##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED July 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number 333-113140
 INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
  Not Applicable
    
    75-3158926(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)287 Carrizo Canyon RoadMescalero, New Mexico
    
    88340(Address of principal executive offices)
    
    (Zip Code)
 (505) 464-7000
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 FORM 10-Q
 FOR THE QUARTER ENDED JULY 31, 2008
 INDEX
 PagesPART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements:
    
    
    1Consolidated Balance Sheets as of April 30, 2008 and July 31, 2008 (unaudited)
    
    
    1Consolidated Statements of Operations for the Three Month Periods Ended July 31, 2007 and 2008 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for the Three Month Periods Ended July 31, 2007 and 2008 (unaudited)
    
    
    3Notes to Consolidated Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    27Signatures
    
    
    28EX-31.1EX-31.2EX-32.1
  i




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 As of April 30,
    
    
    As of July 31,2008
    
    
    2008 (unaudited)Current assetsCash and cash equivalents
    
    $
    14,975,093
    
    
    $
    11,367,692Accounts receivable, net of allowance for doubtful accounts
    
    
    567,236
    
    
    
    595,131Tribal accounts receivable
    
    
    
    
    
    
    191,750Inventories
    
    
    1,040,086
    
    
    
    960,983Prepaid expenses and other assets
    
    
    855,754
    
    
    
    990,266Total current assets
    
    
    17,438,169
    
    
    
    14,105,822Non-current assetsProperty plant and equipment
    
    
    299,344,711
    
    
    
    299,404,094Accumulated depreciation
    
    
    (103,333,993
    )
    
    
    (106,037,321
    )Property plant and equipment, net
    
    
    196,010,718
    
    
    
    193,366,773Other assets
    
    
    50,000
    
    
    
    263,502Deferred financing costs
    
    
    4,445,409
    
    
    
    4,039,098Storm recovery receivable
    
    
    
    
    
    
    1,100,000Total Assets
    
    $
    217,944,296
    
    
    $
    212,875,195Liabilities and DeficitCurrent liabilitiesAccounts payable
    
    $
    2,093,653
    
    
    $
    2,603,825Accrued expenses
    
    
    3,298,719
    
    
    
    3,880,700Accrued payroll and benefits
    
    
    2,578,145
    
    
    
    2,199,996Accrued interest
    
    
    11,200,000
    
    
    
    5,200,000Advanced deposits
    
    
    357,648
    
    
    
    1,003,523Current portion of long-term debt
    
    
    3,534,414
    
    
    
    3,603,080Total current liabilities
    
    
    23,062,579
    
    
    
    18,491,124Non-current liabilitiesLong-term debt, net of current portion
    
    
    204,639,002
    
    
    
    203,711,719Total liabilities
    
    
    227,701,581
    
    
    
    222,202,843DeficitContributed capital
    
    
    21,648,939
    
    
    
    19,647,938Accumulated deficit
    
    
    (31,406,224
    )
    
    
    (28,975,586
    )Total deficit
    
    
    (9,757,285
    )
    
    
    (9,327,648
    )Total liabilities and deficit
    
    $
    217,944,296
    
    
    $
    212,875,195
  1




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months Ended
    
    
    Three Months EndedJuly 31, 2007
    
    
    July 31, 2008Revenues:Gaming
    
    $
    22,000,709
    
    
    $
    21,439,995Hotel
    
    
    4,121,358
    
    
    
    4,104,367Food and Beverage
    
    
    4,009,257
    
    
    
    3,866,700Recreation and other
    
    
    4,378,966
    
    
    
    4,232,600Gross Revenue
    
    
    34,510,290
    
    
    
    33,643,662Less-Promotional Allowances
    
    
    681,608
    
    
    
    256,784Net Revenue
    
    
    33,828,682
    
    
    
    33,386,878Operating ExpensesGaming
    
    
    7,353,458
    
    
    
    7,346,919Hotel expenses
    
    
    1,226,922
    
    
    
    1,421,946Food and beverage
    
    
    3,881,886
    
    
    
    3,885,545Recreation and other
    
    
    3,749,389
    
    
    
    3,589,158Marketing
    
    
    2,211,712
    
    
    
    1,764,509General and administrative
    
    
    2,249,936
    
    
    
    2,889,575Health Insurance  Medical
    
    
    549,849
    
    
    
    548,323Mescalero Apache 401K
    
    
    221,286
    
    
    
    226,683Mescalero Apache Telecom
    
    
    51,002
    
    
    
    51,086Tribal Regulatory Fees
    
    
    600,000
    
    
    
    600,000Depreciation
    
    
    4,235,364
    
    
    
    3,076,918Storm Costs (Note 11)
    
    
    
    
    
    
    62,227Insurance reimbursement on storm loss (Note 11)
    
    
    
    
    
