##### 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, 2006
 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) 464-7004
  þ o
  o o þ
  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, 2006
 INDEX
 PagesPART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements:Consolidated Balance Sheets as of
April 30, 2006 and July 31, 2006 (unaudited)
    
    
    1Consolidated Statements of Operations for the Three Month Periods Ended
July 31,2006 (unaudited) and July 31, 2005 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for the Three Month Periods Ended
July 31, 2006 (unaudited) and July 31, 2005 (unaudited)
    
    
    3Notes
to Consolidated Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    36Ex-31.1Ex-31.2Ex-32.1
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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
    
    
    As ofJuly 31, 2006
    
    
    April 30, 2006(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    12,970,144
    
    
    $
    16,768,372Restricted cash and cash equivalents
    
    
    18,227,531
    
    
    
    18,171,534Accounts receivable, net of allowance for doubtful accounts
    
    
    853,617
    
    
    
    565,420Inventories
    
    
    697,876
    
    
    
    809,789Prepaid expenses
    
    
    741,595
    
    
    
    372,774Total current assets
    
    
    33,490,763
    
    
    
    36,687,889NON CURRENT ASSETS:Property, plant and equipment,
    
    
    301,063,190
    
    
    
    300,320,136Accumulated depreciation and amortization
    
    
    (75,896,761
    )
    
    
    (71,385,662
    )Property, plant and equipment, net
    
    
    225,166,429
    
    
    
    228,934,474Deferred financing cost
    
    
    7,289,586
    
    
    
    7,695,897Other long-term assets
    
    
    50,000
    
    
    
    42,003Total assets
    
    $
    265,996,778
    
    
    $
    273,360,263LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable and other short-term liabilities
    
    $
    1,970,306
    
    
    $
    2,606,670Construction accounts payable
    
    
    2,274,874
    
    
    
    2,274,874Accrued expenses
    
    
    11,350,762
    
    
    
    10,760,344Accrued interest
    
    
    5,200,000
    
    
    
    11,200,000Deposits and advance payments
    
    
    969,548
    
    
    
    372,470Current portion of long-term debt
    
    
    4,294,676
    
    
    
    3,250,329Total current liabilities
    
    
    26,060,166
    
    
    
    30,464,687NON CURRENT LIABILITIES:Long-term debt, net of current portion
    
    
    210,653,475
    
    
    
    211,530,149Total liabilities
    
    
    236,713,641
    
    
    
    241,994,836COMMITMENTS AND CONTINGENCIES (Note 10)EQUITY:Contributed capital
    
    
    51,388,249
    
    
    
    52,633,096Retained Earnings (deficit)
    
    
    (22,105,112
    )
    
    
    (21,267,669
    )Total equity
    
    
    29,283,137
    
    
    
    31,365,427Total liabilities and equity
    
    $
    265,996,778
    
    
    $
    273,360,263
  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, 2006
    
    
    July 31, 2005Revenues:Gaming
    
    $
    20,702,932
    
    
    $
    22,027,349Hotel
    
    
    3,689,635
    
    
    
    2,911,685Food and Beverage
    
    
    3,449,483
    
    
    
    3,456,576Recreation and other
    
    
    4,673,607
    
    
    
    3,178,444Gross Revenue
    
    
    32,515,657
    
    
    
    31,574,054Less-Promotional Allowances
    
    
    334,465
    
    
    
    945,570Net Revenue
    
    
    32,181,192
    
    
    
    30,628,484Operating ExpensesGaming
    
    
    4,684,452
    
    
    
    4,387,818Hotel expenses
    
    
    1,334,204
    
    
    
    1,425,997Food and beverage
    
    
    3,884,054
    
    
    
    5,051,823Recreation and other
    
    
    3,872,377
    
    
    
    2,901,636Marketing and Advertising
    
    
    2,517,383
    
    
    
    2,284,675General and administrative
    
    
    4,412,787
    
    
    
    7,206,324Health Insurance  Medical
    
    
    530,986
    
    
    
    516,541Mescalero Apache Telecom
    
    
    64,536
    
    
    
    57,626Tribal Regulatory Fees
    
    
    600,000
    
    
    
    962,294Depreciation and amortization
    
    
    4,511,099
    
    
    
    4,765,225Total Operating Expenses
    
    
    26,411,878
    
    
    
    29,559,959Operating Income (Loss)
    
    
    5,769,314
    
    
    
    1,068,525Other Income (Expense)Interest Income
    
    
    81,998
    
    
    
    174,783Interest Expense
    
    
    (6,688,173
    )
    
    
    (6,607,147
    )Other expense
    
    
    (582
    )
    
    
    (302,444
    )Total Other Income (expense)
    
    
    (6,606,757
    )
    
