**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB**
 
 (Mark
        One)
 
 x****
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                  OF 1934
  For
        the
        quarterly period ended **JUNE
        30, 2007**
 
 o********
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
 **Commission
        File No. 000-50911**
  **CHILCO
        RIVER HOLDINGS INC.**
 (Exact
        name of small business issuer as specified in it charter)
  **Nevada**
              
              **98-0419129**(State
                  or other jurisdiction of incorporation or
              
              (IRS
                  Employer Identificationorganization)
              
              No.)
 
 **355
        Lemon Avenue, Suite C**
 **Walnut,
        CA 91789**
 (Address
        of principal executive offices)
 
 **(909)
        869-7933**
 (Registrant's
        telephone number, including area code)
 
 Check
        whether the issuer (1) filed all reports required to be filed by section
        13 or
        15 (d) of the Securities Exchange Act of 1934 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.  Yes x No o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined by Rule
        12b-2 of the Exchange Act). Yes o No x
  APPLICABLE
        ONLY TO CORPORATE ISSUERS:
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date: 49,845,600 issued and outstanding as of
        August 10, 2007.
 
 Transitional
        Small Business Disclosure Form (Check one): Yes o No x
  
  **CHILCO
        RIVER HOLDINGS INC.**
 TABLE
        OF
        CONTENTS
 TO
        QUARTERLY REPORT ON FORM 10-QSB
 FOR
        PERIOD ENDED JUNE 30, 2007
 **Page****PART
                    I**
                
                **FINANCIAL
                    INFORMATION**Item
                    1.
                
                Financial
                    Statements
                
                3Consolidated
                    Balance Sheets
                
                3Consolidated
                    Statement of Operations
                
                4Consolidated
                    Statement of Stockholders’
                    Equity
                
                5Consolidated
                    Statement of Cash Flows
                
                6Condensed
                    Notes to Consolidated Financial Statements
                
                7Item
                    2.
                
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                
                16Item
                    3.
                
                Controls
                    and Procedures
                
                28**PART
                    II**
                
                **OTHER
                    INFORMATION**Item
                    1.
                
                Legal
                    Proceedings
                
                28Item
                    2.
                
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                
                28Item
                    3.
                
                Defaults
                    Upon Senior Securities
                
                28Item
                    4.
                
                Submission
                    of Matters to a Vote of Security Holders
                
                28Item
                    5.
                
                Other
                    Information
                
                28Item
                    6.
                
                Exhibits
                
                29Signatures
                
                
                
                31
 
 (REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK)
 
 2
  **PART
        I - FINANCIAL INFORMATION**
  **Item
        1.**  **Financial
        Statements.**
 **CHILCO
                    RIVER HOLDINGS INC.****CONSOLIDATED
                    BALANCE SHEETS****(Expressed
                    in US$)**
 **June
                    30, 2007****ASSETS****Current
                    Assets**Cash
                
                $
                501,602Accounts
                    receivable, net of allowance for doubtful accountsof
                    $ nil as of June 30, 2007
                
                
                248,021Deposit
                    receivable
                
                
                250,000Supplies
                    inventory
                
                
                128,470Prepaid
                    expense & other current assets
                
                
                498,975Prepaid
                    income taxes
                
                
                71,826VAT
                    tax recoverable
                
                
                53,515**Total
                    Current Assets**
                
                
                1,752,409Property,
                    furniture & equipment,net
                    of accumulated depreciation of $7,888,853as
                    of June 30, 2007
                
                
                15,747,179Intangible
                    Asset
                
                
                8,072,526Unamortized debt
                    issuance cost
                
                
                76,000Security
                    deposit & other assets
                
                
                58,914**Total
                    Other Assets**
                
                
                8,207,440**TOTAL
                    ASSETS**
                
                $
                25,707,028**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****Current
                    Liabilities**Accounts
                    payable
                
                $
                7,940Accrued
                    expenses and other payables
                
                
                20,419Installment
                    payable - current portion
                
                
                2,742,483Loan
                    from affiliates
                
                
                400,439Customer
                    deposit
                
                
                100,000Accrued
                    interest expense
                
                
                34,503Deferred
                    tax liabilities
                
                
                16,962**Total
                    Current Liabilities**
                
                
                3,322,746**Long
                    Term Liabilities**11%
                    Convertible debenture payable
                
                
                1,000,000Installment
                    payable - long term
                
                
                1,625,468**Total
                    Long Term Liabilities**
                
                
                2,625,468**TOTAL
                    LIABILITIES**
                
                
                5,948,214**Stockholders'
                    Equity**Common
                    stock: no par value, unlimited authorizedshares,
                    48,345,600 shares issued and outstanding
                
                
                48,346Additional
                    paid-in capital
                
                
                25,569,583Prepaid
                    stock compensation
                
                
                (690,000
                )Prepaid
                    warrants compensation
                
                
                (609,615
                )Accumulated
                    deficits
                
                
                (4,755,425
                )Accumulated
                    Foreign Currency Adjustment
                
                
                195,925**Total
                    Stockholders' Equity**
                
                
                19,758,814**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                25,707,028
  (Unaudited –
        See Accompanying Notes)
 3
 **CHILCO
                    RIVER HOLDINGS INC.****CONSOLIDATED
                    STATEMENT OF OPERATIONS****(Expressed
                    in US$)**
 **Three
                      Months Ending**
                  
                  **Six
                      Months Ending****June
                      30,**
                  
                  **June
                      30,****2007**
                  
                  **2006**
                  
                  **2007**
                  
                  **2006****Revenues**Slot
                      machine leasing
                  
                  $
                  142,866
                  
                  $
                  117,108
                  
                  $
                  281,845
                  
                  $
                  172,376Rooms
                  
                  
                  261,084
                  
                  
                  272,858
                  
                  
                  482,872
                  
                  
                  543,883Food
                      and beverage
                  
                  
                  21,368
                  
                  
                  25,302
                  
                  
                  42,058
                  
                  
                  50,968425,318
                  
                  
                  415,268
                  
                  
                  806,775
                  
                  
                  767,227Less:
                      Promotional Allowances
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -**Total
                      Revenues**
                  
                  
                  425,318
                  
                  
                  415,268
                  
                  
                  806,775
                  
                  
                  767,227**Operating
                      Expenses**Operating
                      departments
                  
                  
                  141,273
                  
                  
                  148,548
                  
                  
                  260,080
                  
                  
                  253,246General
                      and administrative
                  
                  
                  449,154
                  
                  
                  659,778
                  
                  
                  878,340
                  
                  
                  1,063,211Depreciation
                      & Amortization
                  
                  
                  128,118
                  
                  
                  185,628
                  
                  
                  296,312
                  
                  
                  370,686**Total
                      Operating Expenses**
                  
                  
                  718,545
                  
                  
                  993,954
                  
                  
                  1,434,732
                  
                  
                  1,687,143**Income
                      (Loss) from Operations**
                  
                  
                  (293,227
                  )
                  
                  (578,686
                  )
                  
                  (627,957
                  )
                  
                  (919,916
                  )**Other
                      Income and Expenses**Interest
                      income
                  
                  
                  582
                  
                  
                  7,529
                  
                  
                  1,773
                  
                  
                  13,289Other
                      income/gains
                  
                  
                  756
                  
                  
                  64
                  
                  
                  1,667
                  
                  
                  162Interest
                      expense
                  
                  
                  (177,961
                  )
                  
                  -
                  
                  
                  (320,753
                  )
                  
                  -(176,623
                  )
                  
                  7,593
                  
                  
                  (317,313
                  )
                  
                  13,451**Income
                      (Loss) before income tax**
                  
                  
                  (469,850
                  )
                  
                  (571,093
                  )
                  
                  (945,270
                  )
                  
                  (906,465
                  )**Benefit
                      (Provision) for income tax**
                  
                  
                  (21,337
                  )
                  
                  (17,008
                  )
                  
                  (30,954
                  )
                  
                  (29,670
                  )**Net
                      Income (Loss)**
                  
                  
                  (491,187
                  )
                  
                  (588,101
                  )
                  
                  (976,224
                  )
                  
                  (936,135
                  )**Other
                      Comprehensive Income**Unrealized
                      gain (loss) onForeign
                      Currency Translation, net of tax
                  
                  
                  787,615
                  
                  
                  (362
                  )
                  
                  154,676
                  
                  
                  (7,581
                  )**Total
                      Comprehensive Income**
                  
                  $
                  296,428
                  
                  $
                  (588,463
                  )
                  $
                  (821,548
                  )
                  $
                  (943,716
                  )Basic
                      Earnings Per Share
                  
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )
                  $
                  (0.02
                  )
                  $
                  (0.02
                  )Diluted
                      Earnings Per Share
                  
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )
                  $
                  (0.02
                  )
                  $
                  (0.02
                  )Weighted
                      Average Shares Outstanding
                  
                  
                  48,345,600
                  
                  
                  43,681,334
                  
                  
                  48,164,155
                  
                  
                  44,683,807Diluted
                      Average Shares Outstanding
                  
                  
                  48,345,600
                  
                  
                  43,681,334
                  
                  
                  48,164,155
                  
                  
                  44,683,807
  (Unaudited –
See
            Accompanying Notes)
 4
  **CHILCO
                      RIVER HOLDINGS INC.****CONSOLIDATED
                      STATEMENT OF STOCKHOLDERS' EQUITY****June
                      30, 2007****(Expressed
                      in US$)**
  **Accumulated****Additional**
                  
                  **Retained**
                  
                  **Prepaid**
                  
                  **Prepaid**
                  
                  **Foreign**
                  
                  **Total****Common**
                  
                  **Common**
                  
                  **Paid
                      in**
                  
                  **Earnings/**
                  
                  **Stock**
                  
                  **Warrants**
                  
                  **Currency**
                  
                  **Stockholders'****Shares**
                  
                  **Stock**
                  
                  **Capital**
                  
                  **(Deficit)**
                  
                  **Compensation**
                  
                  **Compensation**
                  
                  **Adjustment**
                  
                  **Equity**Balance
                      as of 12/31/2006
                  
                  
                  47,848,000
                  
                  $
                  47,849
                  
                  $
                  24,729,340
                  
                  $
                  (3,779,200
                  )
                  $
                  (920,000
                  )
                  $
                  -
                  
                  $
                  41,248
                  
                  $
                  20,119,237Shares
                      issued for exercise of Class A warrants
                  
                  
                  497,600
                  
                  
                  497
                  
                  
                  198,543
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  199,0401.5
                      million warrants for bond issuance cost
                  
                  
                  
                  
                  
                  
                  
                  
                  641,700
                  
                  
                  
                  
                  
                  
                  
                  
                  (641,700
                  )
                  
                  
                  
                  
                  -Amortization
                      of stock-based compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  230,000
                  
                  
                  
                  
                  
                  
                  
                  
                  230,000Amortization
                      of placement fee in warrants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  32,085
                  
                  
                  
                  
                  
                  32,085Net
                      loss for the six months ended June 30, 2007
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (976,224
                  )
                  
                  
                  
                  
                  
                  
                  
                  154,676
                  
                  
                  (821,548
                  )Balance
                      as of 06/30/2007
                  
                  
                  48,345,600
                  
                  $
                  48,346
                  
                  $
                  25,569,583
                  
                  $
                  (4,755,424
                  )
                  $
                  (690,000
                  )
                  $
                  (609,615
                  )
                  $
                  195,924
                  
                  $
                  19,758,814
   (Unaudited –
See
            Accompanying Notes)
 5
 **CHILCO
                        RIVER HOLDINGS INC.****CONSOLIDATED
                        STATEMENT OF CASH FLOWS****(Expressed
                        in US$)**
  **For
                        the Six Months****Ended
                        June 30****2007**
                    