    
    (1,100,000
    )Loss on disposal of assets
    
    
    63,847
    
    
    
    46,118Total Operating Expenses
    
    
    26,394,651
    
    
    
    24,409,007Operating Income
    
    
    7,434,031
    
    
    
    8,977,871Other Income (Expense)Interest Income
    
    
    47,942
    
    
    
    12,271Interest Expense
    
    
    (6,622,871
    )
    
    
    (6,559,504
    )Total Other (Expense)
    
    
    (6,574,929
    )
    
    
    (6,547,233
    )Net Income
    
    $
    859,102
    
    
    $
    2,430,638
  2




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Three Months Ended
    
    
    Three Months EndedJuly 31, 2007
    
    
    July 31, 2008Cash flows from operating activitiesNet income
    
    $
    859,102
    
    
    $
    2,430,638Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    4,641,675
    
    
    
    3,498,170Loss on disposal of fixed assets
    
    
    63,847
    
    
    
    46,118Changes in assets and liabilities:Accounts receivable
    
    
    (287,060
    )
    
    
    (27,895
    )Tribal accounts receivable
    
    
    
    
    
    
    (191,750
    )Inventories
    
    
    (247,273
    )
    
    
    79,103Prepaid expenses
    
    
    (244,582
    )
    
    
    (134,512
    )Storm recovery receivable
    
    
    
    
    
    
    (1,100,000
    )Other long-term assets
    
    
    (162,575
    )
    
    
    (213,502
    )Accounts payable
    
    
    671,867
    
    
    
    510,172Accrued expenses, payroll and benefits
    
    
    (402,060
    )
    
    
    203,832Accrued interest payable
    
    
    (6,000,000
    )
    
    
    (6,000,000
    )Deposits and advance payments
    
    
    764,384
    
    
    
    645,875Net cash used in operating activities
    
    
    (342,675
    )
    
    
    (253,751
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (426,050
    )
    
    
    (494,032
    )Net cash used in investing activities
    
    
    (426,050
    )
    
    
    (494,032
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (1,022,296
    )
    
    
    (858,617
    )Distributions to Mescalero Apache Tribe
    
    
    (2,001,001
    )
    
    
    (2,001,001
    )Net cash used in financing activities
    
    
    (3,023,297
    )
    
    
    (2,859,618
    )Net decrease in cash and cash equivalents
    
    
    (3,792,022
    )
    
    
    (3,607,401
    )Cash and cash equivalents, beginning of period
    
    
    16,929,630
    
    
    
    14,975,093Cash and cash equivalents, end of period
    
    $
    13,137,608
    
    
    $
    11,367,692Supplemental cash flow information:Cash paid for interest
    
    $
    12,216,560
    
    
    $
    12,153,193Non-cash investing and financing activities:Property, plant and equipment acquired through capital lease
    
    $
    289,420
    
    
    $
    
 3




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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 NOTE 1BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Reporting Entity and Operations
 IMG Resort and Casino Tribe Resort Casino Apache Enterprise Travel Center Travel Center Casino Ski Apache Ski Apache Resort Inn Inn Hotel
 Inn of the Mountain Gods Casino IGRA
 SEC
 Principles of Consolidation
  Reclassifications
  Use of Estimates
  4




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##### Table of Contents



Cash and Cash Equivalents
  Accounts Receivable
  Inventories
  Property, Plant and Equipment
   Non-gaming equipment, furniture and other
    
    3 - 15 yearsGaming equipment
    
    5 - 7 yearsLeasehold and land improvements, lake and golf course
    
    5 - 30 yearsBuildings, lifts and snowmaking equipment
    
    10 - 39 years
 Deferred Financing Costs
  Impairment of Long Lived Assets
    5




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##### Table of Contents



Fair Value of Financial Instruments
  Contributed Capital
  Revenues
   Promotional Allowances
   EITF Accounting for Certain Sales Incentives Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and
Offers for Preproducts, or Services to be delivered in the futur
  Quarter Ended July 31,2007
    
    
    2008Rooms
    
    $
    122,543
    
    
    $
    25,792Food and beverage
    
    
    242,670
    
    
    
    159,905Other
    
    
    14,225
    
    
    
    (20
    )$
    379,438
    
    
    $
    185,677
 6




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##### Table of Contents



Marketing
  Tribal Taxes
  Classification of Departmental Costs
  Income Taxes
  New Accounting Pronouncements
 Fair Value
Measurements
  The Fair Value Option for Financial Assets
and Financial Liabilities
 7




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##### Table of Contents



NOTE 2ALLOWANCE FOR DOUBTFUL ACCOUNTS
   NOTE 3INVENTORIES
  April 30, 2008
    
    
    July 31, 2008Food and beverage
    
    $
    219,709
    
    
    $
    240,148Golf and pro shop
    
    
    113,058
    
    
    