    
    (6,734,808
    )Net loss
    
    $
    (837,443
    )
    
    $
    (5,666,283
    )
  2




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 For the three months ended July 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (837,443
    )
    
    $
    (5,666,283
    )Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    5,191,638
    
    
    
    5,285,048Changes in assets and liabilities:Disposal fixed assets
    
    
    7,439
    
    
    
    Restricted cash and cash equivalents
    
    
    
    
    
    
    340,742Accounts receivable, net of allowance
    
    
    (288,197
    )
    
    
    (304,020
    )Inventories
    
    
    111,913
    
    
    
    223,840Prepaid expenses
    
    
    (368,821
    )
    
    
    571,549Other long-term assets
    
    
    (7,997
    )
    
    
    (53,055
    )Accounts payable
    
    
    (636,364
    )
    
    
    (760,976
    )Accrued expenses
    
    
    1,187,496
    
    
    
    (961,344
    )Accrued interest payable
    
    
    (6,000,000
    )
    
    
    (5,967,179
    )Net cash used in operating activities
    
    
    (1,640,336
    )
    
    
    (7,291,678
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (40,781
    )
    
    
    (9,905,741
    )Construction accounts payable
    
    
    
    
    
    
    286,956Net cash used in investing activities
    
    
    (40,781
    )
    
    
    (9,618,785
    )Cash flows from financing activities:Cash held for construction payments
    
    
    (55,997
    )
    
    
    11,167,345Principal borrowings (payments) on long-term debt
    
    
    (816,267
    )
    
    
    14,478,673Distributions to Mescalero Apache Tribe
    
    
    (1,244,847
    )
    
    
    (2,308,800
    )Net cash provided by financing activities
    
    
    (2,117,111
    )
    
    
    23,337,218Net increase (decrease) in cash and cash equivalents
    
    
    (3,798,228
    )
    
    
    6,426,755Cash and cash equivalents, beginning of year
    
    
    16,768,372
    
    
    
    13,718,521Cash and cash equivalents, end of year
    
    $
    12,970,144
    
    
    $
    20,145,276Supplemental cash flow information:Cash paid for interest
    
    $
    12,688,173
    
    
    $
    12,136,517Non-cash investing and financing activities:Property, plant and equipment acquired through capital lease
    
    $
    983,940
    
    
    $
    422,850
 3




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##### Table of Contents



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 the Ski Apache
Resort Inn Inn Hotel
 the Inn of the Mountain Gods Casino IGRA
 SEC
 Principles of Consolidation
  Use of Estimates
  4




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##### Table of Contents



Cash and Cash Equivalents
  Restricted 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 - 50
    
    years
 Deferred Financing Costs
  5




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##### Table of Contents



Impairment of Long Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets SFAS 144
 Fair Value of Financial Instruments
  Contributed Capital
  Revenues
   Promotional Allowances
   EITF Accounting for Certain Sales Incentives
 6




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##### Table of Contents



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 31,2006
    
    
    2005Rooms
    
    $
    182,733
    
    
    $
    Food and beverage
    
    
    162,857
    
    
    
    354,547Other
    
    
    2,730
    
    
    
    (290,936
    )$
    348,320
    
    
    $
    63,611
 Compensated Absences
  
    
    One week of annual leave after one year of employment.
    
    Two weeks of annual leave after two years of employment.
    
    Three weeks of annual leave after three years of employment.
    
    Four weeks of annual leave after fifteen years of employment.
   Marketing and Advertising Costs
  Tribal Taxes
  7




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##### Table of Contents



Classification of Departmental Costs
  Capitalization of Interest
  Income Taxes
  New Accounting Pronouncements
 SFAS 154
 NOTE 2ALLOWANCE FOR DOUBTFUL ACCOUNTS
   8




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##### Table of Contents



NOTE 3RESTRICTED CASH AND CASH EQUIVALENTS
  July 31, 2006
    
    
    April 30, 2006Interest reserve
    
    $
    22,949
    
    
    $
    22,881Construction reserve
    
    
    15,865,605
    
    
    
    15,818,236Construction retainage
    
    
    2,338,977
    
    
    
    2,330,417Total restricted cash
    
    $
    18,227,531
    
    
    $
    18,171,534
 NOTE 4INVENTORIES
  July 31, 2006
    
    
    April 30, 2006Food and beverage
    
    $
    330,618
    
    
    $
    259,580Golf and pro shop
    
    
    180,698
    
    
    
    134,377Gift shops, fuel and other,
    
    
    345,659
    
    
    
    567,577Reserves
    
    
    (159,099
    )
    
