease) in accrued payroll and payroll taxes                          (31,473)            (64,036)
     Decrease in sales tax payable                                                     (24,586)            (14,115)
     Increase in gift certificates and customer deposits                               (70,199)            (28,529)
     Increase in accrued expenses                                                      638,905             218,675
     Increase in deferred revenue                                                       81,742                   -
     Increase in deposits on simulator sales                                         1,221,286             352,692
                                                                            ------------------  ------------------

       Net Cash Provided (Used) by Operations                                        1,035,683            (858,169)
                                                                            ------------------  ------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of property and equipment                                                 (504,015)           (221,481)
                                                                            ------------------       -------------

       Net Cash Used by Investing Activities                                          (504,015)           (221,481)
                                                                            ------------------  ------------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Loans from and (repayments to) related parties                                      (50,000)            245,750
   Bridge loan proceeds                                                                604,000             500,000
                                                                            ------------------  ------------------

       Net Cash Provided by Financing Activities                                       554,000             745,750
                                                                            ------------------  ------------------

INCREASE (DECREASE) IN CASH                                                          1,085,668            (333,900)

CASH, BEGINNING OF YEAR                                                                249,005             582,905
                                                                            ------------------  ------------------

CASH, END OF YEAR                                                           $        1,334,673  $          249,005
                                                                            ==================  ==================

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




<PAGE>

<TABLE>

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

                                                                                    For the Years Ended
                                                                                         December 31,
                                                                            ---------------------------------------------
                                                                                   2004                 2003
                                                                            -----------------    --------------------

SUPPLEMENTAL CASH FLOW DISCLOSURES:

<S>                                                                         <C>                 <C>
   Cash paid for interest                                                   $          122,332  $           68,951
   Cash paid for income taxes                                               $                -  $                -

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

   Common stock issued for payment of prior year accruals                   $          115,619  $                -
   Common stock issued for services and interest                            $           95,479  $           52,700
   Warrants granted for notes payable                                       $          436,595  $          316,610
   Common stock issued for license fees                                     $                -  $           33,000






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
                           December 31, 2004 and 2003

NOTE 1 -      BASIS OF PRESENTATION

              Interactive  Motorsports and Entertainment  Corp was incorporated
              in Indiana and began operations on August 3, 2002.  Perfect Line,
              Inc. was also  incorporated in Indiana,  and began  operations on
              August 2, 2002.

              Interactive Motorsports and Entertainment Corp, through its wholly
              owned subsidiary, Perfect Line, Inc. (the Company), (1) owns and
              operates three NASCAR Silicon Motor Speedway stores offering
              licensed NASCAR-branded entertainment products, (2) has ongoing
              revenue share agreements with third parties allowing them use of
              our NASCAR racing simulators and proprietary software, (3) sells
              its simulators and licenses its proprietary software to third
              parties, (4) leases its simulators and its proprietary software to
              third parties.. The cornerstone of the Company's revised business
              model includes the expansion of the revenue share base. In revenue
              sharing, the Company enters into an agreement whereby the Company
              is entitled to an agreed percentage of the revenue generated by
              the simulator, subject to a minimum due each month.

              On March 18, 2004, the Company entered into agreement with
              Michigan based Checker Flag Lightning, LLC to convert seven of its
              nine corporate owned racing centers into revenue share stores. The
              agreement shifts the burden of occupancy and labor costs to
              Checker Flag, and guarantees the Company a minimum revenue share
              income for each site. As of December 31, 2004, six of the seven
              planned stores had been converted to revenue share sites.


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              a. USE OF ESTIMATES

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

              b. SIGNIFICANT ESTIMATES

              The most significant estimates made by management are determining
              the estimated useful lives of the fixed assets, determining the
              obsolescence of merchandise inventory, and assessing the
              realization of deferred tax benefits relating to the Company's net
              operating loss carry forwards.

              c. LONG-LIVED ASSETS

              Long-lived assets are reviewed for impairment whenever events or
              changes in circumstances indicate that the carrying amount of an
              asset may not be recoverable. Recoverability is measured by
              comparison of the carrying amount to future net undiscounted cash
              flows expected to be generated by the related asset. If such
              assets are considered to be impaired, the impairment to be
              recognized is measured by the amount by which the carrying amount
              exceeds the fair market value of the assets. To date, no
              adjustments to the carrying amount of long-lived assets have been
              required.


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

             d. MERCHANDISE INVENTORY

              Merchandise inventories are carried at the lower of cost or market
              as determined by the first-in, first-out (FIFO) method. The
              Company reduces the stated value of inventory for excess
              quantities or obsolescence in an amount equal to the difference
              between the cost of inventory and the estimated market value based
              upon assumptions about future demand and market conditions. If
              actual future demand or market conditions are less favorable than
              those projected by management, additional reductions in stated
              value may be required.

              e. MANUFACTURING INVENTORY

              Manufacturing inventories are carried at the lower of cost or
              market as determined by the first-in, first-out method. These
              inventories consist of completed simulators that are ready to be
              installed in a site, as well as various components of our
              simulation system that have not been allocated to a specific site.

              f. PROPERTY AND EQUIPMENT

              The Company records its property and equipment at cost and once in
              service, depreciates it using the straight-line method over the
              estimated useful lives of the respective asset classes as follows:

              Software 3 Years, Furniture, Fixtures, and Equipment 5 to 7 Years

              g. CONSTRUCTION IN PROGRESS

              The Company records all costs associated with the acquisition of
              components and build out of new sites in Construction in Progress.
              Once the site build is completed, costs associated with the build
              are capitalized as Property and Equipment, and are depreciated as
              noted in paragraph (f) above.

              h. DIVIDENDS

              The Company has not paid any dividends and any dividends that may
              be paid in the future will depend upon the financial requirements
              of the Company and other relevant factors. The Company does not
              presently intend to pay dividends at any point in the foreseeable
              future.

              i. CONSOLIDATION

              The consolidated financial statements at December 31, 2004 and
              2003 include the accounts of the Company and its wholly owned
              operating subsidiaries, Perfect Line, Inc. and Race Car
              Simulators. Intercompany transactions and balances have been
              eliminated in consolidation.