                    **2006****Cash
                        Flows from Operating Activities**Net
                        Income (Loss)
                    
                    $
                    (976,224
                    )
                    $
                    (936,135
                    )Adjustments
                        to reconcile net income to cash flowsfrom
                        operating activitiesDepreciation
                        & amortization
                    
                    
                    296,312
                    
                    
                    370,680Prepaid
                        expense via stock issuance
                    
                    
                    230,000
                    
                    
                    230,000Prepaid
                        placement fee via warrant issuance
                    
                    
                    32,085
                    
                    
                    -Imputed
                        interest on installment obligations
                    
                    
                    286,250
                    
                    
                    -Amortization
                        of service contract
                    
                    
                    224,236
                    
                    
                    -(Increase)/Decrease
                        in account balances of:Accounts
                        receivable
                    
                    
                    (112,670
                    )
                    
                    (61,085
                    )Deposit
                        receivable
                    
                    
                    (250,000
                    )
                    
                    -Supplies
                        inventory
                    
                    
                    (31,811
                    )
                    
                    (9,510
                    )Prepaid
                        expense & other current assets
                    
                    
                    (53,290
                    )
                    
                    (92,151
                    )VAT
                        Recoverable
                    
                    
                    37,242
                    
                    
                    48,648Unamortized
                        bond issue cost
                    
                    
                    (76,000
                    )
                    
                    -Prepaid
                        contract and security deposit
                    
                    
                    3,665
                    
                    
                    -Increase/(Decrease)
                        in account balances of:Accounts
                        payable
                    
                    
                    (30,396
                    )
                    
                    (31,331
                    )Accrued
                        interest expense
                    
                    
                    26,947
                    
                    
                    -Accrued
                        expenses and other payables
                    
                    
                    17,172
                    
                    
                    247,489Foreign
                        Taxes Payable
                    
                    
                    -
                    
                    
                    (61,995
                    )**Cash
                        Flows from Operating Activities**
                    
                    
                    (376,482
                    )
                    
                    (295,390
                    )**Cash
                        Flows From Investing Activities**Purchase
                        of property and equipment
                    
                    
                    (27,858
                    )
                    
                    -Cash
                        paid for construction in progress
                    
                    
                    (240,145
                    )
                    
                    (904,637
                    )**Cash
                        From Investing Activities**
                    
                    
                    (268,003
                    )
                    
                    (904,637
                    )**Cash
                        Flows from Financing Activities**Cash
                        lent to affiliate company
                    
                    
                    -
                    
                    
                    (60,000
                    )Payment
                        toward installment obligation
                    
                    
                    (1,000,000
                    )Net
                        cash repayment for affiliate loans
                    
                    
                    (135,635
                    )
                    
                    (190,887
                    )Cash
                        proceeds from the 11% convertible debenture
                    
                    
                    1,000,000
                    
                    
                    -Cash
                        proceeds from subscribed capital
                    
                    
                    -
                    
                    
                    817,150Cash
                        proceeds from warrants exercise
                    
                    
                    199,040
                    
                    
                    -**Cash
                        From Financing Activities**
                    
                    
                    63,405
                    
                    
                    566,263Effect
                        of exchange rate changes on cashbalances
                        held in foreign currencies
                    
                    
                    9,671
                    
                    
                    (7,582
                    )**Net
                        Change in cash and cash equivalents**
                    
                    
                    (571,409
                    )
                    
                    (641,346
                    )Cash
                        and cash equivalents at the beginning of period
                    
                    
                    1,073,011
                    
                    
                    1,435,683Cash
                        and cash equivalents at the end of period
                    
                    $
                    501,602
                    
                    $
                    794,337**Supplemental
                        Disclosure Information**Cash
                        paid during the period for interest
                    
                    $
                    94,023
                    
                    $
                    -Cash
                        paid during the period for income taxes
                    
                    $
                    38,777
                    
                    $
                    133,946**Significant
                        Non-cash Transactions**Issuance
                        of 1,500,000 warrants to Chung Lienas
                        placement agent fee
                    
                    $
                    641,700
                    
                    $
                    -
  (Unaudited –
See
            Accompanying
            Notes)
 6
 **Chilco
            River Holdings, Inc.**
 **Notes
            To Consolidated Financial Statements**
 **June
            30, 2007**
 **Unaudited**
  **Preliminary
            Note**
  The
            accompanying condensed consolidated financial statements have been prepared
            without audit, pursuant to the rules and regulations of the Securities
            and
            Exchange Commission. Certain information and disclosures normally included
            in
            financial statements prepared in accordance with generally accepted accounting
            principles have been condensed or omitted. In the opinion of the management,
            the
            accompanying interim financial statements contain all adjustments, consisting
            of
            normal recurring accruals, necessary for a fair presentation have been
            included.
            The results of operations for the six-month period ended June 30, 2007,
            are not
            necessarily indicative of the results for a full-year period. It is suggested
            that these condensed financial statements be read in conjunction with
            the
            financial statements and notes thereto included in the Company’s annual audited
            financial statements for the year ended December 31, 2006.
 
 ***1.***
                  ***Business
                      Organization and
                      Reorganization***
 
 Chilco
            River Holdings, Inc. (CRH, or the Company) was incorporated in the State
            of
            Nevada on May 8, 2003. The Company acquired a 100% interest in 16 mineral
            claim
            units located in British Columbia, Canada in November 2003. After the
            completion
            of a preliminary exploration report on the claim, the Company has suspended
            any
            mineral exploration effort. The Company abandoned these properties in
            2005.
 
 Bruce
            Grupo Diversion SAC (BGD) was formed on March 1, 1996 and registered
            at the
            Registry for Legal Persons of Lima, Peru on April 28, 1996. BGD owned
            a
            fourteen-story building and a four-story adjacent structure that are
            operated as
            a casino and a hotel (the Miramar Hotel and Casino (“Miramar”), formerly known
            as “Bruce Hotel and Casino”). Miramar is licensed to operate slot machines, a
            night club, discothèques, and a restaurant. As of February 2005, the casino
            consisted of traditional gaming tables (blackjack, roulette, craps and
            poker) in
            the second floor (the gaming floor) of the main building and of about
            220 slot
            machines in the ground floor (the slot room).
 
 Kubuk
            International, Inc. (KII) is a California corporation and was incorporated
            on
            January 7, 2002. The majority shareholders of KII also control 99% of
            total
            voting stock of BGD.
 
 Kubuk
            Investment S.A.C. (KISAC) was formed in year 2001 by the majority shareholders
            of KII in Peru. KII’s majority shareholders also formed Kubuk Gaming S.A.C.
            (KGSAC) in year 2005 in Peru.
 
 Starting
            on August 4, 2001, BGD and KISAC entered into a series of sale and purchase
            agreements (collectively the “Sale and Purchase Agreements”) of the hotel assets
            and certain casino properties owned and operated by BGD for purpose of
            transferring these properties to KISAC. Total consideration for the Sale
            and
            Purchase Agreements was in the amount of 62,970,744 Peruvian Nuevo Soles
            (“S/.”)
            (US$19,357,745 using spot rate of S/.3.253:US$1 on May 21, 2005). On
            May 21,
            2005, all assets subject to the scope of the Sale and Purchase Agreements
            were
            transferred to and received by KISAC, which then commenced to carry on
            the hotel
            lodging businesses of Miramar. The only assets that were transferred
            to KISAC
            are the assets as listed under “Property, Furniture, and Equipment” on the
            balance sheet. All other assets and liabilities were retained by BGD,
            which was
            subsequently dissolved in 2006. The accounting treatment used by KISAC
            to record
            the transfer of the assets followed the guidance for transactions between
            entities under common control as described in *SFAS
            141, Business Combinations.* This
            standard requires that the receiving entity use the carrying amount of
            the
            assets of the transferring entity. Therefore, no fair market value adjustments
            were made to the transferred assets. Furthermore, in accordance with
            Article
            11-01(d) of Regulation S-X, this transaction was treated as a business
            acquisition since the revenue-producing activity remained generally the
            same as
            before the transaction. Specifically, KISAC retained the following: physical
            facilities, employee base, customer base, operating rights, operation
            techniques, and trade name.
 
 7
 The
            gaming floor of Miramar has been temporarily closed for renovation since
            March
            2005. During the renovation, BGD continued to operate slot machines in
            the
            casino until July 1, 2005, when MINCETUR, the gaming authority of Peru,
            issued
            gaming licenses to KGSAC. KGSAC then took over the slot machine operations
            and
            conducts all other gaming activities of Miramar until the renovation
            project is
            completed. In anticipation of the start of the planned renovation, the
            Company
            suspended the slot room operation and closed the restaurant to the general
            public in November 2005. As of June 30, 2007, the Company’s operations are
            limited to (i) hotel lodging and leasing of the slot machines retired
            from the
            former Bruce Casino by KISAC, and (ii) leasing of the new “Kubuk” brand slot
            machines by KGSAC. The Company plans to reopen Miramar in October 2007,
            provided
            that sufficient capital is raised to complete the renovations in progress.
 
 On
            June
            15, 2005, KII and the shareholders of KISAC and KGSAC entered into an
            Agreement
            and Plan of Reorganization (the “Reorganization Agreement”), under which KII
            issued 50,920,000 shares of common stock to the shareholders of KISAC
            and KGSAC
            in exchange for their entire ownership holdings of KISAC and KGSAC. As
            of June
            30, 2005, both KISAC and KGSAC were 100% owned by KII.
 
 On
            July
            15, 2005, CRH entered into a Share Exchange Agreement with KII and certain
            representatives of its shareholders. Under the terms of the Share Exchange
            Agreement, CRH agreed to acquire all of the issued and outstanding capital
            stock
            of KII from KII’s shareholders. On
            August 3, 2005, CRH completed the acquisition of KII in accordance with
            the
            terms of the Share Exchange Agreement by issuing 38,500,000 (post-split)
            shares
            of its common stock to shareholders of KII as consideration (“Share Exchange”).
            KII had 51,000,400 shares of common stock issued and outstanding at the
            time of
            acquisition. KII shareholders received 0.3749970588 share of CRH’s common stock
            for each share of KII common stock tendered. In connection with the closing
            of
            the Share Exchange, the founding shareholder and two former officers
            and
            directors of CRH agreed to contribute an aggregate of 7,928,000 (post-split)
            shares of the CRH common stock to the Company as an additional capital
            contribution. These shares were cancelled effective as of August 3, 2005.
 
 The
            Company established a software development center in Shenzhen, China
            in April
            2006 for the purposes of developing an online poker software and other
            devices
            related to online gaming activities. The Company intends to, after the
            software
            development becomes successful, license out the online gaming software
            to
            interested third parties for conducting online gaming activities outside
            of the
            United States. The Company has applied to the local government for the
            foreign
            business branch office status for its Chinese software development center.
 
 ***2.***
                  ***Significant
                      Accounting Policies***
 
 (a)  Principles
            of Consolidation
 
 The
            financial statements include the accounts of CRH and KII, as well as
            the
            accounts of the latter’s wholly-owned Peruvian subsidiaries, KISAC and KGSAC,
            formerly Bruce Grupo Diversion SAC. All significant inter-company balances
            and
            transactions have been eliminated in consolidation.
 
 (b)  Use
            of
            Estimates
 
 The
            preparation of the Company’s financial statements in conformity with generally
            accepted accounting principles in the United States requires management
            of the
            Company to make certain estimates and assumptions. These estimates and
            assumptions affect the reported amounts of assets and liabilities and
            disclosures of contingent assets and liabilities at the date of the consolidated
            financial statements, as well as the reported amounts of revenue and
            expenses
            during the reporting period. Actual results could differ from those
            estimates.
 