    
    (151,745
    )Inventories- Net of Reserves
    
    $
    697,876
    
    
    $
    809,789
 NOTE 5PROPERTY, PLANT AND EQUIPMENT, NET
  July 31, 2006
    
    
    April 30, 2006Land
    
    $
    538,894
    
    
    $
    538,894Buildings, lifts and snowmaking
equipment
    
    
    217,928,997
    
    
    
    217,928,997Non-gaming equipment, furniture and
other
    
    
    50,905,859
    
    
    
    51,167,661Gaming equipment
    
    
    22,453,709
    
    
    
    21,469,769Leasehold and land improvements, lake
and golf course
    
    
    6,842,477
    
    
    
    6,842,477Subtotal
    
    
    298,669,936
    
    
    $
    297,947,798Less accumulated depreciation and
amortization
    
    
    (75,896,761
    )
    
    
    (71,385,662
    )Property, plant and equipment, net
    
    
    222,773,175
    
    
    
    226,562,136Construction in progress (CIP)
    
    
    2,393,254
    
    
    
    2,372,338Net Property, plant and equipment
    
    $
    225,166,429
    
    
    $
    228,934,474
 NOTE 6LONG-TERM DEBT
 Notes
  9




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July 31, 2006
    
    
    April 30, 2006Senior 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
    
    
    1,325,251
    
    
    
    1,457,501Capital Equipment Loans with Key Equipment.
Five (5) year term, 7.65% interest
    
    
    12,415,338
    
    
    
    13,099,354Short-Term Notes, up to 8% imputed interest
    
    
    1,207,562
    
    
    
    223,623214,948,151
    
    
    
    214,780,478Less current portion
    
    
    (4,294,676
    )
    
    
    (3,250,329
    )Long-term portion
    
    $
    210,653,475
    
    
    $
    211,530,149
  2007 (nine months)
    
    $
    4,2952008
    
    
    3,3312009
    
    
    3,5982010
    
    
    203,3522011
    
    
    3272012+
    
    
    45$
    214,948
  10




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##### Table of Contents



NOTE 7GAMING REVENUE SHARING AND REGULATORY FEES
    NOTE 9RISK MANAGEMENT
     NOTE 10  COMMITMENTS AND CONTINGENCIES
 Legal Matters
  11




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##### Table of Contents



Occupancy Fee
  Construction Agreement
  Employment
Agreements
   NOTE 11RELATED-PARTY TRANSACTIONS
   NOTE 12OPERATING SEGMENTS
   12




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##### Table of Contents



SELECTED OPERATING SEGMENT FINANCIAL INFORMATION
 $(000s)
 GamingIMG
    
    Travel Ctr
    
    Ski
    
    Non Gaming
    
    Non Segment
    
    ConsolidatedJuly 31, 2006Net Revenue
    
    $
    12,567
    
    
    $
    8,143
    
    
    $
    3
    
    
    $
    11,814
    
    
    $
    (346
    )
    
    $
    32,181Operating Income
    
    
    9,371
    
    
    
    6,524
    
    
    
    (787
    )
    
    
    2,712
    
    
    
    (12,051
    )
    
    
    5,769Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    4,999
    
    
    
    5,192Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,688
    )
    
    
    (6,688
    )Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    82July 31, 2005Net Revenue
    
    $
    13,798
    
    
    $
    8,025
    
    
    $
    
    
    
    $
    8,445
    
    
    $
    
    
    
    $
    30,268Operating Income
    
    
    9,966
    
    
    
    6,464
    
    
    
    (908
    )
    
    
    223
    
    
    
    (16,750
    )
    
    
    1,069Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    5,086
    
    
    
    5,285Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,607
    
    
    
    6,607Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    175
 NOTE 13CONSOLIDATING INFORMATION
 wholly-owned Guarantors
  
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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of July 31, 2006
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    6,007,843
    
    
    $
    6,962,301
    
    
    $
    
    
    
    $
    12,970,144Restricted cash and cash equivalents
    
    
    18,227,531
    
    
    
    
    
    
    
    
    
    
    
    18,227,531Accounts receivable
    
    
    141,735
    
    
    
    711,882
    
    
    
    
    
    
    
    853,617Inventories
    
    
    
    
    
    
    697,876
    
    
    
    
    
    
    
    697,876Prepaid expenses
    
    
    699,689
    
    
    
    41,906
    
    
    
    
    
    
    
    741,595Total current assets
    
    
    25,076,798
    
    
    
    8,413,965
    
    
    
    
    
    
    
    33,490,763Fixed Assets
    
    
    2,392,226
    
    
    
    298,670,964
    
    
    
    
    
    
    
    301,063,190Depreciation
    
    
    (251,806
    )
    
    
    (75,644,955
    )
    
    
    
    
    
    
    (75,896,761
    )Net fixed assets
    
    
    2,140,420
    
    
    