    77,952Gift shops, fuel and other
    
    
    707,319
    
    
    
    642,883Inventories
    
    $
    1,040,086
    
    
    $
    960,983
 NOTE 4PROPERTY, PLANT AND EQUIPMENT, NET
  April 30, 2008
    
    
    July 31, 2008Land
    
    $
    538,894
    
    
    $
    538,894Buildings,
    
    
    209,507,247
    
    
    
    209,507,247Lifts and Snowmaking equipment
    
    
    8,421,750
    
    
    
    8,002,042Non-gaming equipment, furniture and other
    
    
    51,819,539
    
    
    
    51,921,036Gaming equipment
    
    
    20,869,501
    
    
    
    20,869,501Leasehold and land improvements, lake and golf course
    
    
    8,072,925
    
    
    
    8,072,925Subtotal
    
    $
    299,229,856
    
    
    $
    298,911,645Less accumulated depreciation and amortization
    
    
    (103,333,993
    )
    
    
    (106,037,321
    )Property, plant and equipment, net
    
    
    195,895,863
    
    
    
    192,874,324Construction in progress (CIP)
    
    
    114,855
    
    
    
    492,449Net Property, plant and equipment
    
    $
    196,010,718
    
    
    $
    193,366,773
  NOTE 5LONG-TERM DEBT
 Notes
 8




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##### Table of Contents



April 30, 2008
    
    
    July 31, 2008Senior Notes, bearing interest at a fixed rate of 12%, maturing in 2010
    
    $
    200,000,000
    
    
    $
    200,000,000Bureau of Indian Affairs, unsecured notes payable with payments of
$27,100 per month, including interest at 8.5%, maturing in 2011
    
    
    929,904
    
    
    
    868,168Capital Equipment Loans with Key Equipment. Five (5) year term,
interest ranging from 7.55% to 8.18%
    
    
    7,243,512
    
    
    
    6,446,631208,173,416
    
    
    
    207,314,799Less current portion
    
    
    (3,534,414
    )
    
    
    (3,603,080
    )Long-term portion
    
    $
    204,639,002
    
    
    $
    203,711,719
 9




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##### Table of Contents



2009 (nine months)
    
    
    2,6762010
    
    
    203,8172011
    
    
    7212012
    
    
    101$
    207,315
  NOTE 6GAMING REVENUE SHARING AND REGULATORY FEES
 Commission
    NOTE 7  EMPLOYEE BENEFITS
   10




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##### Table of Contents



NOTE 8RISK MANAGEMENT
    NOTE 9  COMMITMENTS AND CONTINGENCIES
 Legal Matters
  Occupancy Fee
  Employment Agreements
    NOTE 10RELATED-PARTY TRANSACTIONS
  11




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##### Table of Contents



Shared Services and Cost Allocations
  Employee Benefits Cost Allocations
   Tribal Hunts Accounts Receivable
 MBGH
 NOTE 11STORM RECOVERY
    12




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##### Table of Contents



NOTE 12OPERATING SEGMENTS
    SELECTED OPERATING SEGMENT FINANCIAL INFORMATION
 $(000s)Three Months ended:
    
    IMG
    
    Travel Ctr
    
    Ski
    
    Non Gaming
    
    Non Segment
    
    ConsolidatedJuly 31, 2007Net Revenue
    
    $
    13,545
    
    
    $
    8,441
    
    
    $
    14
    
    
    $
    12,118
    
    
    $
    (289
    )
    
    $
    33,829Operating Income (Loss)
    
    
    10,629
    
    
    
    6,779
    
    
    
    (112
    )
    
    
    3,445
    
    
    
    (13,307
    )
    
    
    7,434Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,235
    
    
    
    4,235Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,623
    )
    
    
    (6,623
    )Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    48July 31, 2008Net Revenue
    
    $
    12,840
    
    
    $
    8,463
    
    
    $
    1
    
    
    $
    12,109
    
    
    $
    (26
    )
    
    $
    33,387Operating Income (Loss)
    
    
    9,903
    
    
    
    6,765
    
    
    
    (1
    )
    
    
    3,210
    
    
    
    (10,899
    )
    
    
    8,978Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,077
    
    
    
    3,077Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,560
    )
    
    
    (6,560
    )Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12
 NOTE 13CONSOLIDATING INFORMATION
 wholly-owned
Guarantors
  13




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of July 31, 2008
(unaudited)
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    7,265,648
    
    
    $
    4,102,044
    
    
    $
    
    
    
    $
    11,367,692Accounts receivable
    
    
    19,483
    
    
    
    575,648
    
    
    
    
    
    
    
    595,131Tribal accounts receivable
    
    
    191,750
    
    
    
    
    
    
    
    
    
    
    
    191,750Inventories
    
    
    200,253
    
    
    
    760,730
    
    
    
    
    
    
    
