SecProbe.io

<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
December 29, 2005

Mr. Steven Jacobs
Accounting Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
Washington, D.C, 20549

Re: Interactive Motorsports and Entertainment Corp.
    Form 10-KSB for the year ended December 31, 2004
    File No. 000-30771

Dear Mr. Jacobs,

I am in  receipt  of your  letter  dated  December  8,  2005.  I have once again
authorized David Smith of our company to prepare the company's  response to your
inquiries in the space below.

Question:

     1.   We read your  response to comment 1. Please  restate  your  historical
          financial  statements  to record the fair  value of the  common  stock
          warrants consistent with the guidance in EITF 01-9 and paragraph 13 of
          EITF 00-21.

Response

          Until the impact of any  resolution  of all the issues  that have been
          the focus of this and previous  correspondence between the Commision's
          staff and the Company on the Company's  2004  financial  statements is
          known,  the  Company  believes  it would be  premature  to restate our
          historical financial  statements.  The Company believes it would serve
          the  investment  community  best if all issues are  resolved,  and the
          financial  impact  of such  resolutions  on the  Company's  historical
          financial information is presented at that time.

Question:

     2.   We read your  response to comment 2, and  continue to believe that you
          have not demonstrated how you meet the criteria for entity-specific or
          VSOE of fair value.  Specifically,  the suggested pricing strategy for
          your management service agreement  incorporates the return provided on
          the sale of the related  simulator  which is not  consistent  with the
          notion of objective evidence of fair value on a standalone basis. As a
          result,  the elements  should not be separated  under EITF 00-21 until
          evidence of fair value exists for the management  service agreement on
          a  standalone  basis.  Accordingly,  please  restate  your  historical
          financial  statements  to account for the sale of the  simulators  and
          management service agreement as a single unit of accounting.

<PAGE>
Response

          The Company continues to disagree with the Commission  staffs' opinion
          that  the  Company  has not  met  the  requirements  to  consider  the
          management  agreement a separate  unit of  accounting.  Paragraph 9 of
          EITF 00-21  identifies  each item which must be met before a delivered
          item should be considered a separate unit of accounting.  This comment
          specifically addresses the Commission staff's opinion that the Company
          has not  established  a  separable  `fair  value'  for the  management
          service agreements.

          The Company  refers to  paragraph  16 of EITF 00-21 in its entirety as
          part of its  response.  Specifically  the Company notes that "The best
          evidence  of fair  value  is the  price  of a  deliverable  when it is
          regularly sold on a standalone  basis....As  discussed in paragraph 10
          of SOP 97-2,  VSOE of fair value is  limited to (a) the price  charged
          for  deliverable  when it is sold separately or (b), for a deliverable
          not yet being sold  separately,  the price  established  by management
          having the  relevant  authority  (it must be probable  that the price,
          once established,  will not change before the separate introduction of
          the  deliverable  into  the  marketplace."  There is no  dispute  that
          management  with  appropriate  authority  has set the  pricing  as the
          pricing was determined by Bill Donaldson, Chairman of the Company. The
          Company  does not believe  that the  Commission's  staff is within its
          bounds  to   indicate   that  the   suggested   pricing   strategy  is
          inappropriate.  Fair value does not always refer to a specific  profit
          margin amount.

          However,  as further  evidence of fair value,  the Company has, in the
          first  eleven  months of the first year of the  management  agreement,
          spent  $6,383  for  the  maintenance  of the  simulators  sold  in the
          December 31, 2004 sale transaction,  and has recognized $14,987 of the
          revenue from the management  service agreement which has been deferred
          over its 5 year life.  This  historical data would indicate that there
          is in  fact a  profit  margin,  and  one  is to be  expected  for  the
          remaining years.  This is principally due to the fact that the Company
          based its value of the management  service agreement on the historical
          data of used simulators.  Most of our simulator sales have been of new
          simulators.  Since we did not have any new  simulators  at the time of
          the December 31, 2004  transaction  with which to garner the necessary
          data, the Company chose to be very conservative in its estimates,  and
          did not discount the historical  data on used  simulators  because new
          simulators were being sold.