              j. NET LOSS PER SHARE

              The computation of net loss per share of common stock is based on
              the weighted average number of shares outstanding during the
              periods presented. The Company calculates loss per share pursuant
              to Statement of Financial Accounting Standards No. 148 ("SFAS
              148"), Earnings Per Share. Basic loss per share is computed based
              upon the weighted average number of common shares issued and
              outstanding during each year. Diluted loss per share amounts
              assume conversion, exercise, or issuance of all potential common
              stock instruments (stock options, warrants and convertible
              preferred stock). Potentially dilutive securities including
              preferred stock, warrants and stock options are excluded from
              diluted loss per share during net loss periods.
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2004 and 2003


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              j. NET LOSS PER SHARE (Continued)

              because these securities would be anti-dilutive. The Company has
              excluded 14,598,945 of dilutive instruments at December 31, 2004.

              k. INCOME TAXES

              The Company provides for income taxes based on the liability
              method, which requires recognition of deferred tax assets and
              liabilities based on differences between the financial reporting
              and tax bases of assets and liabilities measured using enacted tax
              rates and laws that are expected to be in effect when the
              differences are expected to reverse. At December 31, 2004, the
              Company's net deferred tax asset is fully offset by a valuation
              allowance.

              l. REVENUE RECOGNITION AND UNEARNED REVENUE

              The Company recognizes revenue for its services at the time the
              services have been rendered. In the case of gift certificates and
              customer deposits for group events, these amounts are deferred and
              recognized when the associated services are rendered or upon
              expiration. During 2003 the Company began a program of selling
              some of its new or used simulators. The Company has received
              deposits of $1,573,978 relating to these sales. The Company's
              policy is to defer all revenue recognition associated with these
              sales until all terms of the contract have been met and no
              obligations remain for the Company to perform.

              On December 31, 2004, the Company and its two subsidiaries entered
              into an agreement to sell 24 of its race car simulators and
              granted an option to purchase 10 additional simulators. The
              purchase price of $1,536,600 was paid in cash by the date of the
              agreement. In addition to transferring title to the simulators,
              the Company entered into a management agreement to provide
              services for the term of the contract and granted 5,161,500 common
              stock warrants which are exercisable for 5 years at $0.10 per
              warrant.

              In accordance with EITF 00-21, the Company estimated the future
              costs of the management service agreement. These costs are
              currently being deferred and will be amortized over the life of
              the agreement. As outlined in EITF 00-21 the Company recognized
              the purchase price less the estimated service costs as sales in
              2004.

              m. CASH AND CASH EQUIVALENTS

              For purposes of the statement of cash flows, the Company considers
              all demand deposit balances and all highly liquid debt instruments
              purchased with maturity of three months or less to be cash
              equivalents.

              n. CONCENTRATION OF RISK

              The Company maintains a demand deposit account where the balance
              in the account may at times exceed the FDIC insurance limits of
              $100,000. At December 31, 2004, the amount exceeding the FDIC
              limit was $1,720,388.

              o. ADVERTISING

              Advertising expenses were $42,787 and $252,992 for the years ended
              December 31, 2004 and 2003, respectively.
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2004 and 2003

NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              p. RECLASSIFICATIONS

              Certain prior year amounts have been reclassified to conform to
              the current year presentation.

              q. INVENTORY

              At December 31, 2004, inventory consisted of the following:

                      Merchandise Inventory               $              27,298
                      Manufacturing Inventory                            16,648
                      Simulators Inventory                              235,985
                      Net of Reserve                                    (20,000)
                                                           ---------------------

                      Total Inventory                     $             259,931
                                                           =====================

NOTE 3 -      EQUITY TRANSACTIONS AND COMMON STOCK WARRANTS

              Preferred Stock

              At June 30, 2002, Perfect Line placed with investors 4,745,456
              shares of convertible preferred stock (the, "Preferred Stock") for
              cash proceeds of $2,610,050 under a private placement memorandum
              dated May 10, 2002. These funds were to be held in escrow until
              the occurrence of certain events.. The proceeds of this offering
              were used to pay down debt and other liabilities and to provide
              working capital funds for the business. The Preferred Stock is
              mandatorily convertible one year after issuance into one share of
              Common Stock or one dollar worth of Common Stock as of the
              conversion date, as calculated by the 10-day trailing average of
              the bid and ask price prior to conversion, whichever is more
              favorable to the shareholder. On July 31, 2003 the Company entered
              into an agreement with one preferred shareholder which extended
              the conversion date to January 1, 2004. These shares were
              subsequently converted into 11,363,640 Common shares on January
              29, 2004.

              For every two shares of Preferred Stock, the investor received one
              warrant (the "Preferred Stock Warrants") to purchase Common Stock
              at a price of $1.50 per share expiring three years from the date
              of issuance. The Preferred Stock Warrants are callable by the
              Company for $0.10 per warrant at any time at the option of the
              Company. At December 31, 2004 and as of the date of this filing,
              all 2,372,728 of the Preferred Stock Warrants were outstanding.
              Management assigned no value to the Preferred Stock Warrants.

              Common Stock

              In connection with a certain asset purchase agreement, the Company
              granted warrants to allow the seller to purchase up to $2 million
              in value of the Company's common stock at a price equal to the
              value per share at the time the warrants are exercised. The
              warrants are exercisable at any time prior to December 14, 2011,
              upon the occurrence of certain events. Management has determined
              the likelihood of occurrence of these certain events is remote and
              has therefore assigned no value to these warrants. No warrants
              have been exercised as of December 31, 2004.

              On January 13, 2004, the Company issued 10,000 shares of common
              stock to an unrelated entity as the last installment on the
              Company's most recent S-8 registration statement. Total consulting
              expense associated with this issuance was $2,300.


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

NOTE 3 -      EQUITY TRANSACTIONS AND COMMON STOCK WARRANTS (Continued)

              Common Stock (Continued)


              On January 27, 2004, the Company issued 39,742 shares of common
              stock per the terms of the 2003 Secured Bridge Notes (Note 5). The
              Company extinguished $4,245 of prior year accruals.

              On January 27, 2004, the Company issued 468,060 shares of common
              stock per the terms of the 2003 Secured Bridge (Note 5). The
              Company extinguished $50,000 of prior year accruals.

              On January 27, 2004, the Company issued 150,000 shares of common
              stock for consulting services provided. The Company extinguished
              $30,000 of prior year accruals.

