The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The terms "Company", "we", "our" or "us" are used in this discussion to refer to Interactive Motorsports and Entertainment Corp. along with Interactive Motorsports and Entertainment Corp.'s wholly owned subsidiary, Perfect Line, Inc., on a consolidated basis, except where the context clearly indicates otherwise. The discussion and information that follows concerns the Registrant as it exists today, as of this filing, including the predecessor of the Company's operations, Perfect Line, LLC.

Information on Forward-Looking Statements

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

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

Recently Issued Accounting Standards

None

IMTS is headquartered in Indianapolis, Indiana. In June 2001, Perfect Line, LLC (d/b/a NASCAR Silicon Motor Speedway) was formed to purchase, for approximately $1.5 million, the assets of SEI, including intellectual property and the contents of 14 of the 15 NSMS racing centers, which included 170 simulators. SEI showed these assets on its books at approximately $30 million. In August 2002, Perfect Line became a wholly owned subsidiary of IMTS, through an exchange of shares that resulted in Perfect Line shareholders owning approximately 82% of IMTS equity. Simultaneous with this event, approximately $2.6 million in private equity financing was made available to Perfect Line. Approximately one-half the funding was used to retire the Company's bank note and the balance was used for working capital.

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

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

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

Overview

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

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

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

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

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

Company Owned (12 Simulators):

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

Revenue Share (80 Simulators):


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


Mobile Units (40 Simulators):


Buyer                            Year Market              Simulators

4) Exhibit Enterprises (Dodge)   2006 Mobile Experience   4 Reactors
5) Exhibit Enterprises (Dodge)   2006 Mobile Experience   4 Reactors
6) DGI, Inc (Nextel)             2006 Mobile Experience   6 Reactors
7) DGI, Inc (Toyota)             2006 Mobile Experience   4 Reactors
8) DGI, Inc (Nextel, Toyota)     2007 Mobile Experience   14 Reactors

Sales of Simulators (70 Simulators):


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

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

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

Review of Consolidated Financial Position

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

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

Inventory: At March 31, 2008, inventory decreased by $8,619 from December 31, 2007 levels due primarily to the reclassification of simulator parts in non-depreciated fixed assets to simulator inventory held for sale. Simulators in inventory decreased by $3,867 from December 31, 2007, levels to $306,698 at March 31, 2008. Merchandise inventory decreased by $4,752 from December 31, 2007, levels during the three month period ending March 31, 2008.

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

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

Review of Consolidated Results of Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company has funded its retained losses through the initial investment of $650,000 in May 2001, $400,000 of capital contributed in February 2002, approximately $2.610 million received in August 2002, loans from related parties including net proceeds of $687,500 received in March, 2003, and net proceeds received between February 2004 and June 2004 totaling $604,000, $122,500 in loan proceeds from the sale of the 2005 Notes between October and November, net proceeds of $845,000 in loan proceeds from the sale of the 2006 Notes in July, net proceeds of $855,000 borrowed in September of 2006, net proceeds of $450,000 borrowed in September and October of 2007, net proceeds of $200,000 borrowed in February of 2008, $1.237 million received in the form of deposits for the placement of race car simulators in revenue share locations, or for the future purchase by third parties of race car simulators, and credit extended by vendors.