 8
 (c)  Cash
            and
            Cash Equivalents
 
 The
            Company considers all highly liquid debt instruments purchased with a
            maturity
            of three months or less when purchased to be cash equivalents.
 
 (d)  Accounts
            Receivable
 
 Trade
            receivables, including casino and hotel receivables, are typically non-interest
            bearing and are initially recorded at cost. Accounts are written off
            when
            management deems the account to be uncollectible. Recoveries of accounts
            previously written off are recorded when received. An estimated allowance
            for
            doubtful accounts is maintained to reduce the Company’s receivables to their
            carrying amount, which approximates fair value. The allowance is estimated
            based
            on specific review of customer accounts as well as historical collection
            experience and current economic and business conditions.
 
 (e)  Revenue
            Recognition and Promotional Allowances
 
 Casino
            revenue is the aggregate net difference between gaming wins and losses,
            with
            liabilities recognized for funds deposited by customers before gaming
            play
            occurs (“casino front money”) and for chips in the customers’ possession
            (“outstanding chip liability”). Hotel, food and beverage, entertainment and
            other operating revenues are recognized as services are performed.
 
 In
            accordance with industry practice, the retail value of accommodations,
            food and
            beverage, and other services furnished to guests without charge is included
            in
            gross revenue and then deducted as promotional allowances. There was
            no
            promotional allowance for the quarter ended June 30, 2007 as all casino
            and slot
            machine operations are temporarily suspended for renovation.
 
 Revenues
            from slot machine rentals are recognized as earned either on a daily
            fixed-rate
            basis under the related rental contracts with customers or under profit-sharing
            arrangements based on net winnings reported by the customer-lessee. All
            leasing
            revenue is generated from slot machine rentals that are accounted for
            as
            operating leases. The rentals have no defined length of contract, but
            are on a
            month-to-month basis.
 
 (f)  Income
            Taxes
 
 Provisions
            for income taxes are based on taxes payable or refundable for the current
            year
            and deferred taxes on temporary differences between the amount of taxable
            income
            and pretax financial income and between the tax basis of assets and liabilities
            and their reported amounts in the financial statements. Deferred tax
            assets and
            liabilities are included in the financial statements at currently enacted
            income
            tax rates applicable to the period in which the deferred tax assets and
            liabilities are expected to be realized or settled as prescribed in *SFAS
            No. 109* ,
            “ *Accounting
            for Income Taxes.* ”
As
            changes in tax laws or rates are enacted, deferred tax assets and liabilities
            are adjusted through the provision for income taxes. A valuation allowance
            is
            recognized if it is more likely than not that some portion or all deferred
            tax
            asset will not be realized. Deferred income tax asset and liability balances
            are
            netted, as applicable, when they represent deferred amounts within the
            same
            taxing jurisdiction.
 
 (g)  Basic
            and
            Diluted Earnings (Loss) per Share
 
 Basic
            earnings per share of common stock were computed by dividing income available
            to
            common stockholders, by the weighted average number of common shares
            outstanding, net of common stock held in the treasury for the year. Diluted
            earnings per share were computed using the “treasury stock method” under *SFAS
            No. 128 “Earnings per Share.* ”
As
            the
            Company has a loss for the quarter ended June 30, 2007 the potentially
            dilutive
            shares are anti-dilutive and are thus not added into the earnings per
            share
            calculation. As of June 30, 2007, there were 666,666 and 1,500,000 potentially
            dilutive shares resulting from the issuances of warrants to an investor
            and to
            Chung Lien, respectively.
 
 (h)  Supplies
            Inventories
 
 Supplies
            inventories are presented at adjusted cost or market value, whichever
            is lower.
            Cost is established based on either the first-in, first-out assumption
            or, in
            certain cases, specific identification method.
 
 9
 (i)  Property,
            Plant and Equipment
 
 Property,
            plant and equipment are stated at the historical cost. Depreciation is
            calculated based on straight-line method over the properties’ estimated useful
            lives, which range from 5 to 7 years for machinery and equipment and
            39 years
            for building and building improvements. Betterment or improvements to
            properties
            are capitalized to properties, plant and equipment accounts. Repairs
            and
            maintenance costs are charged to expense accounts.
 
 Certain
            long-lived assets of the Company are reviewed at least annually as to
            whether
            their carrying values have become impaired in accordance with *SFAS
            No. 144, “Accounting for the Impairment or Disposal of Long-Lived
            Assets.* ”
            Management considers assets to be impaired if the carrying value exceeds
            the
            undiscounted projected cash flows from operations. If impairment exists,
            the
            assets are written down to their fair value or the projected discounted
            cash
            flows from related operations.
 
 (j)  Intangibles
 
 The
            Company adopted the rules set forth in *SFAS
            No. 142, “Goodwill and Other Intangible Assets* ,”
to
            account for its intangible assets acquired under the licensing agreement
            with
            third parties. The intangible assets acquired are initially recorded
            at their
            fair value. The intangibles with finite useful lives are amortized over
            their
            lives. Intangible assets with indefinite useful lives are not amortized
            and are
            examined at least annually to determine whether events and circumstances
            continue to support an indefinite useful life. All intangible assets
            are
            reviewed annually for impairment. If the fair value of an intangible
            is
            determined to be below its carrying amount, the intangible is written
            down to
            its fair value.
 
 (k)  Concentration
            of Credit Risk
 
 The
            Company maintains substantially all of its day-to-day operating cash
            balances
            with Peruvian commercial banks and a California bank. Deposits with the
            California bank are insured by Federal Deposit Insurance Corporation
            (FDIC) up
            to $100,000 per depositor. As of June 30, 2007, the Company had no exposure
            of
            risk with respect to the FDIC insurance coverage.
 
 In
            Peru,
            bank accounts and deposits with all financial institutions are insured
            by Fondo
            de Segiro de Deposito (FSD) up to S/. 75,742 (or US$23,908.46, based
            on the
            current exchange rate of S/.3.168: US$1 as of June 30, 2007). The Company
            has 4
            Peruvian bank accounts and an exposure in the amount of $466,070.35 that
            exceeded the FSD insurance coverage as of June 30, 2007.
 
 (l)  Shares-Based
            Compensation
 
 In
            December 2004, the Financial Accounting Standards Board (FASB) issued *SFAS
            No. 123R, “Share Based Payment.* ” *SFAS
            123R* is a
            revision of *SFAS
            No. 123 “Accounting for Stock-Based Compensation* ,”
and
            supersedes *APB
            Opinion No. 25, “Accounting for Stock Issued to Employees* ”
and
            its
            related implementation guidance. *SFAS
            123R* establishes standards for the accounting for transactions in which an
            entity
            exchanges its equity instruments for goods or services. It also addresses
            transactions in which an entity incurs liabilities in exchange for goods
            or
            services that are based on the fair value of the entity’s equity instruments or
            that may be settled by the issuance of those equity instruments. *SFAS
            123R* focuses
            primarily on accounting for transactions in which an entity obtains employee
            services in share-based payment transactions. *SFAS
            123R* does not
            change the accounting guidance for share-based payment transactions with
            parties
            other than employees provided in *SFAS
            123* as
            originally issued and *Emerging
            Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are
            Issued to Other Than Employees for Acquiring, or in Conjunction with
            Selling,
            Goods or Services.” SFAS 123R* does not
            address the accounting for employee share ownership plans, which are
            subject to *AICPA
            Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership
            Plans”. SFAS 123R* requires
            a public entity to measure the cost of employee services received in
            exchange
            for an award of equity instruments based on the grant-date fair value
            of the
            award (with limited exceptions). That cost will be recognized over the
            period
            during which an employee is required to provide service in exchange for
            the
            award - the requisite service period (usually the vesting period). *SFAS
            123R* requires
            that the compensation cost relating to share-based payment transactions
            be
            recognized in the financial statements. That cost will be measured based
            on the
            fair value of the equity or liability instruments issued. The scope of *SFAS
            123R* includes
            a wide range of share-based compensation arrangements including share
            options,
            restricted share plans, performance-based awards, share appreciation
            rights, and
            employee share purchase plans. The Company has adopted the provisions
            under *SFAS
            123R* as of
            January 1, 2006. There is no effect on the financial statements as a
            result of
            adopting *SFAS
            123R* as of
            June 30, 2007, since there are no compensatory stock options
            outstanding.
 
 10
 (m)  Impact
            of
            New Accounting Standards
 
 In
            June
            2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
            Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). The SEC issued a
            final rule under Release 33-8760 on December 15, 2006 to extend the due
            dates
            for the implementation of provisions under Section 404 for certain small
            public
            companies. Under the SEC rule, the Company is required to include in
            its annual
            and quarterly filings a report of management on the Company's internal
            control
            over financial reporting starting with fiscal years ending after December
            15,
            2007. The internal control report must include a statement of management's
            responsibility for establishing and maintaining adequate internal control
            over
            financial reporting for the Company; of management's assessment of the
            effectiveness of the Company's internal control over financial reporting
            as of
            year end; and of the framework used by management to evaluate the effectiveness
            of the Company's internal control over financial reporting. The Company's
            independent accounting firm will have to issue an attestation report
            on
            management's assessment of the Company's internal control over financial
            reporting as part of the SEC filings starting with fiscal years ending
            after
            December 15, 2008.
 
 In
            June
            2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
            in
            Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
            48
            clarifies the accounting for uncertainties in income taxes recognized
            in an
            enterprise's financial statements. FIN 48 requires that the Company determine
            whether it is more likely than not that a tax position will be sustained
            upon
            examination by the appropriate taxing authority. If a tax position meets
            the
            more likely than not recognition criteria, FIN 48 requires the tax position
            be
            measured at the largest amount of benefit greater than 50% likely of
            being
            realized upon ultimate settlement. This accounting standard is effective
            for
            fiscal years beginning after December 15, 2006. The cumulative effect
            of
            applying the provisions of this interpretation is required to be reported
            separately as an adjustment to the opening balance of retained earnings
            in the
            year of adoption. The impact of our adoption of FIN 48 in 2007 has not
            been
            significant.
  In
            September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
            defines fair value, establishes a framework for using fair value to measure
            assets and liabilities, and expands disclosures about fair value measurements.
            The Statement applies whenever other statements require or permit assets
            or
            liabilities to be measured at fair value. SFAS No. 157 is effective for
            fiscal
            years beginning after November 15, 2007. The impact of our adoption of
            SFAS No.
            157 has not yet been determined.
 
 (n)  Value
            Added Tax Recoverable
 
 According
            to sales tax laws in Peru, a Peruvian entity is allowed to offset sales
            tax paid
            to vendors with sales tax received from their customers, prior to remitting
            the
            sales tax received to the local jurisdiction. The asset balance represents
            sales
            tax paid to vendors that is expected to be offset against future sales
            tax
            received during the one year period following the balance sheet
            date.
 
 (o)  Dividends
 
 The
            Company accrues for declared dividends which are not yet paid. As of
            the balance
            sheet date, there were no dividends which were declared and unpaid. All
            dividends occurred prior to the date of the Share Exchange
            Agreement.
 
 11
 ***3.***
                  ***Foreign
                      Currency Transactions***
 
 The
            Company conducted its gaming business at Miramar Hotel & Casino in both US
            Dollars and the Peruvian Nuevo Soles. The hotel and other business activities
            are operated using both US Dollars and the Nuevo Soles. The functional
            currency
            of the Peruvian subsidiaries’ is the Nuevo Soles, whereas the functional
            currency of the US parent is the US dollar. Account balances on the balance
            sheet are translated into US Dollars equivalents using the spot rate
            of
            S/.3.168:US$1 on June 30, 2007, while the results of operations are translated
            into US Dollars equivalents using S/.3.1722:US$1, the weighted average
            exchange
            rates for the quarter ended June 30, 2007.
 