    960,983Prepaid expenses
    
    
    990,266
    
    
    
    
    
    
    
    
    
    
    
    990,266Total current assets
    
    
    8,667,400
    
    
    
    5,438,422
    
    
    
    
    
    
    
    14,105,822Fixed assets
    
    
    
    
    
    
    299,404,094
    
    
    
    
    
    
    
    299,404,094Accumulated depreciation
    
    
    
    
    
    
    (106,037,321
    )
    
    
    
    
    
    
    (106,037,321
    )Net fixed assets
    
    
    
    
    
    
    193,366,773
    
    
    
    
    
    
    
    193,366,773Non-current assetsOther assets
    
    
    
    
    
    
    263,502
    
    
    
    
    
    
    
    263,502Deferred financing costs
    
    
    4,039,098
    
    
    
    
    
    
    
    
    
    
    
    4,039,098Storm recovery receivable
    
    
    1,100,000
    
    
    
    
    
    
    
    
    
    
    
    1,100,000Advances to subsidiaries
    
    
    51,402,586
    
    
    
    10,279,927
    
    
    
    (61,682,513
    )
    
    
    Investment in subsidiaries
    
    
    154,992,707
    
    
    
    
    
    
    
    (154,992,707
    )
    
    
    Total assets
    
    $
    220,201,791
    
    
    $
    209,348,624
    
    
    $
    (216,675,220
    )
    
    $
    212,875,195Accounts payable
    
    $
    2,603,825
    
    
    $
    
    
    
    $
    
    
    
    $
    2,603,825Accrued expenses
    
    
    2,799,059
    
    
    
    1,081,641
    
    
    
    
    
    
    
    3,880,700Accrued payroll and benefits
    
    
    2,199,996
    
    
    
    
    
    
    
    
    
    
    
    2,199,996Accrued interest
    
    
    5,200,000
    
    
    
    
    
    
    
    
    
    
    
    5,200,000Advanced deposits
    
    
    
    
    
    
    1,003,523
    
    
    
    
    
    
    
    1,003,523Current portion of long-term debt
    
    
    3,344,107
    
    
    
    258,973
    
    
    
    
    
    
    
    3,603,080Total current liabilities
    
    
    16,146,987
    
    
    
    2,344,137
    
    
    
    
    
    
    
    18,491,124Non-current LiabilitiesAdvances from subsidiaries
    
    
    10,279,927
    
    
    
    51,402,586
    
    
    
    (61,682,513
    )
    
    
    Long-term debt, net of current portion
    
    
    203,102,525
    
    
    
    609,194
    
    
    
    
    
    
    
    203,711,719Total liabilities
    
    
    229,529,439
    
    
    
    54,355,917
    
    
    
    (61,682,513
    )
    
    
    222,202,843Contributed capital
    
    
    19,647,938
    
    
    
    (6,012,897
    )
    
    
    6,012,897
    
    
    
    19,647,938Retained earnings (accumulated deficit)
    
    
    (28,975,586
    )
    
    
    161,005,604
    
    
    
    (161,005,604
    )
    
    
    (28,975,586
    )Total equity (deficit)
    
    
    (9,327,648
    )
    
    
    154,992,707
    
    
    
    (154,992,707
    )
    
    
    (9,327,648
    )Total liabilities and equity (deficit)
    
    $
    220,201,791
    
    
    $
    209,348,624
    
    
    $
    (216,675,220
    )
    
    $
    212,875,195
 14




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended July 31, 2008
(Unaudited)
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    21,439,995
    
    
    $
    
    
    
    $
    21,439,995Hotel
    
    
    
    
    
    
    4,104,367
    
    
    
    
    
    
    
    4,104,367Food and beverage
    
    
    
    
    
    
    3,866,700
    
    
    
    
    
    
    
    3,866,700Recreation and other
    
    
    
    
    
    
    4,232,600
    
    
    
    
    
    
    
    4,232,600Gross revenue
    
    
    
    
    
    
    33,643,662
    
    
    
    
    
    
    
    33,643,662Less-promotional allowances
    
    
    15,402
    
    
    
    241,382
    
    
    
    
    
    
    
    256,784Net revenue
    
    
    (15,402
    )
    
    
    33,402,280
    
    
    
    
    
    
    
    33,386,878Operating expenses:Gaming
    
    
    
    
    
    
    7,346,919
    
    
    
    
    
    
    
    7,346,919Hotel expenses
    
    
    
    
    
    
    1,421,946
    
    
    
    
    
    
    
    1,421,946Food and beverage
    
    
    
    
    
    
    3,885,545
    
    
    
    
    
    
    
    3,885,545Recreation and other
    
    
    
    
    
    
    3,589,158
    
    
    
    
    
    
    
    3,589,158Marketing
    
    
    
    
    
    
    1,764,509
    
    
    
    
    
    
    