          The Company  acknowledges that the management service agreement is not
          readily  sold,  and can  only be sold to  those  customers  who  first
          purchase our simulators.  However, the Company has the intent to sell,
          and is actively working on sale agreements for the management services
          agreements as separate  contracts.  The Company,  in establishing  the
          price  for  the   management   services   agreement,   used  the  most
          conservative figures available to make the determination.  The Company
          believed  that the  probability  was high that the actual  costs would
          come in at a  lesser  amount  due to the age of the  simulators  sold,
          therefore  generating  a small  profit  from the  management  services
          agreement. This has in fact been the case over the first eleven months
          of the first year of the  agreement,  and management has no reason not
          to  believe  that  this  will not be the case for the  balance  of the
          agreement.  The criterion established in paragraph 16 does not specify
          a timeline for  introduction  of a product into the  marketplace.  The
          Company is actively  working on an  introduction  of this product into
          the marketplace as it is able to sell its simulators.

<PAGE>
          The Company  believes  that if this  response,  coupled  with the four
          responses we have  submitted  previously,  is not  sufficient  for the
          Commission's  staff,  that it would be  appropriate  to have the Chief
          Accountant  review all the  correspondence  and discuss the issue with
          the Company.  The Company's feeling currently is that, in an effort to
          strictly  interpret EITF 00-21, the Commission's staff has overstepped
          its role as an advocate for  investors  and is  attempting  to dictate
          business  practices to the Company.  The Company recognizes and honors
          the  Commissions'  mantra of protecting the investors and has welcomed
          the robust  exchange of  viewpoints,  but firmly  believes that if the
          Company  is  forced to  restate  the  transaction  to defer all of the
          revenue  over  the  period  of  the  management  agreement,  then  the
          investors and the Company would be harmed because the  transaction has
          not  been  reported  as  intended,  indeed  the  very  essence  of the
          transaction would be  mischaracterized  by not allowing the revenue to
          be recognized for the delivery of the simulators.

          The Company  continues to believe  that its  recording of the December
          31, 2004  transaction  not only  conforms to GAAP,  but also meets the
          standard of fair  presentation  of our  financial  statements  that we
          discussed in our prior  correspondence  with you. The Company strongly
          believes that if we were to incorporate  the treatment of the December
          31, 2004  transaction  as you have  suggested,  we would not be fairly
          presenting the transaction or its impact on our financial  statements.
          The   interpretation  of  the  individual   accounting  and  financial
          reporting  standards  that you have proposed  would lead to misleading
          financial  statements  and therefore  preclude fair  presentation.  We
          would then be placed in the precarious  position of having to consider
          certifying financial statements that we feel the do not fairly present
          the  financial  condition of the Company.  As such, we look forward to
          either the staff's  acknowledgment  that this issue has been resolved,
          or to a discussion with the Chief  Accountant once he has reviewed the
          previous   correspondence  between  the  Commission's  staff  and  the
          Company.

     3.   We understand  that you changed your method of accounting for the sale
          of  simulators  during 2005 to that of the  percentage  of  completion
          method of accounting.  Please provide support for your conclusion that
          your contracts  fall in the scope of SOP 81-1. In this regard,  please
          describe to us in  sufficient  detail (1) the  activities  involved in
          performing  services  including the average  duration of the contract,
          (2) buyer  specifications,  (3) legal right of the buyer and seller as
          the services are provided, (4) acceptance provisions and (5) rights of
          return. Refer to paragraphs 11-16 and 21-22 of SOP 81-1.

Response

          Our sales contracts for the sale of simulators are negotiated based on
          what options the buyer directs he wants in his simulator  system,  and
          on the  configuration  requirements of the space where the buyer wants
          the simulators to be installed. Options available to the buyer include
          the number of simulators,  whether they want to buy new or refurbished
          simulators,  the number of different race tracks  customers can choose
          to race on, the car number and sponsor  graphics  on the car,  and the
          characteristics  of the car image  generated  by the  software.  These
          fixed-price  contracts are legally  binding  agreements that spell out
          the details of the transaction,  and also delineate the obligations of
          the buyer, and of the Company as seller.