 ***4.***
                    ***Related
                        Party
                        Transactions***
 
 The
            Company incurred $28,692 of cash expenditures at its software development
            center
            in Shenzhen, China during the quarter ended June 30, 2007. All of these
            Shenzhen
            expenditures have been advanced by a director of the Company. No interest
            has
            been accrued for the amount advanced. The outstanding balance of the
            advance
            amounted to $156,409 as of June 30, 2007.
 
 The
            Company borrowed $250,000 from a shareholder (Shareholder A) by executing
            a
            promissory note in favor of the lending shareholder on December 14, 2006.
            The
            note bears an annual interest rate of 8%. The entire principal and interest
            incurred thereon were due on June 11, 2007. On July 3, 2007, the Company
            and
            Shareholder A entered into an agreement to extend the maturity date of
            the note
            to September 30, 2007.  Shareholder A owns between 5% and 10% of the
            Company’s common stock as of June 30, 2007.
 
 Tom
            Liu,
            the Company’s CEO, and David Liu, both owning 10% or more of the company’s
            shares, have pledged 600,000 shares each to secure repayment of some
            11%
            convertible debentures issued in the private placement transaction with
            Chung
            Lien Investment Management Limited on April 19, 2007. See Notes 8 and 9 for additional
            details.
 
 ***5.***
                  ***Issuance
                      of Common Stock and
                      Warrants***
  On
            January 18, 2007, the board of directors resolved to amend the purchase
            warrant
            certificate for each Class A Warrant (issued in connection with the units
            sold
            in the December 17, 2005 private placement) to purchase shares of common
            stock
            until 5:00 p.m. (California time) on January 20, 2007 to lower the exercise
            price per share to $0.40 and to extend the exercise period to 5:00 p.m.
            (California time) on February 20, 2007. Before the amendment, the exercise
            price
            of the Warrants was $1.00 (split-adjusted). The Company received $199,040
            as a
            result of the exercise of 497,600 units of Class A Warrants in addition
            to the
            unit exercised in August 2006 by the end of the extended re-price period.
            See
            Notes 8 and 9 for additional issuance.
 
 ***6.***
                  ***Cancellation
                      of Shares***
 
 During
            the third quarter ended December 31, 2005, we issued a notice of default
            under
            the terms of the Escrow Agreement related to an aggregate of 4,000,000
            (post-split) shares of common stock placed into escrow in connection
            with the
            Share Exchange. Kubuk International, Inc. had obligations to Nefilim
            Associates,
            LLC, a Massachusetts limited liability company, T Morgan LLC, a Delaware
            limited
            liability company, and Sean Sullivan to issue capital stock of Kubuk
            or an
            entity acquired by or acquiring Kubuk upon satisfaction of certain conditions
            under the terms of Consulting Agreements, dated May 9, 2005 with respect
            to Sean
            Sullivan, May 19, 2005 with respect to Nefilim Associates, LLC and June
            1, 2005
            with respect to T Morgan LLC. Under the terms of the Share Exchange,
            the
            shareholders of Kubuk agreed to place the shares into escrow to satisfy
            the
            obligations of Kubuk under the Consultant Agreements.
 
 12
 We
            failed
            to raise a total of $5,000,000 in financing within thirty days of receiving
            the
            Kubuk audited financial statements, which resulted in the release of
            the
            escrowed shares. The 4,000,000 (post-split) shares were tendered to our
            company
            for cancellation and cancelled during the quarter ended March 31,
            2006.
 
 ***7.***
                  ***Share-Based
                      Consulting Payment***
 
 The
            Company entered into a Consulting Agreement with Clear Channel Inc. (the
“Clear
            Channel Agreement”) on December 29, 2005. Under the Clear Channel Agreement, the
            Company retained Clear Channel Inc. to provide the Company with strategic
            marketing and business planning consulting services and to assist the
            Company in
            developing corporate governance policies, recruiting qualified officers
            and
            director candidates and developing a corporate finance strategy during
            the
            period of three years from the date of the agreement. Pursuant to the
            terms of
            the Clear Channel Agreement, the Company paid Clear Channel Inc. a consulting
            fee of one million shares of common stock, which were issued on February
            14,
            2006. The fair value of the shares issued in connection with the Clear
            Channel
            Agreement, which is recognized as a separate component of stockholders’ equity
            as of December 31, 2005, is determined to be $1,380,000 and is amortized
            as
            consulting expense from January 1, 2006 through December 31, 2008 as
            services
            are provided. Fair value of the shares was based on the unit price as
            of
            December 2005,  less the fair value of the warrants. The total amortization
            during the quarter ended June 30, 2007 was $115,000, which was recognized
            in
            general and administrative expense.
  ***8.***
                  ***Licensing
                      Rights***
 
 On
            July
            7, 2006 (the “Effective Date”) the Company entered into a License Agreement (the
“License Agreement”) with K.C. Technology, a Hong Kong corporation (“Licensor”),
            under which the Company acquired from Licensor a worldwide exclusive
            and
            perpetual license to use Licensor’s technology to manufacture, market and
            distribute Licensor designed slot machines and other gaming products,
            including
            an electronic data transfer device distributed under the trademark “Smartbook”
(collectively, the “Technology”). The Technology includes all technology, tools,
            design, components, hardware, software, and specification necessary for
            the
            design and manufacturing of slot machines and Smartbook and all associated
            patents, trademarks, copyrights, trade secrets, and know-how.
  The
            Company agreed to pay Licensor a cash license fee of $2,500,000, of which,
            $500,000 was paid by July 15, 2006, and the balance will be paid in four
            equal
            installments of $500,000 each at the end of January and June, respectively,
            during the following two years (the “installment payments”). The Company also
            agreed to pay Licensor a licensee fee in common stock of 6,000,000 shares
            of
            restricted post-split common stock, par value $0.001, of which 3,000,000
            were
            issued within seven days of the Effective Date, 1,500,000 to be issued
            on the
            first anniversary of the date of the Effective Date, and 1,500,000 to
            be issued
            on the second anniversary of the Effective Date (the “installment shares”). The
            Company granted Licensor registration rights and undertook to use commercially
            reasonable effort to file a registration statement with the United States
            Securities Commission within 90 days of the Effective Date to register
            for
            resale the first 3,000,000 shares common stock issued to Licensor under
            the
            License Agreement.  The Company will also pay a royalty of $20.00 for
            each Smartbook sold by the Company under the License Agreement. The Company
            made
            the required installment payments of $500,000 in January and June 2007.
            As of
            July 7, 2007, the Company issued another batch of 1,500,000 shares of
            common
            stock to the Licensor pursuant to the License Agreement.
  The
            Company recorded the value of licensing rights acquired as intangible
            assets
            under SFAS No. 142, Goodwill and Other Intangible Assets. The majority
            portion
            of licensing rights acquired is not subject to amortization. However,
            10% of the
            total value of the licensing rights is identified as service contract
            that is
            amortizable over the 2-year term of the License Agreement. Total valuation
            of
            the rights and service contract acquired from Licensor is determined
            to be
            $8,969,473, which includes (1) the $500,000 payment made on July 15,
            2006; (2)
            the fair market value of the 3,000,000 shares issued to KC Technology
            on the
            Effective Date, using the closing price quoted at $1.225 per share; (3)
            discounted present value of the installment payments with imputed interest
            rate
            at 12% per annum; and (4) fair value of the installment shares, calculated
            based
            on the present value of estimated share prices at the future issuance
            dates. The
            estimated share prices at the issuance dates are assumed to be the same
            as
            $1.225 per share. The present value of the share prices are also discounted
            with
            an imputed interest rate of 12% per annum. Total discount, which will
            be
            amortized and recognized as interest expense over the term using the
            interest
            method, on the installment payments and installment shares as of June
            30, 2007
            was $307,049.
  13
  The
            amortization schedule for the service contract is as follows:
  2007
                  
                  $
                  448,4742008
                  
                  
                  112,118**Total**
                  
                  **$**
                  **560,592**
  Total
            amortization during the quarter ended June 30, 2007 was $112,118, which
            was
            recognized in general and administrative expense.
  ***9.***
                  ***Private
                      Placement With Chung Lien Investment Management
                      Ltd.***
  On
            April
            19, 2007, the Company entered into a placement Agency Agreement with
            Chung Lien
            Investment Management Limited, a Hong Kong corporation, by which the
            Company
            engaged Chung Lien as advisor and placement agent to raise funds from
            investors
            of up to $10,000,000 by June 30, 2007 (the “Offering”).
  Pursuant
            to the Agency Agreement, the Company (1) agreed to pay Chung Lien compensation
            fee in an amount equal to 8% of the aggregate gross proceeds raised by
            Chung
            Lien and received by the Company; (2) issued Chung Lien warrants exercisable
            for
            a term of five years to purchase up to 1,500,000 shares of common stock
            of the
            Corporation at $0.45 per share, subject to terms and conditions of the
            warrant
            certificate; (3) agreed to reimburse expenses incurred by Chung Lien
            in
            connection with the Offering up to $30,000; (4) agreed to deposit $250,000
            in a
            segregated account at a financing institution designated by Chung Lien
            for the
            sole purpose of funding any losses due to currency fluctuations resulting
            from
            funds in Chinese currency held by Chung Lien on behalf of other investors
            from
            the date of receipt of such funds and the closing date of the Offering;
            and (5)
            agreed to file a registration statement for common shares issuable upon
            exercise
            of the Warrants within 90 days after the signing of the Agency Agreement.
            In
            addition, the Company agreed not to offer its common stock in any financing
            transaction at a price lower than $0.75 per share before June 30,
            2007.
  On
            April
            19, 2007, the Company entered into a subscription agreement with Chung
            Lien,
            under which the Company issued a five-year convertible debenture in the
            principal amount of $1,000,000 in consideration of $1,000,000. The convertible
            debenture bears interest at an annual rate of 11% and principal and interest
            payments payable in monthly installments beginning on April 19, 2007.
            The
            convertible note is convertible into shares of common stock of the Company
            at
            the greater of (a) $0.75 per share (the “floor price”) or (b) 70% of the
            five-day average market trading price of the common stock of the Company
            immediately preceding the date of conversion. The Company also agreed
            to file a
            registration statement with the Securities and Exchange Commission to
            register
            the resale of the common stock issuable upon conversion of the debenture
            no
            later than September 30, 2007. The Company may prepay, in cash or common
            stock,
            all or portion of the debenture at any time prior to the maturity date
            without
            penalty. Tom Liu (the Company’s Chief Executive Officer) and David Liu, two
            principal shareholders of the Company, each pledged 600,000 shares of
            common
            stock, a total of 1,200,000 shares of common stock, to secure the repayment
            of
            the debenture. After paying Chung Lien a compensation fee of 8% ($80,000)
            and
            reimbursing Chung Lien expenses in the amount of $30,000, the Company
            received
            net proceeds from the placement of the convertible debenture of $919,150.
  The
            Company records the $1,000,000 convertible debenture issued in April
            2007 to
            Chung Lien as a liability on its balance sheet and allocates $nil to
            the
            conversion feature of the instrument, as the market price of the Company’s
            common shares was below the floor price at the time of issuance of such
            debenture. As of June 30, 2007, the Company has not exercised any conversion
            rights pursuant to the subscription agreement. Chung Lien has waived,
            in a
            separate agreement, the interest expense accruable under the debenture
            for the
            first six-month period. The Company uses straight-line method to amortize
            the
            interest premium over the 5-year term of the debenture.
  14
 The
            Company records the fair value of the 1,500,000 warrants issued to Chung
            Lien as
            advisor costs in a contra account under the equity section of the balance
            sheet
            as of June 30, 2007. The fair value of the total warrants has been determined
            to
            be $641,700 as of April 19, 2007 and is amortized as bond issue expense
            over the
            5-year term of the debenture to which Chung Lien’s placement services are
            related. Bond issue expense, including amortized fair value of the warrants
            and
            the 8% placement compensation fees (plus other incidental expenses) for
            the
            quarter ended June 30, 2007 was $36,935 and was included in general and
            administrative expenses.
  ***10.***
                  ***Going
                      Concern***
  The
            Company's financial statements are prepared using generally accepted
            accounting
            principles applicable to a going concern that contemplates the realization
            of
            assets and liquidation of liabilities in the normal course of business.
            The
            Company has limited financial resources and, before completing the renovation
            project of the Miramar Hotel & Casino or securing sufficient funding to
            expand the slot machine leasing activities, relies solely on the cash
            flows
            generated from the hotel lodging and leasing revenue.  The completion of
            the renovation project of Miramar Hotel & Casino may be delayed if the
            Company fails to raise sufficient capital. Although the Company has entered
            into
            specific financing activities to raise fund (See Note 9 above for transactions
            with Chung Lien and the issuance of the $1,000,000 convertible debenture),
            the
            outcome of its fund raising efforts is uncertain at this time. These
            factors
            raise substantial doubt about its ability to continue as a going concern. 
If the Company is unsuccessful in their fund raising efforts and cannot
            attain
            sufficient profitable operations or if it cannot obtain additional sources
            of
            funding or investment, it may substantially curtail its operations or
            abandon
            some of its business plans. For the same reason, the Company may be unable
            to
            continue as a going concern.
  15
 **Item
        2.**  **Management’s
        Discussion and Analysis or Plan of Operation.**
 