    1,764,509General and administrative
    
    
    2,370,546
    
    
    
    519,029
    
    
    
    
    
    
    
    2,889,575Health insurance  medical
    
    
    
    
    
    
    548,323
    
    
    
    
    
    
    
    548,323Mescalero Apache 401K
    
    
    
    
    
    
    226,683
    
    
    
    
    
    
    
    226,683Mescalero Apache Telecom
    
    
    
    
    
    
    51,086
    
    
    
    
    
    
    
    51,086Tribal Regulatory Fees
    
    
    
    
    
    
    600,000
    
    
    
    
    
    
    
    600,000Depreciation and amortization
    
    
    
    
    
    
    3,076,918
    
    
    
    
    
    
    
    3,076,918Storm Costs
    
    
    16,108
    
    
    
    46,119
    
    
    
    
    
    
    
    62,227Insurance reimbursement on storm loss
    
    
    (1,100,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,100,000
    )Loss on disposal of assets
    
    
    
    
    
    
    46,118
    
    
    
    
    
    
    
    46,118Total operating expenses
    
    
    1,286,654
    
    
    
    23,122,353
    
    
    
    
    
    
    
    24,409,007Operating income (loss)
    
    
    (1,302,056
    )
    
    
    10,279,927
    
    
    
    
    
    
    
    8,977,871Other income (expense)Interest income
    
    
    12,271
    
    
    
    
    
    
    
    
    
    
    
    12,271Interest expense
    
    
    (6,559,504
    )
    
    
    
    
    
    
    
    
    
    
    (6,559,504
    )Income from subsidiaries
    
    
    10,279,927
    
    
    
    
    
    
    
    (10,279,927
    )
    
    
    Total other income (expense)
    
    
    3,732,694
    
    
    
    
    
    
    
    (10,279,927
    )
    
    
    (6,547,233
    )Net income
    
    $
    2,430,638
    
    
    $
    10,279,927
    
    
    $
    (10,279,927
    )
    
    $
    2,430,638
 15




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended July 31, 2008
(unaudited)
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    2,430,638
    
    
    $
    10,279,927
    
    
    $
    (10,279,927
    )
    
    $
    2,430,638Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    406,311
    
    
    
    3,091,859
    
    
    
    
    
    
    
    3,498,170Loss on disposal of fixed assets
    
    
    
    
    
    
    46,118
    
    
    
    
    
    
    
    46,118Changes in assets and liabilities:Accounts receivable
    
    
    (1,037
    )
    
    
    (26,858
    )
    
    
    
    
    
    
    (27,895
    )Tribal accounts receivable
    
    
    (191,750
    )
    
    
    
    
    
    
    
    
    
    
    (191,750
    )Inventories
    
    
    16,337
    
    
    
    62,766
    
    
    
    
    
    
    
    79,103Prepaid expenses
    
    
    (307,862
    )
    
    
    173,350
    
    
    
    
    
    
    
    (134,512
    )Storm recovery receivable
    
    
    (1,100,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,100,000
    )Other long term assets
    
    
    
    
    
    
    (213,502
    )
    
    
    
    
    
    
    (213,502
    )Accounts payable
    
    
    510,172
    
    
    
    
    
    
    
    
    
    
    
    510,172Accrued expenses, payroll and benefits
    
    
    (28,929
    )
    
    
    232,761
    
    
    
    
    
    
    
    203,832Interest payable
    
    
    (6,000,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000,000
    )Deposits and advanced payments
    
    
    
    
    
    
    645,875
    
    
    
    
    
    
    
    645,875Net cash provided by (used in) operating activities
    
    
    (4,266,120
    )
    
    
    14,292,296
    
    
    
    (10,279,927
    )
    
    
    (253,751
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (494,032
    )
    
    
    
    
    
    
    (494,032
    )Investment in subsidiaries
    
    
    (10,279,927
    )
    
    
    
    
    
    
    10,279,927
    
    
    
    Net cash used by investing activities
    
    
    (10,279,927
    )
    
    
    (494,032
    )
    
    
    10,279,927
    
    
    
    (494,032
    )Cash flows from financing activities:Advances to (from) affiliates
    
    
    13,526,182
    
    
    
    (13,526,182
    )
    
    
    
    
    
    
    Principal payments on long-term debt, net
    
    
    (796,880
    )
    
    
    (61,737
    )
    
    
    
    
    
    
    (858,617
    )Distributions to Mescalero Apache Tribe
    
    
    (2,001,001
    )
    
    
    
    
    
    
    
    
    
    
    (2,001,001
    )Net cash provided by (used in) financing activities
    
    
    10,728,301
    
    
    
    (13,587,919
    )
    
    
    
    
    
    
    (2,859,618
    )Net increase (decrease) in cash and cash equivalents
    
    
    (3,817,746
    )
    
    
    210,345
    
    
    