              On January 29, 2004, the Company issued 11,363,651 shares for the
              conversion of all of the remaining preferred stock to common
              stock.

              On February 4, 2004, the Company issued 184,559 shares of common
              stock for consulting services that were rendered. The Company
              extinguished $31,375 of prior year accruals.

              On March 12, 2004, the Company issued 65,034 shares of common
              stock per the terms of the Secured Bridge Notes due December 31,
              2003 (Note 5). Total interest expense associated with this
              issuance was $10,000.

              On June 1, 2004, the Company issued 8,117 shares of common stock
              per the terms of the Secured Bridge Notes due December 31, 2003
              (Note 5). Total interest expense associated with this issuance was
              $1,161.

              On June 10, 2004, the Company issued 250,000 shares of common
              stock for consulting services that were rendered. Total consulting
              expense associated with this issuance was $15,000.

              On June 25, 2004, the Company issued 149,805 shares of common
              stock per the terms of the Secured Bridge Notes due December 31,
              2003 (Note 5). Total interest expense associated with this
              issuance was $15,000.

              On December 30, 2004, the Company issued 491,791 shares of common
              stock per the terms of the Secured Bridge Notes due December 31,
              2003 (Note 5). Total interest expense associated with this
              issuance was $30,000.

              On December 30, 2004, the Company issued 103,511 shares of common
              stock per the terms of the Secured Bridge Notes due December 31,
              2003 (Note 5). Total interest expense associated with this
              issuance was $11,517.

              On December 30, 2004, the Company issued 117,468 shares of common
              stock per the terms of the Secured Bridge Notes due December 31,
              2003 (Note 5). Total interest expense associated with this
              issuance was $10,500.


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

NOTE 4 -      PROPERTY AND EQUIPMENT

At December 31, 2004, property and equipment was comprised of the
following:

                                                                  2004

              Furniture, Fixtures and Equipment           $             948,522
              Revenue share installation costs                          103,150
              Construction in Progress                                  189,956
              Software                                                  659,574
                                                           --------------------
                 Total Property and Equipment                         1,901,202

              Less: Accumulated depreciation                          1,136,406
                                                          ---------------------

              Property and Equipment, net                 $             764,796
                                                          =====================


Depreciation expense for the years ended December 31, 2004 and
2003 was $374,362 and $411,231 respectively.

NOTE 5 -          DEBT AND CREDIT ARRANGEMENTS

              On March 7, 2003, Perfect Line, Inc. issued Secured Bridge Notes
              due December 31, 2003 (the "Bridge Notes") in the aggregate
              principal amount of $700,000 to one institutional investor and
              three related-party investors (See Note 9). Under the terms of the
              agreement; Ropart Asset Management Fund, LLC ("Ropart"), Tampa Bay
              Financial, Inc. (related-party), William R. Donaldson
              (related-party) and Erik R. Risman (related-party at that time),
              were to receive the principal sum of $500,000, $100,000, $50,000
              and $50,000, respectively, on December 31, 2003. Interest was to
              be paid on the unpaid principal balance existing prior to maturity
              at an annual rate of twelve percent (12%). Interest on the unpaid
              principal under the Notes was due and payable in arrears on the
              first day of each month, commencing April 1, 2003. Additionally,
              interest accrued at an annual rate of twelve percent (12%), which
              was to be repaid in shares of common stock. All amounts due under
              the notes were due and payable December 31, 2003. Ropart and
              Donaldson have signed amendments extending the note until the end
              of April 2004, Tampa Bay Financial's balance was transferred to a
              third party controlled by a major Company shareholder, and along
              with an additional Company obligation, was rolled over to the
              Company's February 2 2004 Note and Option and Security offering
              (below) and Risman was paid in full in 2004 by the Company.

              Ropart and Risman also received warrants in the amounts of
              2,941,176 and 294,118, respectively, entitling them to purchase
              from the Company, at an exercise price of $0.17, common shares of
              the Company at any time before the earlier of June 30, 2004 or six
              months following payment of the Bridge Note in full. The warrants
              expired unexercised in 2004.

              Pursuant to the Note and Option Purchase Agreement and Security
              Agreement dated February 2, 2004, the Company issued notes bearing
              an interest rate of 9.6% payable in the total amount of $750,000.
              These notes were issued between February 2, 2004 and June 6, 2004
              The notes are due on 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. The options
              strike price is equal to the share price of the Company's stock on
              the date of issuance of the note, and the options expire on March
              1, 2005. Management has determined that the options have a value
              of $261,643 which is being amortized over the life of the options.
              Option amortization expense in 2004 totaled $209,831.
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2004 and 2003

NOTE 5 -      DEBT AND CREDIT ARRANGEMENTS (Continued)
<TABLE>

<CAPTION>
              Notes Payable consisted of the following at December 31, 2004:

              Note payable to individual bearing interest at 12%,
              due December 31, 2004.  Secured by certain
              simulators of the Company and a personal guaranty
<S>                                                                                            <C>
              of the President of the Company.                                                 $         500,000

              Nine (9) notes payable to individuals, bearing interest at 9.6%,
              due on February 2, 2005. Secured by certain simulators of the
              Company and a personal
              guarantee of the president.                                                                604,000

              Less: unamortized discount                                                                 (42,349)
                                                                                               -----------------
              Total Notes Payable                                                              $       1,061,651
                                                                                               =================
</TABLE>

NOTE 6 -      LICENSING AND CONSULTING AGREEMENTS

              The Company has a licensing agreement with the National
              Association for Stock Car Auto Racing, Inc. ("NASCAR") for
              location-based entertainment, which allows the Company to use the
              NASCAR name and logo. The Company's confidential licensing
              agreement with NASCAR requires annual royalty payments in 2002 and
              quarterly royalty payments from 2003 through 2009 based on
              simulator, merchandise, food, beverage, sponsor, and remote site
              revenues at varying percentages. The licensing agreement is
              subject to renewal on December 31, 2009.

              The Company also has licensing agreements with several NASCAR race
              teams, drivers, and racetracks that expire on various dates
              between December 31, 2004 and December 31, 2007.