 All
        statements other than statements of historical or current facts included
        in this
        report on Form 10-QSB or incorporated by reference herein, including, without
        limitation, statements regarding our future financial position, business
        strategy, budgets, projected costs and plans and objectives of management
        for
        future operations, are forward-looking statements. Forward-looking statements
        generally can be identified by the use of forward-looking terminology such
        as
“may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe” or
“continue” or the negative thereof or variations thereon or similar terminology.
        These statements involve known and unknown risks, uncertainties and other
        factors that may cause our actual results and performance to be materially
        different from any future results or performance expressed or implied by
        these
        forward-looking statements. These factors include, those discussed under
        the
        caption “Risk Factors” in the Company’s most recent annual reports filed with
        the SEC on Form 10-KSB on April 2, 2007, and incorporated herein by reference,
        as well as the following:
 ·
                the
                    impact of general economic conditions in the Peru and other countries
                    in
                    which we conduct business;·
                industry
                    conditions, including competition;·
                business
                    strategies and intended results;·
                our
                    ability to integrate acquisitions into our operations and
                    management;·
                our
                    ability to market, sell, lease or profit-share slot machines
                    under our
                    licensing agreement;·
                risks
                    associated with the hotel industry and real estate markets and
                    manufacture
                    of slot machines in general;·
                the
                    impact of terrorist activity or war, threats of terrorist activity
                    or war
                    and responses to terrorist
                    activity on the economy in general and the travel and hotel industries
                    in
                    particular;·
                travelers'
                    fears of exposure to contagious diseases;·
                legislative
                    or regulatory requirements;·
                access
                    to capital markets; and·
                other
                    factors beyond our control.
  Although
          we believe that these statements are based upon reasonable assumptions,
          we can
          give no assurance that our goals will be achieved. Given these uncertainties,
          prospective investors are cautioned not to place undue reliance on these
          forward-looking statements. These forward-looking statements are made as
          of the
          date of this report. We assume no obligation to update or revise them or
          provide
          reasons why actual results may differ.
 
 “We”,
        “us”, “our”, the “Company” and the “Registrant” in this report refers to Chilco
        River Holdings Inc. and its subsidiaries, as the context requires.
 
 **Overview**
  We,
        Chilco River Holdings, Inc., through our wholly-owned subsidiaries, (i) own
        all
        of the assets of and operate the Miramar Hotel and Casino (formerly known
        as
‘Bruce Hotel and Casino”); (ii) hold an exclusive license to manufacture and
        market low-cost proprietary slot machines; and (iii) develop internet gaming
        software and systems.
 
 16
 ***Miramar
        Hotel and Casino***
 
 The
        Miramar Hotel and Casino (“Miramar”) is located at Jiron Francisco Bolognesi #
        171-191 in the Miraflores District, Province and Department of Lima, Peru,
        approximately 30 minutes from Jorge Charvez International Airport in the
        heart
        of Miraflores. Miramar is expected to be a “destination” hotel and casino
        location for visitors traveling to the Republic of Peru, and we cater to
        both
        local and foreign visitors, including visitors from the People’s Republic of
        China. Miramar’s business consists of a hotel, restaurants, a gaming casino and
        real property. We acquired Miramar in connection with a share exchange
        transaction with the shareholders of Kubuk International, Inc.(“Kubuk”) on July
        15, 2005. Miramar is a full-service hospitality facility with standard and
        premium lodging accommodations (rooms and suites). In addition, the hotel
        encompasses several dining facilities and a full-featured gambling casino
        with
        traditional gaming tables and slot machines.
 
 Prior
        to
        signing the Kubuk Share Exchange Agreement with Kubuk, we developed a plan
        to
        expand, renovate and modernize the current facilities of Miramar and temporarily
        suspended operation of the gaming room in February 2005 and operation of
        the
        restaurant and slot room in November 2005. Since that time, we have intended
        to
        raise capital to fund the expansion, renovation and modernization of
        Miramar.
 
 ***Kubuk
        Slot Machines***
 
 In
        July
        2006, we acquired the exclusive world-wide license to manufacture slot machines
        based on technology developed by KC Technology, a Hong Kong corporation (“KC”).
        We are in the process of marketing these slot machines to operators of casinos
        in South America. We intend to raise capital to manufacture, sell, lease
        or
        profit-share machines beginning in the last quarter of 2007 or early 2008.
        As of
        June 30, 2007, we have entered into slot machine profit-sharing contracts
        with a
        number of Peruvian slot parlor operators for the lease of more than 300 new
        slot
        machines. These contracts allow us to charge a fixed per-machine, per-day
        rent
        or to share the net earnings of the slot machines that we lease out in 50%-50%
        or 60%-40% ratio. Because of lack of funding to mass produce the machines,
        we
        have only delivered 22 units of new slot machines to these leasing customers
        as
        of June 30, 2007. We cannot assure you that we will raise sufficient capital
        to
        fund the manufacturing of slot machines to deliver under the profit-sharing
        contracts.
 
 ***Internet
        Software Development***
 
 In
        April
        2006, we established a software development office in Shenzhen, China to
        develop
        an internet-based computer application for potential future licensing to
        third
        parties, who can legally operate licensed internet gaming websites. Internet
        gaming is illegal in the United States, and we intend to license our software,
        if developed, only to licensed internet gaming companies which have established
        controls to operate legally. Internet gaming is subject to substantial
        regulation and we cannot assure you that we will be able to develop or license
        our software.
 
 In
        light
        of the passage of the Unlawful Internet Gambling Enforcement Act of 2006,
        which
        was signed into law by President Bush on October 13, 2006, we may have to
        license our developed software to companies that are not subject to the
        jurisdiction of the United States and operate exclusively in foreign markets
        including, but not limited to, South America. This is expected to limit the
        potential users of our software, if we are successful in our development
        efforts.
 
 17
 ***Financing
        Arrangements***
  On
        April
        19, 2007, the Company entered into a placement agency agreement (the “Chung Lien
        Agency Agreement”) with Chung Lien Investment Management Limited, a Hong Kong
        corporation (“Chung Lien”), by which the Company engaged Chung Lien as advisor
        and placement agent to raise funds from investors of up to $10,000,000 by
        June
        30, 2007 (the “Chung Lien Offering”).
 
 Pursuant
        to the Chung Lien Agency Agreement, the Company (1) agreed to pay Chung Lien
        compensation fee in an amount equal to 8% of the aggregate gross proceeds
        raised
        by Chung Lien and received by the Company; (2) issued Chung Lien warrants
        exercisable for a term of five years to purchase up to 1,500,000 shares of
        common stock of the Corporation at $0.45 per share, subject to terms and
        conditions of the warrant certificate; (3) agreed to reimburse expenses incurred
        by Chung Lien in connection with the Offering up to $30,000; (4) agreed to
        deposit $250,000 in a segregated account at HSBC designated by Chung Lien
        for
        the sole purpose of funding any losses due to currency fluctuations resulting
        from funds in Chinese currency held by Chung Lien on behalf of other investors
        from the date of receipt of such funds and the closing date of the Offering;
        and
        (5) agreed to file a registration statement for common shares issuable upon
        exercise of the Warrants within 90 days after the signing of the Chung Lien
        Agency Agreement. In addition, the Company agreed not to offer its common
        stock
        in any financing transaction at a price lower than $0.75 per share before
        June
        30, 2007.
 
 On
        April
        19, 2007, the Company entered into a subscription agreement with Chung Lien,
        under which the Company issued a five-year convertible debenture (the “Chung
        Lien Convertible Debenture”) in the principal amount of $1,000,000 in
        consideration of $1,000,000. The Chung Lien Convertible Debenture bears interest
        at an annual rate of 11% and principal and interest payments payable in monthly
        installments beginning on April 19, 2007 (later amended to begin on October
        19,
        2007). The convertible note is convertible into shares of common stock of
        the
        Company at the greater of (a) $0.75 per share or (b) 70% of the five-day
        average
        market trading price of the common stock of the Company immediately preceding
        the date of conversion. The Company also agreed to file a registration statement
        with the SEC to register the resale of the common stock issuable upon conversion
        of the debenture no later than September 30, 2007. The Company may prepay,
        in
        cash or common stock, all or portion of the Chung Lien Convertible Debenture
        at
        any time prior to the maturity date without penalty. Tom Liu (the Company’s
        Chief Executive Officer) and David Liu, two principal shareholders of the
        Company, each pledged 600,000 shares of common stock, a total of 1,200,000
        shares of common stock, to secure the repayment of the debenture. After paying
        Chung Lien a compensation fee of 8% ($80,000) and other bank charges and
        transactional expenses, the Company received net proceeds from the placement
        of
        the convertible debenture of $919,150.
  On
        June
        28, 2007, we amended
        the Chung
        Lien Agency Agreement to
        extend the period of the representation from June 30, 2007, to September
        30,
        2007.
 
 We
        cannot
        assure you that we will raise any additional funds under the Chung Lien Agency
        Agreement. If we are unable to raise sufficient funds through Chung Lien
        or with
        any other potential investors or mortgage lender in debt or equity transactions
        to complete the renovations, we intend to fund completion of the renovations
        through cash flow from operations and reopen the casino in stages. We currently
        have no firm commitments with respect to additional financing. Without
        additional funding, there is substantial doubt that we will be able to continue
        as a going concern.
  18
 ***Address
        and Phone Number***
 
 We
        maintain our registered agent’s office at 6100 Neil Road, Suite 500, Reno,
        Nevada 89511, and an office at the Miramar Hotel and Casino at Jiron Francisco
        Bolognesi # 171-191 in the Miraflores District, Province and Department of
        Lima.
        Our executive offices are located at 355 Lemon Ave., Suite C, Walnut, CA
        91789,
        and our phone number is (909) 869-7933.
 