<PAGE>
          Upon the  execution of the sale  agreement,  a  representative  of the
          Company conducts a site inspection,  and from that visit, drawings are
          generated detailing the planned layout of the simulators. The drawings
          would  also  include   details   regarding  the   simulator   system's
          requirements   for  electrical   service,   ventilation  and  internet
          connectivity. Once the drawings are approved by the buyer, the Company
          generates  a  purchasing  guide,   which  details  the  costs  of  the
          components,  the costs for outside services, and the cost of labor for
          Company  personnel  to install  the  system,  all  tailored to what is
          necessary for that particular contract.  This purchasing guide is then
          used as the basis to  generate  the  appropriate  purchase  orders for
          needed components and services.  The issuance of these purchase orders
          also begins the process to manufacture the  simulators,  as necessary.
          We  outsource  the  production  of our  simulators,  but do supply the
          manufacturer  with proprietary  components that we either  manufacture
          ourselves, or purchase from third parties.

         Once the simulators and all necessary components are procured, the
         Company transports the entire system to the installation site, where an
         installation team of Company personnel installs and troubleshoots the
         system, and trains the buyer's staff on how to operate, maintain and
         repair the system. At that point, we turn the system over to the buyer,
         and consider the installation complete.

          It takes the  Company  anywhere  from three to six months to fulfill a
          contract,  depending  on a number of factors  including  the number of
          simulators being purchased,  the difficulty of the  installation,  the
          availability  of simulators and related  components in inventory,  the
          readiness of the site, etc.

          In determining  what method of accounting best reflects the activities
          of the  company in the sales of  simulators,  we have taken  direction
          from SOP 81-1,  Accounting for  Performance of  Construction-Type  and
          Certain  Production  Type  Contracts.  We determined that SOP 81-1 was
          relevant  to our  contracts  due to  several  statements  in the  SOP.
          Paragraph 11 states "this statement of position  applies to accounting
          for performance of contracts for which  specifications are provided by
          the customer for the  construction  of facilities or the production of
          goods or the  provision  of related  services....Paragraph  11 further
          states  "existing  authoritative  accounting  literature uses the term
          `long - term'  and  `construction  type' in  identifying  the types of
          contracts that are the primary focus of interest. The term `long term'
          is  not  used  in  this   statement  of  position  as  an  identifying
          characteristic  because  other  characteristics  are  considered  more
          relevant for identifying the types of contracts covered." Paragraph 12
          goes on to say  "Contracts  covered by this  statement of position are
          binding  agreements  between  buyers  and  sellers in which the seller
          agrees,  for  compensation,   to  perform  a  service  to  the  buyers
          specifications. Contracts consist of legally enforceable agreements in
          any form and include  amendments,  revisions,  and  extensions of such
          agreements".  Additionally, Paragraph 13 of SOP 81-1 states "Contracts
          covered  by  this  statement  include,  but are not  limited  to,  the
          following:...  Contracts  to design,  develop,  manufacture  or modify
          complex aerospace or electronic  equipment to a buyer's  specification
          or  to  provide   services   related  to  the   performance   of  such
          contracts...." We also looked at the types of contracts not covered in
          the SOP based on paragraph 14, and believe our sales  contracts do not
          fall under any of these scenarios. For all these reasons, we concluded
          that our contracts fall in the scope of SOP 81-1.

<PAGE>
          Once we  determined  that SOP 81-1 had  applicability,  we  sought  to
          determine  which method of accounting  best reflects the activities of
          the  company in the sales of  simulators.  We examined  Paragraph  31,
          which states "The completed-contract method may be used as an entity's
          basic accounting  policy in circumstances in which financial  position
          and  results  of  operations  would  not vary  materially  from  those
          resulting  from  use  of  the  percentage-of-completion   method  (for
          example, in circumstances in which an entity