NOTE 7 -      RENT COMMITMENTS

              The Company rents various office and retail space under long-term,
              non-cancelable operating leases, some of which include renewal
              options, expiring on various dates through 2010. The Company also
              leases certain office equipment pursuant to a non-cancelable
              operating lease with terms of three years. Rent expense
              approximated $1,289,294 and $2,662,000 for the years ended
              December 31, 2004 and 2003, respectively. During 2004, the Company
              entered into various agreements with Checker Flag Lightning (CFL)
              and the landlords of specific company stores whereby CFL assumed
              the operation of the store, and assumed primary responsibility for
              payments of the monthly rent. The first column below shows the
              full impact of all the rental agreements the Company is a party
              to. The second column shows the Company's rental obligations as a
              consequence of our agreements with CFL and various mall owners.

              At December 31, 2004, the future minimum rental payments required
              under all non-cancelable operating leases were as follows:
<TABLE>

                                                                            All                Net of CFL
<CAPTION>
                                Payable In                           Rental Payments          Rental Payments
              -----------------------------------------------------------------------------------------------------------------
<S>                               <C>                         <C>                         <C>
                                  2005                        $        1,822,489          $          806,768
                                  2006                                 1,595,376                     775,222
                                  2007                                 1,104,546                     580,510
                                  2008                                   920,694                     396,658
                                  2009                                   874,505                     379,944
                               Later years                               394,180                     379,944
                                                              ------------------          ------------------

              Total Required Rental Payments                  $        6,711,789          $        3,319,046
                                                              ==================          ==================
</TABLE>
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2004 and 2003

NOTE 8 -      COMMITMENTS AND CONTINGENCIES

              From time to time, the Company may be party to various legal
              actions and complaints arising in the ordinary course of business.
              As of December 31, 2004, the Company is not aware of any material
              legal actions directed against the Company.
<TABLE>

<CAPTION>
NOTE 9 -          RELATED PARTY NOTES PAYABLE

              Note payable to President of the Company, bearing interest at 12%
              per annum. Due December 31, 2004.
<S>                                                                                       <C>
              Secured by certain assets of the Company.                                   $           50,000

              Note payable to an entity controlled by a major shareholder of the
              Company, bearing interest at 9.6% per annum, due February 2,
              2005secured by certain simulators of the Company
              and personal guarantee of the president.                                               146,000
              Less: Unamortized discount                                                              (9,463)
                                                                                          ------------------

              Total Related Parties Notes Payable                                         $          186,537
                                                                                          ==================
</TABLE>

NOTE 10 -     INCOME TAXES

              Deferred taxes are provided on a liability method whereby deferred
              tax assets are recognized for deductible temporary differences and
              operating loss and tax credit carryforwards and deferred tax
              liabilities are recognized for taxable temporary differences.
              Temporary differences are the differences between the reported
              amounts of assets and liabilities and their tax bases. Deferred
              tax assets are reduced by a valuation allowance when, in the
              opinion of management, it is more likely that not that some
              portion or all of the deferred tax assets will not be realized.
              Deferred tax assets and liabilities are adjusted for the effects
              of changes in tax laws and rates on the date of enactment.
<TABLE>

<CAPTION>
              Net deferred tax assets consist of the following components as of
              December 31, 2004 and 2003:
                                                                                   2004                2003
                                                                            ------------------  ------------------

              Deferred tax assets:
<S>                                                                         <C>                 <C>
                NOL Carryover                                               $        1,715,498  $        1,918,625
                Valuation for investment                                                                    57,000
                Depreciation                                                            59,434              93,750

              Deferred tax liabilities:                                                      -                   -
                State deferred liability                                                                   (62,945)
              Valuation allowance                                                  (1,774,932)          (2,006,430)
                                                                            -----------------   ------------------

              Net deferred tax asset                                        $                -  $                -
                                                                            ==================  ==================

              The income tax provision differs from the amount of income tax
              determined by applying the U.S. federal income tax rate of 39% to
              pretax income from continuing operations for the years ended
              December 31, 2004 and 2003 due to the following:

              Book loss                                                     $            3,401  $        1,374,976

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

NOTE 10 -  INCOME TAXES (Continued)


              Meals and Entertainment                                                    1,628             (2,645)

              Stock for services/options expense                                     (144,924)           (144,030)
              Other                                                                     53,176
              NOL Utilization                                                        (203,129)
              Valuation allowance                                                                      (1,228,301)
                                                                            ------------------  -----------------

                                                                            $                -  $                -
                                                                            ==================  ==================

</TABLE>

              At December 31, 2004, the Company had net operating loss
              carryforwards of approximately $4,300,000 that may be offset
              against future taxable income from the year 2004 through 2024. No
              tax benefit has been reported in the December 31, 2004 financial
              statements since the potential tax benefit is offset by a
              valuation allowance of the same amount.

              Due to the change in ownership provisions of the Tax Reform Act of
              1986, net operating loss carryforwards for Federal income tax
              reporting purposes are subject to annual limitations. Should a
              change in ownership occur, net operating loss carryforwards may be
              limited as to use in the future years.

NOTE 11 -     RECENT ACCOUNTING PRONOUNCEMENTS

              During the year ended December 31, 2004, the Company adopted the
              following accounting pronouncements:

              On December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based
              Payment, which is an amendment to SFAS No. 123, Accounting for
              Stock-Based Compensation. This new standard eliminates the ability
              to account for share-based compensation transactions using
              Accounting Principles Board ("APB") Opinion No. 25, Accounting for
              Stock Issued to Employees, and generally requires such
              transactions to be accounted for using a fair-value-based method
              and the resulting cost recognized in our financial statements.
              This new standard is effective for awards that are granted,
              modified or settled in cash in interim and annual periods
              beginning after June 15, 2005. In addition, this new standard will
              apply to unvested options granted prior to the effective date. We
              will adopt this new standard effective for the fourth fiscal
              quarter of 2005, and have not yet determined what impact this
              standard will have on our financial position or results of
              operations.

              In November 2004, the FASB issued SFAS No. 151, Inventory Costs -
              an amendment of ARB No. 43, Chapter 4. This Statement amends the
              guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
              the accounting for abnormal amounts of idle facility expense,
              freight, handling costs, and wasted material (spoilage). Paragraph
              5 of ARB 43, Chapter 4, previously stated that ". . . under some
              circumstances, items such as idle facility expense, excessive
              spoilage, double freight, and rehandling costs may be so abnormal
              as to require treatment as current period charges. . . ." This
              Statement requires that those items be recognized as
              current-period charges regardless of whether they meet the
              criterion of "so abnormal." In addition, this Statement requires
              that allocation of fixed production overheads to the costs of
              conversion be based on the normal capacity of the production
              facilities. This statement is effective for inventory costs
              incurred during fiscal years beginning after June 15, 2005.
              Management does not believe the adoption of this Statement will
              have any immediate material impact on the Company.