 **History**
  We
          were
          incorporated on May 8, 2003 under the laws of the State of Nevada.
 **Our
        Abandoned Mineral Exploration Business**
 
 We
        were
        previously engaged in the business of acquiring mineral exploration properties.
        We purchased all right, title and interest in one unpatented claim in the
        New
        Westminster Mining Division of the Province of British Columbia, known as
        the
        PEG Claim under an agreement dated November 3, 2003. We were unable to secure
        funding to conduct additional exploration work on the PEG Claim and we suspended
        work on the PEG Claim. Our management began exploring other business
        opportunities at the beginning of 2005. After we acquired our interest in
        the
        Miramar Hotel and Casino, we abandoned the PEG Claim by giving notice to
        the
        property owner to terminate the agreement in August 2005. We are no longer
        engaged in the mineral exploration business. We no longer own any mineral
        exploration properties.
 
 **Explanatory
        Note on Financial Statements**
 
 The
        condensed consolidated financial statements included in this quarterly report
        on
        Form 10-QSB have been prepared without audit, pursuant to the rules and
        regulations of the SEC. Certain information and disclosures normally included
        in
        financial statements prepared in accordance with generally accepted accounting
        principles have been condensed or omitted. In the opinion of management,
        the
        accompanying interim financial statements contain all adjustments, consisting
        of
        normal recurring accruals, necessary for a fair presentation of our financial
        position as of June 30, 2007, and our results of operations and cash flows
        for
        the quarter ended June 30, 2007. The results of operations for the quarter
        ended
        June 30, 2007 are not necessarily indicative of the results for a full-year
        period. It is suggested that these condensed financial statements be read
        in
        conjunction with the financial statements and notes thereto included in our
        Annual Audit for the year ended December 31, 2006.
 
 Following
        the Share Exchange, Kubuk became a wholly-owned subsidiary of Chilco. Prior
        to
        the Share Exchange, Chilco had no substantial assets and only nominal
        operations. Accordingly, the transaction is treated as a reverse acquisition
        of
        Chilco and has been accounted for as a recapitalization rather than a business
        combination. The historical financial statements of Kubuk and its predecessor
        Bruce Grupo Diversion S.A.C. are deemed to be the historical statements of
        the
        Chilco.
 
 Due
        to
        the Kubuk Share Exchange Agreement and the significance of the Company’s
        operations, the “development stage” status of Chilco is no longer in effect. The
        development stage disclosures are no longer required in the Company’s current
        status. Historical results of operations for Chilco may differ materially
        from
        future results.
  **Plan
        of Operation**
  We
        intend
        to continue the operations of the Miramar Hotel over the next twelve months
        and
        reopen the Miramar Casino in the last half of 2007.
  19
 **Miramar
        Hotel and Casino Business**
 
 The
        Miramar Hotel and Casino (“Miramar”) is located at Jirón Francisco Bolognesi #
        171-191 in the Miraflores District, Province and Department of Lima,
        approximately 30 minutes from Jorge Charvez International Airport in the
        heart
        of Miraflores. Miramar is expected to be a “destination” hotel and casino
        location for visitors traveling to the Republic of Peru and caters to visitors
        from the People’s Republic of China. The casino and slot room were, prior to
        closing, popular with the local residents in Peru.
 
 Assuming
        we are able to complete renovations, Miramar is expected to be a full-service
        hospitality facility with standard and premium lodging accommodations (rooms
        and
        suites). In addition, the hotel is expected to encompass several dining
        facilities and a full-featured gambling casino with traditional gaming tables
        and slot machines. Miramar is currently undergoing major renovations, and
        when
        and if reopened, is expected to offer 300 slot machines, a poker room and
        22
        table games. Chilco plans to reopen Miramar in the second half of 2007, provided
        that sufficient capital is raised prior to September 30, 2007 to complete
        the
        renovations in progress.
 
 Hotel :
        Miramar
        is expected to be a 60-room full-service hospitality facility with standard
        and
        premium lodging accommodations (rooms and suites) and dining facilities.
        The
        amenities are planned to include guest suites and rooms with air conditioning,
        mini-bars, telephone, hair dryer, wake-up service/alarm-clock, radio, satellite
        TV and safe deposit boxes. The hotel can accommodate 200 guests. In addition,
        the hotel once reopened is expected to offer a gaming room, meeting/banquet
        facilities, a barber/beauty shop and sauna. The room rates ranges from $70
        for a
        standard room to $95 for an executive suite.
 
 The
        Miraflores District is one of the most important financial and commercial
        centers of Lima and approximately 20 minutes from the historical center of
        Lima.
        Miramar is supported by urban infrastructure, such as asphalt roads, concrete
        sidewalks, city water and sewage, public electricity and garbage collection
        and
        phone lines. Miramar is located on commercial property and is located on
        a major
        thoroughfare. Our casino and restaurants are expected to attract local residents
        in Lima, Peru, and we believe a significant amount of our historical gaming
        revenue was derived from local residents. We have a historic occupancy rate
        of
        our hotel averaging approximately 70% during 2004 through 2006. Our occupancy
        rate is not generally subject to seasonal fluctuation. The following table
        sets
        forth the occupancy rate for our hotel during 2006 and the first six months
        of
        2007:
 **Hotel
                    Average Occupancy Rate****Month**
                
                **2006**
                
                **2007**January
                
                
                64.88
                %
                
                53.10
                %February
                
                
                68.31
                %
                
                45.79
                %March
                
                
                70.85
                %
                
                63.62
                %April
                
                
                65.10
                %
                
                57.67
                %May
                
                
                71.51
                %
                
                64.65
                %June
                
                
                68.85
                %
                
                55.88
                %July
                
                
                74.26
                %August
                
                
                69.21
                %September
                
                
                65.33
                %October
                
                
                68.54
                %November
                
                
                72.44
                %December
                
                
                67.44
                %
  20
  Restaurants
        and Lounge :
        Prior
        to closing for renovations, Miramar featured two full service restaurants
        serving Chinese and international cuisine. The restaurants each seated 200
        guests. Miramar holds a retail liquor license. The restaurants were closed
        to
        the public for renovations in November 2005, but continue to serve meals
        to
        hotel guests.
 
 Under
        our
        renovation plan, a new lounge will replace one of the restaurants and will
        serve
        food and beverages to the general public. We have started the interior
        construction and decoration in the 300 square meters lounge area in July
        2007
        and are planning for the soft opening of the lounge in early September for
        one
        month, followed by a grand opening and full scale operations.
 
 Gaming
        Casino :
        Before
        closing for renovations, the gaming casino was a full featured casino with
        20
        traditional gaming tables (blackjack, roulette, craps and poker) and
        approximately 220 slot machines. The casino was located on the second floor
        of
        the hotel and was approximately 622 square meters. Once the renovations are
        completed, the casino is expected to feature two full bars, a VIP area and
        will
        be able to accommodate 300 guests.
 
 We
        hold
        two gaming licenses for the operation of our casino and slot room, which
        were
        granted in 2005. These gaming licenses are valid for five years.
 
 The
        gaming casino operates under a gaming license issued to Kubuk Gaming SAC
        by the
        Republic of Peru. The gaming casino is currently closed for remodeling and
        is
        scheduled to reopen to the public in the second half of 2007, assuming adequate
        financing is available by September 2007. We are in the process of raising
        additional capital, but have no current commitment for such financing. Any
        delay
        in raising additional financing will delay our scheduled opening
        date.
 
 Slot
        Room :
        The
        slot room is planned to be located on the first floor of the Hotel next to
        the
        lobby. Before closing for renovations, the slot room featured 220 slot machines
        and could accommodate approximately 300 guests. The slot room was closed
        for
        renovations in November 2005. As of June 30, 2007, we leased out over 130
        slot
        machines that are retired from the slot room to other local slot parlor
        operators under various lease terms and profit-sharing agreements. These
        operating leases vary in terms and average $10 per machine per day in net
        rental
        income. We believe the slot machine rental income should continue at least
        through the end of year 2007.
 
 Under
        our
        current renovation plan, the new gaming casino will have a slightly larger
        space
        and will feature 300 new slot machines, some of which will be manufactured
        by us
        under the Kubuk brand name.
  Real
        Property :
        We own
        all of the real property and assets used in the operation of the Miramar
        Hotel
        and Casino. The property consists of one seven-story building and one
        fourteen-story building that are physically connected and have been configured
        for use as a hotel, casino and office space. We use the office space in
        connection with our business operations and do not rent office space to third
        parties. The property also includes a parking garage. We own all of the
        fixtures, improvements, systems, furniture, gaming machines and gaming tables
        and the other contents currently used in the business of Miramar.
 
 21
 Historically,
        our operating revenue was derived from the following aspects of our business,
        expressed as percentages relative to total revenue:
 **Two
                  Quarters ended**
                **June
                  30, 2007**
              
              **Year
                  2006**
              
              **Year
                  2005**Casino-Leasing
              
              
              35
              %
              
              25
              %
              
              58
              %Rooms
              
              
              60
              %
              
              69
              %
              
              25
              %Food
                  & Beverage
              
              
              5
              %
              
              6
              %
              
              11
              %Other
              
              
              0
              %
              
              0
              %
              
              6
              %Total
              
              
              100
              %
              
              100
              %
              
              100
              %
  **Satisfaction
        of cash obligations for the next twelve months**
 
 We
        believe that the cash flow from our hotel and the rental of old slot machines
        will not be sufficient to meet our minimum operating cash requirements to
        permit
        us to continue as a going concern for the next twelve months. We will require
        additional financing. We intend to use a combination of available cash and
        additional financing to meet obligations over the next twelve months, including
        the cost of renovation of the casino and restaurant at an estimated amount
        of
        $4,200,000. We intend to secure additional financing in the amount of
        approximately $7,387,000 in one or more transactions as soon as practicable.
        As
        of June 30, 2007, we had approximately $1,000,000 in quick assets and various
        financial obligations and budgeted capital expenditures that are payable
        in cash
        in the amount of $8,000,000 within the next 12 months. These financial
        obligations and budgeted capital expenditures included:   (1)
 casino and hotel renovation in total budgeted amount of $2,700,000; (2)
 voluntary and statutory cash reserves for the casino in the amount of
        $1,500,000, (3)  two $500,000 installment payments payable to KC by January
        31 and June 30, 2008, respectively; (4)  $2,200,000 for the production of
        approximately 400 new Kubuk Slot Machines; (5)  related party loans and
        accrued interest in the amount of $420,000; (6) accrued interest payable to
        Chung Lien (see below) for $82,500; and (7) project net cash outflow in
        operations for $97,500.
 
 In
        December 2006, we borrowed $250,000 from IFG Investments Services Inc. (“IFG”),
        a Nevis corporation located in Nevis Federation of St. Kitts & Nevis West
        Indies and controlled by an existing minority shareholder, to fund the second
        installment payment to KC which we made in January 2007. The IFG loan bears
        an
        annual interest of 8% and was due on June 11, 2007. On June 28, 2007, Chilco
        and
        IFG extended the maturity date for another 90 days. Chilco also agreed to
        specifically use the proceeds from the release of a certain $250,000 currency
        exchange deposit from Chung Lien for the purpose of repayment of principal
        and
        interest of the IFG loan.
 
 On
        January 18, 2007, our board of directors resolved to amend the purchase warrant
        certificate for each Class A Warrant to purchase shares of common stock in
        until
        5:00 p.m. (California time) on January 20, 2007 to lower the exercise price
        per
        share to $0.40 and to extend the exercise period to 5:00 p.m. (California
        time)
        on February 20, 2007. Before the amendment, the exercise price of the Warrants
        was $1.00 (split-adjusted) per share. We received $199,040 from the exercise
        of
        497,600 Class A Warrants during the extended re-priced period. The balance
        of
        the Class A Warrants expired unexercised.
 