    
    
    
    
    (3,607,401
    )Cash and cash equivalents, beginning of period
    
    
    11,083,394
    
    
    
    3,891,699
    
    
    
    
    
    
    
    14,975,093Cash and cash equivalents, end of period
    
    $
    7,265,648
    
    
    $
    4,102,044
    
    
    $
    
    
    
    $
    11,367,692
 16




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of April 30, 2008
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    11,083,394
    
    
    $
    3,891,699
    
    
    $
    
    
    
    $
    14,975,093Accounts receivable
    
    
    18,446
    
    
    
    548,790
    
    
    
    
    
    
    
    567,236Inventories
    
    
    216,590
    
    
    
    823,496
    
    
    
    
    
    
    
    1,040,086Prepaid expenses
    
    
    682,404
    
    
    
    173,350
    
    
    
    
    
    
    
    855,754Total current assets
    
    
    12,000,834
    
    
    
    5,437,335
    
    
    
    
    
    
    
    17,438,169Fixed assets
    
    
    
    
    
    
    299,344,711
    
    
    
    
    
    
    
    299,344,711Accumulated depreciation
    
    
    
    
    
    
    (103,333,993
    )
    
    
    
    
    
    
    (103,333,993
    )Net fixed assets
    
    
    
    
    
    
    196,010,718
    
    
    
    
    
    
    
    196,010,718Non-current assetsOther assets
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    50,000Deferred financing costs
    
    
    4,445,409
    
    
    
    
    
    
    
    
    
    
    
    4,445,409Advances to subsidiaries
    
    
    60,244,217
    
    
    
    5,595,376
    
    
    
    (65,839,593
    )
    
    
    Investment in subsidiaries
    
    
    144,712,780
    
    
    
    
    
    
    
    (144,712,780
    )
    
    
    Total assets
    
    $
    221,403,240
    
    
    $
    207,093,429
    
    
    $
    (210,552,373
    )
    
    $
    217,944,296Accounts payable
    
    $
    2,093,653
    
    
    $
    
    
    
    $
    
    
    
    $
    2,093,653Accrued expenses
    
    
    2,449,839
    
    
    
    848,880
    
    
    
    
    
    
    
    3,298,719Accrued payroll and benefits
    
    
    2,578,145
    
    
    
    
    
    
    
    
    
    
    
    2,578,145Accrued interest
    
    
    11,200,000
    
    
    
    
    
    
    
    
    
    
    
    11,200,000Advanced deposits
    
    
    
    
    
    
    357,648
    
    
    
    
    
    
    
    357,648Current portion of long-term debt
    
    
    3,280,867
    
    
    
    253,547
    
    
    
    
    
    
    
    3,534,414Total current liabilities
    
    
    21,602,504
    
    
    
    1,460,075
    
    
    
    
    
    
    
    23,062,579Non-current LiabilitiesAdvances from subsidiaries
    
    
    5,595,376
    
    
    
    60,244,217
    
    
    
    (65,839,593
    )
    
    
    Long-term debt, net of current portion
    
    
    203,962,645
    
    
    
    676,357
    
    
    
    
    
    
    
    204,639,002Total liabilities
    
    
    231,160,525
    
    
    
    62,380,649
    
    
    
    (65,839,593
    )
    
    
    227,701,581Contributed capital
    
    
    21,648,939
    
    
    
    (6,012,897
    )
    
    
    6,012,897
    
    
    
    21,648,939Retained earnings (accumulated deficit)
    
    
    (31,406,224
    )
    
    
    150,725,677
    
    
    
    (150,725,677
    )
    
    
    (31,406,224
    )Total equity (deficit)
    
    
    (9,757,285
    )
    
    
    144,712,780
    
    
    
    (144,712,780
    )
    
    
    (9,757,285
    )Total liabilities and equity (deficit)
    
    $
    221,403,240
    
    
    $
    207,093,429
    
    
    $
    (210,552,373
    )
    
    $
    217,944,296
 17




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended July 31, 2007
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    22,000,709
    
    
    $
    
    
    
    $
    22,000,709Hotel
    
    
    
    
    
    
    4,121,358
    
    
    
    
    
    
    
    4,121,358Food and Beverage
    
    
    
    
    
    
    4,009,257
    
    
    
    
    
    
    
    4,009,257Recreation and other
    
    
    
    
    
    
    4,378,966
    
    
    
    
    
    
    
    4,378,966Gross Revenue
    
    
    
    
    
    
    34,510,290
    
    
    
    
    
    
    
    34,510,290Less-Promotional Allowances
    
    
    295
    
    
    
    681,313
    
    
    
    
    
    
    
    681,608Net Revenue
    
    
    (295
    )
    
    
    33,828,977
    
    
    
    
    
    
    
    33,828,682Operating ExpensesGaming
    
    
    