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

NOTE 11 -         RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

              In December 2004, the FASB issued SFAS No. 152, Accounting for
              Real Estate Time-sharing Transactions, which amends FASB statement
              No. 66, Accounting for Sales of Real Estate, to reference the
              financial accounting and reporting guidance for real estate
              time-sharing transactions that is provided in AICPA Statement of
              Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
              Transactions. This statement also amends FASB Statement No. 67,
              Accounting for Costs and Initial Rental Operations of Real Estate
              Projects, to state that the guidance for (a) incidental operations
              and (b) costs incurred to sell real estate projects does not apply
              to real estate time-sharing transactions. The accounting for those
              operations and costs is subject to the guidance in SOP 04-2. This
              Statement is effective for financial statements for fiscal years
              beginning after June 15, 2005. Management believes the adoption of
              this Statement will have no impact on the financial statements of
              the Company.

              In December 2004, the FASB issued SFAS No.153, Exchange of
              Nonmonetary Assets. This Statement addresses the measurement of
              exchanges of nonmonetary assets. The guidance in APB Opinion No.
              29, Accounting for Nonmonetary Transactions, is based on the
              principle that exchanges of nonmonetary assets should be measured
              based on the fair value of the assets exchanged. The guidance in
              that Opinion, however, included certain exceptions to that
              principle. This Statement amends Opinion 29 to eliminate the
              exception for nonmonetary exchanges of similar productive assets
              and replaces it with a general exception for exchanges of
              nonmonetary assets that do not have commercial substance. A
              nonmonetrary exchange has commercial substance if the future cash
              flows of the entity are expected to change significantly as a
              result of the exchange. This Statement is effective for financial
              statements for fiscal years beginning after June 15, 2005. Earlier
              application is permitted for nonmonetary asset exchanges incurred
              during fiscal years beginning after the date of this statement is
              issued. Management believes the adoption of this Statement will
              have no impact on the financial statements of the Company.

              The implementation of the provisions of these pronouncements are
              not expected to have a significant effect on the Company's
              consolidated financial statement presentation.


NOTE 12 -         ACCRUED LIABILITIES
<TABLE>

<CAPTION>
              Accrued Liabilities consisted of the following at December 31, 2004

              Back rent owed to various landlords on sites now operated
              by Checker Flag Lightning, Inc.  The Company is in various
<S>                                                                                                    <C>
              stages of negotiation to resolve this liability                                   $       815,645
              Vacation pay accrual                                                                       51,328
              Accrued warrant expenses on sold simulators                                                47,915
              Accrued licensing fees                                                                     71,750
              Accrued property taxes                                                                     26,000
              Accrued miscellaneous expenses                                                            146,291
                                                                                                       --------

              Total Accrued Liabilities                                                          $    1,158,929
                                                                                                 ===============
</TABLE>

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

NOTE 13 -         DEPOSITS ON SIMULATOR SALES
<TABLE>

              Deposits on simulator sales consist of the following on December 31, 2004
<CAPTION>


              Company                       Number of Simulators                                   Amount

<S>                                           <C>                               <C>
              Roltex Group                    8                                 $           552,692
              Race Car Simulation Corp.      10                                 $           528,000
              Tonne Management                4                                 $           222,000
              Ft. Gordon Military Base        2                                 $           144,300
              I-Vision Technologies           2                                 $            85,480
              All Others                                                        $            41,506
                                                                                        --------------------

              Total deposits on simulator sales                                         $ 1,573,978
                                                                                        ==================
</TABLE>

These deposits represent funds received by the Company for the sale of
simulators.

NOTE 14 - SUBSEQUENT EVENTS

              On January 3, 2005, the Company reduced its indebtedness to Ropart
              Asset Management Fund, LLC by $200,000.

              On February 2, 2005, the Company paid in full notes representing
              $260,000 of the 2004 notes per the terms of the note and option
              purchase agreement and security agreement dated February 2, 2005.
              Additionally, the Company and one noteholder agreed to extend the
              maturity date on its note to August 2, 2005. A second noteholder
              chose to deliver its note and exercise its stock option in lieu of
              payment of all but $16,000 (to be paid in cash) of the amount
              owed, per the terms of the notes. Collectively, these transactions
              will result in a balance of $146,000 on the 2004 Notes.


<PAGE>

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

By letter dated March 15, 2004, Crowe Chizek and Company LLC (Crowe Chizek)
informed the Company that it was notifying the Securities and Exchange
Commission of its earlier termination of the client-auditor relationship between
Crowe Chizek and the Company. That letter referred to the letter to the Company
dated December 31, 2003 that effective December 31, 2003 Crowe Chizek terminated
the client-auditor relationship with the Company. However, the Company continued
to meet with and provide information to Crowe Chizek after receipt of the
December 31, 2003 letter. The Company believed that Crowe Chizek had continuing
interest in an auditor-client relationship with the Company and as recently as
March 1, 2004 had held discussions with representatives of Crowe Chizek
requesting continuation of the auditor-client relationship in connection with
the audit for the fiscal year ended December 31, 2003. It was not until the
March 15, 2004 letter that the Company believed the relationship had ended.

The report of Crowe Chizek for the fiscal year ended December 31, 2002, the only
year for which the Company was subject to the reporting provisions of the
Securities Exchange Act of 1934 and which Crowe Chizek served as auditors of the
Company, contained a "going concern" uncertainty explanatory paragraph, but did
not contain an adverse opinion or disclaimer of opinion, or qualification as to
audit scope or accounting principles.

During the fiscal year ended December 31, 2002 and the periods up to and
including December 31, 2003, there were no disagreements between the Company and
Crowe Chizek on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Crowe Chizek, would have caused it to make reference to the
subject matter of the disagreement in connection with its report on the
Company's consolidated statements for such periods; and there were no reportable
events as defined in Item 304(a)(1) of Regulation S-K.