 On
        April
        19, 2007, we entered into the Subscription Agreement with Chung Lien and
        received $1,000,000 by issuing a five-year convertible debenture in the
        principal amount of $1,000,000 bearing an 11% annual interest rate, and
        convertible into shares of common stock of the Company at the greater of
        (a)
        $0.75 per share or (b) 70% of the five-day average market trading price of
        the
        common stock of the Company immediately preceding the date of conversion.
        The
        principal and interest payments are due on a monthly basis beginning on April
        19, 2007 (later amended to begin on October 19, 2007). We may prepay, in
        cash or
        common stock, all or portion of the debenture at any time prior to the maturity
        date without penalty. Tom Liu (our Chief Executive Officer) and David Liu
        (Tom
        Liu’s father), two principal shareholders of Chilco, each pledged 600,000 shares
        of common stock, a total of 1,200,000 shares of common stock, to secure the
        repayment of the debenture. After paying Chung Lien a compensation fee of
        8%
        ($80,000) and other bank charges and transactional expenses, we received
        net
        proceeds from the placement of the convertible debenture of approximately
        $919,150. We incurred legal and other expenses of approximately $35,000 in
        connection with the placement. We also issued Chung Lien warrants exercisable
        for a term of five years to purchase up to 1,500,000 shares of our common
        stock
        at $0.45 per share under the terms of the Chung Lien Agency
        Agreement.
 
 22
 We
        believe that we would have the necessary funding for the completion of the
        casino/hotel renovation if we are able to raise the remaining $9 million
        under
        the Chung Lien Agency Agreement. If the full amount is raised, we believe
        that
        the financing will also allow us to pursue development of our slot machine
        leasing business and our gaming software development projects. However, there
        is
        no firm commitment under the Chung Lien Agency Agreement and there can be
        no
        assurance that Chung Lien will successfully assist us in raising any additional
        funds. If we are unable to raise sufficient funds through Chung Lien or with
        any
        other potential investors or mortgage lender in debt or equity transactions
        to
        complete the renovations, we plan to fund completion of the renovations through
        cash flow from operations and reopen the casino in stages. However, we currently
        have no firm commitments with respect to additional financing and we may
        not
        have sufficient cash flow from operations to satisfy all of our capital
        requirements. Consequently, we may be unable to continue as a going
        concern.
 
 Since
        the
        inception of our software development center in Shenzhen, China, most of
        the
        operating expenses in China have been advanced by Wai Yung Lau, one of our
        directors. These advances are payable by demand and do not bear stated interest.
        The unpaid balance of such advancements was $156,409 as of June 30,
        2007.
 
 **Summary
        of any product research and development that we will perform for the term
        of the
        plan**
 
 In
        April
        2006 we started a software development project in Shenzhen, China by contracting
        with several programmers to develop an internet based computer gaming
        application for potential future licensing to third parties. We anticipate
        that
        we will spend approximately $150,000 on software development during the next
        12
        months, assuming adequate financing is available. Since the inception of
        our
        software development center in Shenzhen, China, most of our operating expenses
        in China have been advanced by Wai Yung Lau, one of our directors. The success
        of this software development project depends heavily on our ability to raise
        sufficient capital or borrowing from debt to fund the project through its
        feasibility test stage. If, for any reason, we have difficulties raising
        financial resources to complete the casino and hotel renovation, we will
        have to
        delay or suspend the software development project.
 
 **Expected
        purchase or sale of plant and significant equipment**
 
 Prior
        to
        the completion of renovations and the reopening of the gaming room, we will
        have
        to acquire additional gaming equipment and hotel furniture. Under our renovation
        plan, we will open the new lounge for operation during the next fiscal quarter.
        We also intend to reopen our slot room, located in the first floor of the
        casino
        building, by late 2007 or early 2008. This plan for reopening of the slot
        room
        is based on the assumption that we can pay for the cost of the following
        items
        by our operating cash flow or by timely fundraising through equity or financing
        transactions by September 30, 2007:
  Slot
                  Machines
              
              $
              600,000Building
                  improvements and furniture
              
              $
              200,000Construction
                  of lounge
              
              $
              150,000Voluntary
                  & statutory cash reserve
              
              $
              650,000**Total**
              
              $
              1,600,000
 
 23
 We
        estimate that, in order to reopen the casino floor (located in the second
        floor
        of the building) and to fully renovate the restaurant facilities, an additional
        $2,580,000 in cash has to be generated through operation or equity or financing
        transactions to pay for the acquisition of casino equipment, construction
        cost,
        and various statutory and voluntary casino cash reserve
        requirements.
 
 The
        $600,000 total estimated cost for slot machines includes the purchase of
        150
        Kubuk machines and 30 used machines. The cost for the 120 units of other
        brands
        of machines was not factored in because all units are expected to be financed
        without upfront costs.
 
 We
        acquired exclusive rights to manufacture and sell cost-competitive slot
        machines. We intend to manufacture and distribute the slot machines in central
        and South American markets, assuming adequate capital is available. We do
        not
        plan to establish our own manufacturing facility to produce Kubuk gaming
        machines. Instead, we plan to contract our manufacturing with a third-party
        manufacturer. We anticipate we will require at least $2.2 million additional
        financing for our slot machines business in the next 12 months. Due to lack
        of
        funding for the production cost, we were only able to produce and lease 22
        new
        slot machines during year 2006 with the acquired license rights. We acquired
        our
        rights to the slot machines under a Licensing Agreement dated July 7, 2006
        with
        KC (“KC License Agreement”), pursuant to which we were granted a worldwide
        exclusive and perpetual license to use KC’s technology to manufacture, market
        and distribute KC-designed slot machines and other gaming products, including
        an
        electronic data transfer device distributed under the trademark “Smartbook”. The
        technology includes all technology, tools, design, components, hardware,
        software, and specification necessary for the design and manufacturing of
        slot
        machines and Smartbook and all associated patents, trademarks, copyrights,
        trade
        secrets, know-how.
 
 We
        agreed
        to pay KC a cash license fee of $2,500,000, of which, $500,000 was paid in
        July
        2006, and the balance will be paid in four equal installments of $500,000
        each
        at the end of January and June, respectively, during the next two years.
        We also
        agreed to pay KC a licensee fee in common stock of 6,000,000 shares of
        restricted common stock, par value $0.001, of which 3,000,000 share were
        issued
        in July 2006, 1,500,000 to be issued on the first anniversary of the date
        of the
        effective date, and 1,500,000 to be issued on the second anniversary of the
        effective date. We granted KC registration rights and undertook to use
        commercially reasonable efforts to file a registration statement with the
        SEC
        within 90 days of the Effective Date to register for resale the first 3,000,000
        shares common stock issued to KC under the KC License Agreement. We intend
        to
        file the registration statement during the third quarter of 2007. The cash
        payments and the fair market value of the shares issued under the KC Licensing
        Agreement are capitalized on our balance sheet as intangible assets and are
        determined to have infinite useful lives. These capitalized intangible licensing
        rights are not amortized and are tested at least annually to determine whether
        impairment of value has occurred by the end of each fiscal year. If it is
        determined that the carrying value of these intangibles has been impaired,
        a
        loss will be recognized to the extent of the excess of such carrying value
        over
        the fair value of these intangibles. No impairment loss is recorded as of
        June
        30, 2007.
  **Significant
        changes in number of employees**
 
 We
        anticipate that we keep the current 38 employees prior to reopening our slot
        room and lounge scheduled in the second half of 2007, assuming adequate
        financing is available prior to September 30, 2007.
 
 24
  **Results
        of Operations for the Six Months and the Three Months Ended June 30, 2007
        and 2006.**
  We
        had
        revenues of $806,775 and $425,318 during the six-month and three-month periods
        ended June 30, 2007, respectively; compared to revenues of $767,227 and $415,268
        during the same periods in 2006. Overall revenues were up 5% and 2%,
        respectively, for the six-month and three-month periods comparative periods.
        Revenue from leasing of the slot machines increased $109,469, or 63% in the
        first half of 2007 versus 2006. We did not lease out all retired slot machines
        until the end of second quarter of 2006, which caused the leasing revenue
        for
        the first half of 2006 to appear significantly lower than the first half
        of
        2007.
 
 Operating
        expenses during the six-month and three-month periods ended June 30, 2007
        were
        $1,434,732 and $718,545, respectively; compared to $1,687,143 and $993,954
        for
        the same periods in 2006. In addition to depreciation expense in the amount
        of
        $296,312, which does not require payment of cash, we have the following non-cash
        expenses during the six months ended June 30, 2007:
 
 (i)
              Amortization
                  of prepaid stock compensation for consulting services provided
                  by Clear
                  Channel Inc. totaling $230,000 ($115,000 for each
                  quarter).
 
 (ii)
              Amortization
                  of maintenance service contract under the KC Licensing Agreement
                  totaling
                  $224,236 ($112,118 for each quarter).(iii)
              Amortization
                  of bond issue cost related to the warrants issued to Chung Lien
                  totaling
                  $32,085(iv)
              Imputed
                  interest on installment obligation
                  $286,250
  Consequently,
        losses from operation for the six-month and three-month periods ended June
        30,
        2007 were $(627,957) and $(293,227), respectively; compared to losses from
        operation in the amounts of $(919,916) and $(578,686) for the same periods
        in
        2006. Income (losses) from operation as a percentage of revenue for the
        six-month and three-month periods ended June 30, 2007 were (78%) and (69%),
        respectively. The decreases in losses from operation during these periods
        of
        2007 compared to the same periods of 2006 were a direct result of reduced
        marketing and promotional expenses, as well as the implementation of our
        expense-reduction measures.
 
 Net
        loss,
        after other income and expenses and provision for income taxes, was
        $(976,224) **** and
        $(491,187) for the six-month and three-month periods **** (a
        net
        loss of $0.02 and $0.01 per share) ended June 30, 2007, respectively, compared
        to net loss of $(936,135) and $(588,101) for the six-month and three-month
        periods ended June 30, 2006, respectively. The increase in other income and
        expenses in 2007 versus 2006 was largely attributable to the imputed interest
        expense in the amount of $320,753 on our obligations to pay cash and issue
        shares to KC pursuant to the KC License Agreement, as well as accrued interest
        on the IFG loan and Chung Lien debenture. We paid Peruvian income taxes of
        $38,777 and $133,946 for the six-month periods ended June 30, 2007 and 2006,
        respectively. We had an unrealized gain on foreign currency translation of
        $154,677 during the six-month period ended June 30, 2007, compared to a $(7,581)
        loss during the same period in 2006.
 
 Our
        revenues during the periods after the closure of our slot room and restaurant
        in
        November 2005 were principally derived from hotel revenue and revenue from
        rental of old slot machines. We do not anticipate that revenues will return
        to
        historical levels until the renovations of the casino floor are completed.
        We
        have several fixed costs related to its operations, which resulted in higher
        operating expenses and lower operating revenue as a percentage of sales.
        We
        anticipate that our expenses as a percentage of sales will remain at
        approximately the same level until our casino is fully operational. We are
        currently seeking to raise at least $7.4 million, $4.2 million of which is
        expected to be allocated to renovate and modernize the current facilities
        of
        Miramar. We have no firm commitments to raise such capital to complete such
        renovations and we cannot assure you that such funds will be available on
        acceptable terms, if at all. Any delay in raising financing will delay our
        planned reopening of our hotel and casino in the second half of
        2007.
 
 25
 In
        addition, under the terms of the KC Licensing Agreement, we are required
        to pay
        KC an installment license payment of $500,000 on January 30, 2008 and to
        issue
        KC 1,500,000 shares of our common stock on July 7, 2008. If we fail to make
        such
        payment and issuance, KC may terminate the license and we will lose our
        investment. In addition, we undertook to file a registration statement with
        the
        SEC to use commercially reasonable efforts to register the resale of the
        6,000,000 shares issued or issuable to KC under the KC License Agreement.
        We
        plan to file a registration statement with the SEC during the third quarter
        of
        2007 and our failure to do so may be deemed a breach of the agreement giving
        rise to KC’s ability to terminate the license. A termination of the license will
        have a material adverse effect on our business and results of
        operations.
 