    
    
    
    7,353,458
    
    
    
    
    
    
    
    7,353,458Hotel expenses
    
    
    
    
    
    
    1,226,922
    
    
    
    
    
    
    
    1,226,922Food and beverage
    
    
    
    
    
    
    3,881,886
    
    
    
    
    
    
    
    3,881,886Recreation and other
    
    
    
    
    
    
    3,749,389
    
    
    
    
    
    
    
    3,749,389Marketing
    
    
    
    
    
    
    2,211,712
    
    
    
    
    
    
    
    2,211,712General and administrative
    
    
    1,511,366
    
    
    
    738,570
    
    
    
    
    
    
    
    2,249,936Health Insurance  Medical
    
    
    
    
    
    
    549,849
    
    
    
    
    
    
    
    549,849Mescalero Apache 401K
    
    
    
    
    
    
    221,286
    
    
    
    
    
    
    
    221,286Mescalero Apache Telecom
    
    
    
    
    
    
    51,002
    
    
    
    
    
    
    
    51,002Tribal Regulatory Fees
    
    
    
    
    
    
    600,000
    
    
    
    
    
    
    
    600,000Depreciation and amortization
    
    
    
    
    
    
    4,235,364
    
    
    
    
    
    
    
    4,235,364Loss on disposal of assets
    
    
    63,847
    
    
    
    
    
    
    
    
    
    
    
    63,847Total Operating Expenses
    
    
    1,575,213
    
    
    
    24,819,438
    
    
    
    
    
    
    
    26,394,651Operating Income (Loss)
    
    
    (1,575,508
    )
    
    
    9,009,539
    
    
    
    
    
    
    
    7,434,031Other Income (Expense)Interest Income
    
    
    47,942
    
    
    
    
    
    
    
    
    
    
    
    47,942Interest Expense
    
    
    (6,622,871
    )
    
    
    
    
    
    
    
    
    
    
    (6,622,871
    )Income from subsidiaries
    
    
    9,009,539
    
    
    
    
    
    
    
    (9,009,539
    )
    
    
    Total Other Income (expense)
    
    
    2,434,610
    
    
    
    
    
    
    
    (9,009,539
    )
    
    
    (6,574,929
    )Net Income
    
    $
    859,102
    
    
    $
    9,009,539
    
    
    $
    (9,009,539
    )
    
    $
    859,102
 18




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended July 31, 2007
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    859,102
    
    
    $
    9,009,539
    
    
    $
    (9,009,539
    )
    
    $
    859,102Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    406,311
    
    
    
    4,235,364
    
    
    
    
    
    
    
    4,641,675Loss on disposal of equipment
    
    
    
    
    
    
    63,847
    
    
    
    
    
    
    
    63,847Changes in assets and liabilities:Accounts receivable
    
    
    (4,230
    )
    
    
    (282,830
    )
    
    
    
    
    
    
    (287,060
    )Inventories
    
    
    (151,743
    )
    
    
    (95,530
    )
    
    
    
    
    
    
    (247,273
    )Prepaid expenses
    
    
    (244,582
    )
    
    
    
    
    
    
    
    
    
    
    (244,582
    )Other long term assets
    
    
    (50,000
    )
    
    
    (112,575
    )
    
    
    
    
    
    
    (162,575
    )Accounts payable
    
    
    671,867
    
    
    
    
    
    
    
    
    
    
    
    671,867Accrued expenses, payroll and benefits
    
    
    (611,975
    )
    
    
    209,915
    
    
    
    
    
    
    
    (402,060
    )Interest Payable
    
    
    (6,000,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000,000
    )Deposits and advanced payments
    
    
    
    
    
    
    764,384
    
    
    
    
    
    
    
    764,384Net cash provided by (used in) operating activities
    
    
    (5,125,250
    )
    
    
    13,792,114
    
    
    
    (9,009,539
    )
    
    
    (342,675
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (426,050
    )
    
    
    
    
    
    
    (426,050
    )Investment in subsidiaries
    
    
    (9,009,539
    )
    
    
    
    
    
    
    9,009,539
    
    
    
    Net cash used by investing activities
    
    
    (9,009,539
    )
    
    
    (426,050
    )
    
    
    9,009,539
    
    
    
    (426,050
    )Cash flows from financing activities:Advances to (from) affiliates
    
    
    12,496,846
    
    
    
    (12,496,846
    )
    
    
    
    
    
    
    Principal payments on long-term debt, net
    
    
    (965,340
    )
    
    
    (56,956
    )
    
    
    
    
    
    
    (1,022,296
    )Distributions to Mescalero Apache Tribe
    
    
    (2,001,001
    )
    
    
    
    
    
    
    
    
    
    
    (2,001,001
    )Net cash used by (provided by) financing activities
    
    
    9,530,505
    
    
    
    (12,553,802
    )
    