The Company has provided Crowe Chizek with a copy of the information disclosed
in the Current Report on Form 8-K which was filed with the Commission on March
18, 2004 and is incorporated herein by reference. Crowe Chizek provided the
Company a letter dated March 18, 2004, for filing as an Exhibit to the Form 8-K
which indicated. The letter stated, in essence, that Crowe Chizek did not
disagree with the above disclosure, although it expressed no opinion as to what
the Company believed as stated in the fourth and fifth sentences of the first
paragraph of this Item 8.

Effective March 17, 2004, the Company engaged HJ & Associates, L.L.C. ("HJ") of
Salt Lake City, Utah, as its new independent accountant to audit the Company's
financial statements for the year ended December 31, 2003. The retention of HJ
was reported on a current report on Form 8-K on March 19, 2003, which is
incorporated herein by reference.

During the years ended December 31, 2002 and 2003 and the interim period up to
and including March 17, 2004, neither the Company nor anyone acting on the
Company's behalf consulted HJ regarding either: (i) the application of
accounting principles to a specified transaction, either contemplated or
proposed; to the type of audit opinion that might be rendered on the Company's
financial statements, and neither a written report nor oral advice was provided
by HJ to the Company that HJ concluded was an important factor considered by the
Company in reaching a decision as to any accounting, auditing or financial
reporting issues; or (ii) any matter that was either the subject of a
"disagreement" as that term is describe in Item 304 (a)(1)(iv) of Regulation S-K
promulgated under the Securities Exchange Act of 1934, as amended, and the
related instruction to Item 304 of Regulation S-K, or a "reportable event" as
that term is described in Item 304 (a)(1)(v) of Regulation S-K.

The Company has provided to HJ a copy of the disclosure regarding its retention
as auditors to the Company, prior to filing of the Form 8-K reporting the
retention. HJ informed the Company that it did not disagree with the disclosure
contained in the Form 8-K which is substantially duplicated in the immediately
proceeding paragraph of this Item 8.

ITEM 8A. Controls and Procedures.

The Principal Executive Officer ("PEO"), who is also the Principal Financial
Officer ("PFO") of the Company has 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/PFO has concluded that the Company's disclosure controls and procedures are
adequate and effective. There have been no significant changes in the Company's
internal controls, or in factors that could significantly affect internal
controls, subsequent to the most recent evaluation of such controls.
<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act

The Board of Directors and Executive Officers of the Company consist of the
persons named in the table below. Vacancies in the Board of Directors may only
be filled by the Board of Directors by majority vote at a Board of Director's
meeting, or at a shareholders meeting at which stockholders holding a majority
of the issued and outstanding shares of capital stock are present. The directors
are elected annually by the stockholders at the annual meetings. Each director
shall be elected for the term of one year, and until his or her successor is
elected and qualified, or until his earlier resignation or removal. The bylaws
provide that we have at least one director. The directors and executive officers
of the Company are as follows:

Name                            Age     Position

William R. Donaldson             48     Chairman, Chief Executive Officer, and
                                        Secretary
Carl L. Smith, Sr.               62     Director
Cary Agajanian                   63     Director

Mr. Donaldson has been a major influence in the international racing industry
for over 25 years. He served as the Executive Vice President of the Indianapolis
Motor Speedway ("IMS"), the largest spectator stadium in the world, and
concurrently served as President of IMS subsidiaries, IMS Properties and IMS
Events. At IMS, he was on the executive management team that initiated such
events as the NASCAR Brickyard 400, Indy FanFest, the Senior PGA Tournament held
at Brickyard Crossing, the Indy 200 at Walt Disney World, and the launch of the
Indy Racing League. Donaldson also managed the Inaugural NASCAR Winston Cup
event at Las Vegas Motor Speedway, and he managed the launch of the Petit Le
Mans at Road Atlanta, and the American and European Le Mans Series. He has
extensive experience with domestic and international television broadcasting. He
has a Bachelor of Arts degree from DePauw University in Greencastle, Indiana.

Mr. Smith is a successful entrepreneur, whose business interests and ownerships
have over his professional life, spanned a wide variety of products and
services. With over 38 years of experience in business development, marketing,
sales and finance, he provides a diverse level of knowledge and expertise to the
Company. He was the founder of Catalyst Marketing Corporation, a public company
that, under his leadership, grew to become one of the most successful
telecommunications marketing agencies for products and services of industry
giant, MCI, which was later acquired by WorldCom. In 1991, he co-founded Tampa
Bay Financial, Inc., a former venture capital firm that specialized in
micro-cap, first stage corporate investments and, one year later, was selected
as a member of the prestigious "Who's Who of American Business Executives". Mr.
Smith has successfully engineered the turn around and revitalization of several
troubled public companies and has also been involved in capitalizing and taking
many young private companies public through a reverse merger strategy. He
presently sits on the Board of Directors of NeoGenomics, Inc. (OTCBB: NOGN) and
several private companies.

Mr. Agajanian literally grew up in the sport of auto racing, with his family
running racing teams and racetracks. He now owns Motorsports Management
International, a multi-faceted company that is an industry leader in the areas
of event representation, corporate consulting, and sponsorship negotiation. For
the past 10 years, Mr. Agajanian has served on Motorsports boards such as the
Automobile Competition Committee of the United States (ACCUS), the American
Motorcyclist Association (AMA, Vice-Chairman) and United States Auto Club (USAC)
Properties. Mr. Agajanian's company has been involved in securing hundreds of
sponsorship arrangements and is the only company in the United States to offer
star race drivers premium representation services in corporate structures,
pension benefits, trusts and estates and contract negotiation. NASCAR NEXTEL Cup
star Tony Stewart has been represented by Motorsports Management International,
and Agajanian also previously represented Jeff Gordon. Mr. Agajanian's car
ownership division has entered cars in the Indianapolis 500 for 36 consecutive
years and now owns one of the premier teams in the NASCAR Busch Series.

The Company has no standing or separate audit committee, but rather the entire
Board of Directors functions as the audit committee, The Board of Directors has
determined that due to the size of the board of directors, and the limited
resources of the Company, it is in the Company's best interest to have the
entire board function as the audit committee.

Our Executive Officers are elected by the Board on an annual basis and serve at
the discretion of the Board.
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that our executive
officers, directors and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulations
to furnish us with copies of all Section 16(a) forms filed by such persons.