 We
        anticipate that we will need to raise at least $2.2 million in additional
        capital to fund our plan of operation related to our slot machine business.
        We
        cannot assure you that we will successfully raise such financing on acceptable
        terms, if at all, or that we will be successful in marketing and selling
        our
        slot machines.
 
 **Liquidity
        and Capital Resources**
 
 We
        are in
        the process of completing a comprehensive renovation of Miramar and will
        require
        additional capital to complete the remodeling of the casino and resume
        operations of the casino floor. We are currently seeking to raise at least
        $4.2
        million in capital to completely renovate the hotel and casino. Out of the
        $4.2
        million budget, $1.6 million will have to be raised in the third quarter
        of 2007
        in order for us to launch the new lounge in restaurant area and reopen the
        slot
        room. We anticipate that we will require an additional $3.2 million for working
        capital and to fund our slot machine business during the next 12
        months.
  We
        intend
        to market, sell, lease or profit-share slot machines this year. Because of
        lack
        of funding, we were only able to produce and lease 22 new slot machines in
        2006.
        We made two $500,000 installment payments to KC in January and June 2007,
        and we
        have commitments to make two final payments of $500,000 in January and June
        2008
        under the terms of the KC License Agreement. We are also required to issue
        KC
        another 1,500,000 shares of our common stock in July 2008. If we fail to
        make
        such payments or issue such shares in a timely manner, we will default under
        the
        terms of the KC License Agreement and could lose the license. We cannot assure
        you that we will successfully raise such financing on acceptable terms, if
        at
        all, or that we will be successful in marketing and selling our slot machines.
        We have no firm commitments for such financing.
 
 Cash
        flows from operations during the six months ended June 30, 2007 (a net cash
        outflow in the amount of $(376,482)) were lower than cash flows from operations
        during the same period in 2006 (a net cash outflow in the amount of $(295,390))
        by $81,092. Among the major changes in operating cash flows in 2007 is a
        $250,000 currency deposit required under the Chung Lien Agency Agreement.
        Net
        cash outflows from operating activities would become $126,482, if the currency
        deposit was excluded.
  As
        of
        June 30, 2007, we had current assets of $1,752,409 including cash and cash
        equivalents of $501,602, and current liabilities of $3,322,746. We had a
        working
        capital deficit of $(1,570,337). As of June 30, 2007, we have commitments
        and
        contractual obligations during the next 12 months of approximately $1,500,000,
        which is attributable to the KC License Agreement and related party loans
        and
        accrued interest. In April 2007, we borrowed $1,000,000 from Chung Lien with
        a
        5-year convertible debenture bearing interest at 11% per annum. Our long-term
        debt obligations in the aggregate amount of $2,625,468 are derived from present
        value of the cash installment and shares issuance obligations with respect
        to
        the KC License Agreement and the Chung Lien convertible debenture. As of
        June
        30, 2007, out of the total installment payable (current and long-term) related
        to the KC License Agreement, $3,458,745 is attributable to our obligation
        to
        issue shares of common stock to KC in the next 14 months and will not require
        any cash outlay when we satisfy this obligation. As of June 30, 2007, the
        present value of our future monetary obligations for the installment payments
        under the KC license right is $808,267.
  26
 In
        December 2006, we borrowed $250,000 from IFG before we made a currency exchange
        deposit pursuant to the term sheet with Chung Lien. The IFG loan bears an
        annual
        interest of 8% and was due on June 11, 2007. On June 28, 2007, Chilco and
        IFG
        extended the maturity date for another 90 days. Chilco also agreed to
        specifically use the proceeds from the release of the $250,000 currency exchange
        deposit from Chung Lien for the purpose of repayment of principal and interest
        of the IFG loan.
 
 Since
        the
        inception of our software development center in Shenzhen, China, most of
        the
        operating expenses in China have been advanced by Wai Yung Lau, one of our
        directors. These advances are payable by demand and do not bear stated interest.
        The unpaid balance of such advancements was $156,409 as of June 30, 2007.
 
 Due
        to
        funding restraints, we expect to complete only the renovation of our slot
        room
        and the new lounge by September 2007. Even if we can complete the construction
        and interior decoration of the slot room, we may still have to raise substantial
        amount of money to pay for the costs of manufacturing and installing the
        slot
        machines, as well as customs and duties imposed on the slot machines imported
        into Peru, before we can plan for the grand opening of the slot
        room.
 
 We
        will
        defer the renovation of our casino floor until further funding is available.
        We
        expect to raise approximately $4.2 million to complete the entire renovation,
        but have no firm commitments for such financing. Any delay in raising additional
        financing will delay our scheduled opening date.
 
 Historically,
        in 2004, casino and slot machine revenue accounted for 82% (approximately
        $8.75
        million) of out total revenue. Slot machine revenue accounted for 45% ($3.96
        million) of total casino and slot machine revenue. We project that our future
        annual revenue will exceed 2004 historical revenue of $10.7 million if we
        are
        able to complete our renovations. If we are able to complete renovations
        of our
        casino floor, based on historical operations, we estimate that annual casino
        revenues should increase to approximately $6.4 million. If we complete
        renovations of our slot room, we estimate that annual slot machine revenue
        could
        increase to approximately $6.5 million. Restaurant revenue has historically,
        based on 2004 revenue, accounted for approximately 4.67% ($500,000) of our
        total
        revenue.
  We
        currently have no alternative sources of funding, and we currently rely on
        cash
        flow from our hotel and the rental of old slot machines to meet our working
        capital requirements. Our current plan is to reopen our entire gaming and
        restaurant operations once we have completed all of the renovations. However,
        if
        funds are not available to complete all of the renovations, we may reopen
        portions of our gaming operation in stages as renovations are completed
        beginning with our casino floor and then our slot room.
  As
        a
        result of the December 31, 2006 audit, our auditors have expressed substantial
        doubt regarding our ability to continue as a going concern. Our financial
        statements have been prepared based on the assumption that we will be able
        to
        continue as a going concern. If we fail to raise additional capital in the
        next
        six months, we may be unable to continue as a going concern.
 
 27
 **Item
        3.**   **Controls
        and Procedures.**
 
 Under
        the
        supervision and with the participation of our management, including our Chief
        Executive Officer and Chief Financial Officer, we evaluated the effectiveness
        of
        the design and operation of our disclosure controls and procedures (as defined
        in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934
        (the
        "Exchange Act")). Based upon that evaluation, the Chief Executive Officer
        and
        Chief Financial Officer concluded that, as of the end of the period covered
        by
        this report, our disclosure controls and procedures were adequately designed
        and
        are effective to ensure that information required to be disclosed by us in
        the
        reports we file or submit under the Exchange Act is recorded, processed,
        summarized and reported within the time periods specified in applicable rules
        and forms.
 
 In
        addition, our Chief Executive Officer and Chief Financial Officer have
        determined that the disclosure controls and procedures are effective to ensure
        that information required to be disclosed in the reports that are filed under
        the Exchange Act are accumulated and communicated to management, including
        our
        Chief Executive Officer and Chief Financial Officer, to allow timely decisions
        regarding required disclosure.
 
 During
        the most recent fiscal quarter ended June 30, 2007, there has been no change
        in
        our internal control over financial reporting (as defined in Rule 13a-15(f)
        or
        15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
        likely to materially affect, our internal control over financial
        reporting.
 
 **PART
        II - OTHER INFORMATION**
 
 **Item
        1.**   **Legal
        Proceedings.**
 
 None******
 
 **Item
        2.**   **Unregistered
        Sales of Equity Securities and Use of Proceeds.**
 
 None
 
 **Item
        3.**   **Defaults
        Upon Senior Securities.**
 
 None
 
 **Item
        4.**   **Submission
        of Matters to a Vote of Security Holders.**
 
 None
 
 **Item
        5.**   **Other
        Information.**
 
 None
 
 28
 **Item
        6.**   **Exhibits.**
 
 **EXHIBIT
        INDEX**
 **Number**
                
                **Description**3.1
                
                Articles
                    of Incorporation (1)3.2
                
                Bylaws
                    (1)4.1
                
                Convertible
                    Debenture dated April 19, 2007 issued to Chung Lien Investment
                    Management
                    Limited (2)4.2
                
                Warrants
                    dated April 19,2007 issued to Chung Lien Investment Management
                    Limited
                    (2)10.1
                
                Share
                    Exchange Agreement (previously filed as Exhibit 99.1)
                    (1)10.2
                
                Escrow
                    Agreement dated August 3, 2005 (previously filed as Exhibit 99.1)
                    (1)10.3
                
                Contribution
                    Agreement dated July 26, 2005 (previously filed as Exhibit 99.1)
                    (1)10.4
                
                Stock
                    Purchase Agreement dated July 26, 2005 (previously filed as Exhibit
                    99.1)
                    (1)10.5
                
                Marketing
                    Services Agreement with Parker Communication Corporation
                    (3)10.6
                
                Consulting
                    Agreement with Clear Channel Inc., as amended (4)10.7
                
                Form
                    of Unit Purchase Agreement (3)10.8
                
                Form
                    of Warrant Certificate (3)10.9
                
                Loan
                    Agreement dated December 31, 2005 with David Liu (4)10.10
                
                Loan
                    Agreement dated December 31, 2005 with Lottery Online U.S.A.
                    (4)10.11
                
                License
                    Agreement dated July 7, 2006 with K.C. Technology (5)10.12
                
                Promissory
                    Note dated December 14, 2006 issued to IFG Investments Services
                    Inc.
                    (6)10.13
                
                Promissory
                    Note dated December 27, 2006 issued to Lee Kuen Cheung
                    (6)10.14
                
                Placement
                    Agent Agreement dated April 19, 2007 with Chung Lien Investment
                    Management
                    Limited (2)10.15
                
                Subscription
                    Agreement dated April 19, 2007 by Chung Lien Investment Management
                    Limited
                    (2)31.1
                
                Certification
                    of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                    promulgated under the Securities and Exchange Act of 1934, as
                    amended
                    (8)31.2
                
                Certification
                    of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                    promulgated under the Securities and Exchange Act of 1934, as
                    amended
                    (8)32.1
                
                Certification
                    of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                    Act (8)32.2
                
                Certification
                    of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                    Act (8)99.1
                
                Press
                    Release dated April 20, 2007 with respect to Chung Lien transaction
                    (2)99.2
                
                Press
                    Release dated May 3, 2007 with respect to Chung Lien transaction
                    (7)
 
 (1)
                
                Previously
                    filed on Form SB-2 dated March 8,
                    2004
  29
  (2)
                
                Previously
                    filed on Form 8-K dated April 25, 2007(3)
                
                Previously
                    filed on Form SB-2 dated February 17, 2006(4)
                
                Previously
                    filed on Form 10-KSB dated March 31, 2006(5)
                
                Previously
                    filed on Form 8-K dated July 10, 2006(6)
                
                Previously
                    filed on Form 10-KSB dated April 2, 2007(7)
                
                Previously
                    filed on Form 8-K dated May 3, 2007(8)
                
                Filed
                    herewith.
  30
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
        as
        amended, the registrant caused this report to be signed on its behalf by
        the
        undersigned, thereunto duly authorized.
  **CHILCO
                  RIVER HOLDINGS INC.**
                (Registrant)Date:
                  August 14, 2007
              By:
              /s/
                  Tom Yu LiuTom
                  Yu Liu
                Chief
                  Executive Officer
                (Principal
                  Executive Officer)
 
 Date:
                  August 14, 2007
              By:
              /s/
                  Winston YenWinston
                  Yen
                Chief
                  Financial Officer
                (Principal
                  Financial and Accounting Officer)
 
 31