    
    
    
    
    
    (3,023,297
    )Net (decrease) increase in cash and cash equivalents
    
    
    (4,604,284
    )
    
    
    812,262
    
    
    
    
    
    
    
    (3,792,022
    )Cash and cash equivalents, beginning of period
    
    
    12,808,711
    
    
    
    4,120,919
    
    
    
    
    
    
    
    16,929,630Cash and cash equivalents, end of period
    
    $
    8,204,427
    
    
    $
    4,933,181
    
    
    $
    
    
    
    $
    13,137,608
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Reference in this Quarterly Report on Form 10-Q (this  Form 10-Q  or this Report) to (a) the
Tribe refers to the Mescalero Apache Tribe, a federally recognized Indian tribe, (b) IMG Resort
and Casino refers to Inn of the Mountain Gods Resort and Casino, a business enterprise of the
Tribe, (c) Casino Apache refers to Casino Apache, a business enterprise of the Tribe, (d) the
Inn refers to Inn of the Mountain Gods, a business enterprise of the Tribe, (e) the Travel
Center refers to Casino Apache Travel Center, a business enterprise of the Tribe and (f) Ski
Apache refers to Ski Apache, a business enterprise of the Tribe. Each of Casino Apache, the Inn,
the Travel Center and Ski Apache is a wholly-owned subsidiary of IMG Resort and Casino. Reference
in this Form 10-Q to we, our, and us refer to IMG Resort and Casino.
 FORWARDLOOKING STATEMENTS
 This Form 10-Q includes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Statements regarding our expected financial condition,
results of operations, business, strategies and financing plans under the heading Managements
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this
Form 10-Q are forward-looking statements. In addition, in those and other portions of this Form
10-Q, the words anticipate, expect, plan, intend, will, designed, estimate, adjust
and similar expressions, as they relate to us or our management, indicate forward-looking
statements. These forward-looking statements may prove to be incorrect. Important factors that
could cause actual results to differ materially from these forward-looking statements disclosed in
this Form 10-Q include, without limitation, risks relating to the following: (a) our levels of
leverage and ability to meet our debt service obligations; (b) our financial performance; (c)
restrictive covenants in our debt instruments; (d) realizing the benefits of our business plan and
business strategies; (e) changes in gaming laws or regulations, including potential legalization of
gaming in certain jurisdictions; (f) the impact of competition in our markets; (g) our ability to
attract increasing numbers of customers; and (h) general local, domestic and global economic
conditions
 You are urged to consider these factors carefully in evaluating the forward-looking statements
contained in this Form 10-Q . All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by our
cautionary statements. The forward-looking statements included in this Form 10-Q are made only as
of the date of this Form 10-Q . We do not intend, and undertake no obligation, to update these
forward-looking statements.
 Overview
  Gaming Travel Center Casino
 Food and Beverage
 Rooms
 20




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##### Table of Contents



Recreation and Other
 Critical Accounting Policies
  Revenue Recognition
 Promotional Allowances
  EITF Accounting for Certain Sales Incentives Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and
Offers for Reproduces, or Services to be delivered in the futur
 Classification of Departmental Costs
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##### Table of Contents



Deferred Financing Costs
 Results of Operations
 Quarter Ended July 31, 2008 Compared to Quarter Ended July 31, 2007.
 Net Revenues
 Gaming
 Hotel
 Food and Beverage
 Recreation and Other
 Promotional Allowances
 Total Operating Expenses
 Gaming
 Hotel
 Food and Beverage
 Recreation and Other
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##### Table of Contents



Marketing
 General and Administrative.
 Health Insurance
 Mescalero Apache 401K
 Mescalero Apache Telecom
 Tribal Regulatory Fees
 Depreciation
 Storm
Costs
 Income from Operations
 Other Income (Expenses)
 Liquidity and Capital Resources
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##### Table of Contents



Description of Indebtedness
 The Notes
    Incurrence of Additional Indebtedness
  General Indebtedness
  Credit Facility
  Credit Rating
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##### Table of Contents



Off-Balance Sheet Arrangements
  Regulation and Taxes
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings.
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##### Table of Contents



Item 1A. Risk Factors.
 Storm damage may delay the scheduled opening of Ski Apache
  IMG Resort and Casinos insurance policy may fail to cover all of the storm damage.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
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##### Table of Contents



Item 6. Exhibits.
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



SIGNATURES
  INN OF THE MOUNTAIN GODS RESORT AND CASINODate: September 15, 2008
    
    By
    
    /s/ Douglas LentzName:
    
    Douglas LentzIts:
    
    Chief Operating Officer (Principal Executive Officer)Date: September 15, 2008
    
    By
    
    /s/ Daniel McCueName:
    
    Daniel McCueIts:
    
    Chief Financial Officer (Principal Financial Officer)
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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 29