Based solely on our review of such forms furnished to us and representations
from certain reporting persons, filing requirements applicable to our executive
officers, directors and more than 10% stockholders have been complied with
during the twelve months ending December 31, 2004 with the exception of James
Matheny, who has failed to file a Form 3, Initial Statement of Beneficial
Ownership, reporting their ownership of in excess of 10% of the issued and
outstanding voting shares of the Company.

Code of Ethics.

The Company has adopted a Code of Ethics which is  applicable  to all  officers,
directors  and  employees  of the  Company.  A copy  of the  Code of  Ethics  is
available on the Company's website which is www.smsonline.com under the investor
relations button.  The Company will forward,  without charge, a copy of the Code
of Ethics to any  person  requesting  a copy.  Requests  should be  directed  to
Interactive  Motorsports and Entertainment Corp. Attn: Code of Ethics at 5624 W.
73rd Street, Indianapolis, Indiana, 46278.

Item 10. Executive Compensation

The following table sets forth information concerning the compensation paid to
all persons serving as the Company's chief executive officer and the Company's
most highly compensated executive officers other than its chief executive
officer who were serving as executive officers at December 31, 2004 and whose
annual compensation exceeded $100,000 during such year (collectively, the "Named
Executive Officers").
<TABLE>

<CAPTION>
                                Annual Compensation                              Long-Term Compensation Awards

                                                                                                  Securities
                                                              Other Annual      Restricted        Underlying
   Name and Principal      Year/                            Compensation (2)   Stock Awards    Options/SARs (#)     LTIP
       Position            Period     Salary      Bonus                                                          Payouts

<S>                          <C>       <C>                      <C>
William R. Donaldson,        2004      $150,000      -           $6,659              -                 -              -
Chairman and CEO

                             2003      $150,039      -           $7,140              -                 -              -

 (2) Includes cost of medical and life insurance.

</TABLE>

Director Compensation

Directors of the Company are currently not paid for their services; however, the
Company intends to establish a compensation plan utilizing stock awards versus
cash payments in 2005.

Indemnification for Securities Act Liabilities

Indiana law authorizes, and the Company's Bylaws and Indemnity Agreements
provide for, indemnification of the Company's directors and officers against
claims, liabilities, amounts paid in settlement and expenses in a variety of
circumstances. Indemnification for liabilities arising under the Act may be
permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing or otherwise. However, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

<PAGE>


Stock Options and Warrants

The Company does not currently have a stock option plan.

Compensation Committee Interlocks and Insider Participation

No executive officers of the Company serve on the Compensation Committee (or in
a like capacity) for the Company or any other entity.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of March 22, 2005 for each person or
entity that is known by us to beneficially own more than 5 percent of our Common
Stock. As of March 22, 2005, the Company had 87,715,910 shares of Common Stock
outstanding.
<TABLE>

<CAPTION>
                                                              Amount of Beneficial
                                                                  Ownership           Nature of         Percent of
            Name and Address of Beneficial Owner                                      Ownership         Class

<S>                                                                <C>                                   <C>
  William R. Donaldson, Carmel, IN                                 17,736,450          Direct            20.22%
  James Matheny, Cary, NC                                          13,691,151          Direct            15.61%
  Vikki Cook, Sarasota, FL                                         11,627,993          Direct            13.26%
  Coldwater Capital, LLC, New York, NY                              6,348,594          Direct             7.24%
  Lucky Dog, LLC, New York, NY                                      6,119,252          Direct             6.98%

  Dolphin Direct Equity Partners, LP (a)                            5,161,500          Direct             5.32%
                                                                    =========                             =====

    Total                                                          55,523,440                            63.30%
                                                                   ==========                            ======
</TABLE>

(a)      Dolphin Direct Equity Partners, LP (Dolphin) is the beneficial owner of
         5,161,500 warrants that expire December 31, 2009, and are exercisable
         at any time prior to expiration. The calculation used to determine The
         Percent of Class attributable to Dolphin assumes all the warrants held
         by Dolphin are exercised. The Totals do not include Dolphin's
         beneficial ownership.


Security Ownership of Management

The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of March 22, 2005 for each of our
directors and each of our Named Executive Officers, and all directors and
executive officers as a group. As of March 22, 2005 the Company had 86,530,184
shares of Common Stock outstanding.
<TABLE>

<CAPTION>
                                                                     Amount of
         Name, Position and Address of Beneficial Owner             Beneficial       Nature of    Percent of
                                                                   Ownership (1)     Ownership       Class

<S>                                                                <C>                               <C>
  William R. Donaldson, Chairman, Chief Executive Officer, and     17,736,450          Direct        20.22%
  Secretary; Carmel, Indiana
  Carl L. Smith, Director; Sarasota, Florida                                -           n/a               -
  Cary Agajanian, Director; Los Angeles, California                                     n/a
                                                                 -----------------
                                                                            -                             -
        Total                                                      17,736,450                        20.22%

  All Executive Officers & Directors as a Group
  (5 persons)                                                      17,736,450                        20.22%
                                                                   ==========                        ======
</TABLE>

(1) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of Common Stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for computing
the percentage of the total number of shares beneficially owned by the
designated person, but are not deemed outstanding for computing the percentage
for any other person.
<PAGE>

Change in Control

We are not currently engaged in any activities or arrangements that we
anticipate will result in a change in control of the Company.

Item 12. Certain Relationships and Related Transactions

The Company has a receivable from a related party, Perfect Line Investments, LLC
that has been fully reserved at December 31, 2003 as its collection is deemed
unlikely.

The Company issued March 10, 2003 to three related parties a total of $200,000
of Secured Bridge Notes as previously disclosed in that Form 8-K filed on March
13, 2003. These notes were issued to Tampa Bay Financial and Mr. William R.
Donaldson in the amounts of $100,000 and $50,000, respectively. The Chairman and
Chief Executive Officer of Tampa Bay Financial, Mr. Carl L. Smith, is also a
director of the Company. Mr. Donaldson is the Chairman and Chief Executive
Officer of the Company. On February 17, 2004, at the direction of Mr. Smith, the
note was transferred to a third party controlled by a major Company shareholder.

Item 13. Exhibits and Reports on Form 8-K

A. Exhibits.
         3(i) Articles of Incorporation* 3(ii) By-Laws*
         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**
         10.4     Asset Purchase Agreement with Race Car Simulation Corporation,
                  a portfolio company of Dolphin Direct Equity Partners, LP ***
         11.1     Computation of Earnings (Loss) Per Share
         14.1     Code of Ethics
         21.1     Subsidiaries
         31.1     Certification of William R. Donaldson as Chief Executive
                  Officer and Chief Financial Officer pursuant to
                  Rule 13a-14 of the Security Exchange Act of 1934.
         32.1     Certification of William R. Donaldson as Chief Executive
                  Officer pursuant to 18 U.S.C. Section 1350.
         32.2     Certification of William R. Donaldson as Chief Financial
                  Officer and Treasurer pursuant to 18 U.S.C.
                  Section 1350.

        *  Incorporated by reference from Form 10-QSB filed on November 14, 2002
        ** Incorporated by reference from Form 10-QSB filed on May 17, 2004
        ***Incorporated by reference from Form 8-K filed on January 6, 2005


B. Reports on Form 8-K.

   1.  Form 8-K     Filed November 16, 2004      Announcement of the financial
                                                 results for the Third Quarter,
                                                 2004.


ITEM 14.  Principal Accountant Fees and Services.

AUDIT FEES
         Fees for audit services from Crowe Chizek and Company totaled $13,650
for the year ended December 31, 2003. Fees for audit services from HJ and
Associates totaled $29,000 for the year ended December 31, 2003. Fees for audit
services from HJ and Associates totaled $50,151.99 for the year ended December
31, 2004. Those auditing fees included fees associated with the annual audit,
reviews of quarterly reports on Form 10-Q and procedures required by GAAP and
GAAS.
<PAGE>

AUDIT-RELATED FEES
         Fees for audit-related services from Crowe Chizek and Company totaled
$2,635 for the year ended December 31, 2003. Fees for audit-related services
from HJ and Associates totaled $0 for the year ended December 31, 2004. These
auditing services consisted of assistance related to routine audits and
procedures and consultation with respect to the filing of Forms S-8.

TAX FEES
         Fees from Crowe Chizek and Company for tax services, including fees for
review of the consolidated federal income tax return, totaled $150 for the year
ended December 31, 2003. Fees from HJ and Associates for tax services, including
fees for review of the consolidated federal income tax return, have yet to be
determined for the year ended December 31, 2003 and for the year ended December
31, 2004.

All Other Fees
         No fees were billed by HJ and Associates for the fiscal year ending
December 31, 2003 and for the fiscal year ending December 31, 2004 other than
those specified above.

PRE-APPROVAL POLICY FOR AUDIT AND NON-AUDIT SERVICES

            The Company does not have a standing audit committee, and the full
Board performs all functions of an audit committee, including the pre-approval
of all audit and non-audit services before the Company engages an accountant.
All of the services rendered to the Company by HJ & Associates, LLC after March
18, 2004 were pre-approved by the Board of Directors of the Company.

            The Company is contemplates working with its legal counsel to
establish formal pre-approval policies and procedures for future engagements of
the Company's accountants. The new policies and procedures will be detailed as
to the particular service, will require that the Board or an audit committee
thereof be informed of each service, and will prohibit the delegation of
pre-approval responsibilities to management. It is currently anticipated that
the Company's new policy will provide (i) for an annual pre-approval, by the
Board or audit committee, of all audit, audit-related and non-audit services
proposed to be rendered by the independent auditor for the fiscal year, as
specifically described in the auditor's engagement letter, and (ii) that
additional engagements of the auditor, which were not approved in the annual
pre-approval process, and engagements that are anticipated to exceed previously
approved thresholds, will be presented on a case-by-case basis, by the Chairman
of the Board of Directors, for pre-approval by the Board or audit committee,
before management engages the auditors for any such purposes. The new policy and
procedures may authorize the Board or audit committee to delegate, to one or
more of its members, the authority to pre-approve certain permitted services,
provided that the estimated fee for any such service does not exceed a specified
dollar amount (to be determined). All pre-approvals shall be contingent on a
finding, by the Board, audit committee, or delegate, as the case may be, that
the provision of the proposed services is compatible with the maintenance of the
auditor's independence in the conduct of its auditing functions. In no event
shall any non-audit related service be approved that would result in the
independent auditor no longer being considered independent under the applicable
rules and regulations of the Securities and Exchange Commission.

There were no fees in 2004 which were not pre-approved by the Board of
Directors. All services described above under the captions "Audit Fees", "Audit
Related Fees" and "Tax Fees" were approved by the Board of Directors pursuant to
SEC Regulation S-X, Rule 2-01(c)(7)(i).


<PAGE>



                                   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: March 28, 2005           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: March 28, 2005           By:       /s/ William R. Donaldson
                               -----------------------------------------------
                               William R. Donaldson
                               Chairman of the Board and Chief Executive Officer
                               (Principal Executive Officer)

Date: March 28, 2005           By:      /s/ William R. Donaldson
                               -----------------------------------------------
                               William R. Donaldson
                               Chief Financial Officer and Treasurer
                               (Principal Financial Officer)

Date: March 28, 2005           By:      /s/ Carl L. Smith
                               ------------------------------------------
                               Carl L. Smith
                               Director

Date: March 28, 2005           By:      /s/ Cary Agajanian
                               -----------------------------------------------
                               Cary Agajanian
                               Director



<PAGE>


                                  EXHIBIT INDEX


Exhibits:
         3(i)     Articles of Incorporation* 3(ii) By-Laws*
         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**
         10.4     Asset Purchase Agreement with Race Car Simulation Corporation,
                  a portfolio company of Dolphin Direct Equity Partners, LP ***
         11.1     Computation of Earnings (Loss) Per Share
         14       Code of Ethics
         21.1     Subsidiaries
         31       Certification of William R. Donaldson as Chief Executive
                  Officer and Chief Financial Officer pursuant to
                  Rule 13a-14 of the Security Exchange Act of 1934.
         32.1     Certification of William R. Donaldson as Chief Executive
                  Officer pursuant to 18 U.S.C. Section 1350.
         32.2     Certification of William R. Donaldson as Chief Financial
                  Officer and Treasurer pursuant to 18 U.S.C.
                  Section 1350.

       *  Incorporated by reference from Form 10-QSB filed on November 14, 2002
       ** Incorporated by reference from Form 10-QSB filed on May 17, 2004
       ***Incorporated by reference from Form 8-K filed on January 6, 2005