    223,026,009
    
    
    
    
    
    
    
    225,166,429Non-Current AssetsOther Assets
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Capitalized interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred financing costs
    
    
    7,289,586
    
    
    
    
    
    
    
    
    
    
    
    7,289,586Advances to Subsidiaries
    
    
    198,368,492
    
    
    
    47,378,638
    
    
    
    (245,747,130
    )
    
    
    Investment in Subsidiaries
    
    
    74,357,968
    
    
    
    
    
    
    
    (74,357,968
    )
    
    
    Total Assets
    
    $
    307,283,264
    
    
    $
    278,818,612
    
    
    $
    (320,105,098
    )
    
    $
    265,996,778Accounts Payable and other short term
liabilities
    
    $
    1,970,306
    
    
    $
    
    
    
    $
    
    
    
    $
    1,970,306Construction accounts payable
    
    
    2,274,874
    
    
    
    
    
    
    
    
    
    
    
    2,274,874Accrued expenses
    
    
    10,684,673
    
    
    
    666,089
    
    
    
    
    
    
    
    11,350,762Accrued interest
    
    
    5,200,000
    
    
    
    
    
    
    
    
    
    
    
    5,200,000Advanced deposits
    
    
    812
    
    
    
    968,736
    
    
    
    
    
    
    
    969,548Current portion of long-term debt
    
    
    4,078,026
    
    
    
    216,650
    
    
    
    
    
    
    
    4,294,676Total current liabilities
    
    
    24,208,691
    
    
    
    1,851,475
    
    
    
    
    
    
    
    26,060,166Non-Current LiabilitiesAdvances from subsidiaries
    
    
    44,246,561
    
    
    
    201,500,569
    
    
    
    (245,747,130
    )
    
    
    Long-term debt, net of current portion
    
    
    209,544,875
    
    
    
    1,108,600
    
    
    
    
    
    
    
    210,653,475Total liabilities
    
    
    278,000,127
    
    
    
    204,460,644
    
    
    
    (245,747,130
    )
    
    
    236,713,641Contributed Capital
    
    
    51,388,249
    
    
    
    (19,109,994
    )
    
    
    19,109,994
    
    
    
    51,388,249Retained Earnings (deficit)
    
    
    (22,105,112
    )
    
    
    93,467,962
    
    
    
    (93,467,962
    )
    
    
    (22,105,112
    )Total equity
    
    
    29,283,137
    
    
    
    74,357,968
    
    
    
    (74,357,968
    )
    
    
    29,283,137Total liabilities and equity
    
    $
    307,283,264
    
    
    $
    278,818,612
    
    
    $
    (320,105,098
    )
    
    $
    265,996,778
 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, 2006
 IMG Resort
    
    
    Guarantorand Casino
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    20,702,932
    
    
    $
    
    
    
    $
    20,702,932Hotel
    
    
    
    
    
    
    3,689,635
    
    
    
    
    
    
    
    3,689,635Food and Beverage
    
    
    
    
    
    
    3,449,483
    
    
    
    
    
    
    
    3,449,483Recreation and other
    
    
    12,693
    
    
    
    4,660,914
    
    
    
    
    
    
    
    4,673,607Gross Revenue
    
    
    12,693
    
    
    
    32,502,964
    
    
    
    
    
    
    
    32,515,657Less -Promotional Allowances
    
    
    43
    
    
    
    334,422
    
    
    
    
    
    
    
    334,465Net Revenue
    
    
    12,650
    
    
    
    32,168,542
    
    
    
    
    
    
    
    32,181,192Operating ExpensesGaming
    
    
    75,569
    
    
    
    4,608,883
    
    
    
    
    
    
    
    4,684,452Hotel expenses
    
    
    
    
    
    
    1,334,204
    
    
    
    
    
    
    
    1,334,204Food and beverage
    
    
    
    
    
    
    3,884,054
    
    
    
    
    
    
    
    3,884,054Recreation and other
    
    
    
    
    
    
    3,872,377
    
    
    
    
    
    
    
    3,872,377Marketing
    
    
    
    
    
    
    2,517,383
    
    
    
    
    
    
    
    2,517,383General and administrative
    
    
    1,557,421
    
    
    
    2,855,366
    
    
    
    
    
    
    
    4,412,787Health
Insurance  Medical
    
    
    
    
    
    
    530,986
    
    
    
    
    
    
    
    530,986Mescalero Apache Telecom
    
    
    
    
    
    
    64,536
    
    
    
    
    
    
    
    64,536Tribal Regulatory Fees
    
    
    
    
    
    
    600,000
    
    
    
    
    
    
    
    600,000Depreciation and amortization
    
    
    
    
    
    
    4,511,099
    
    
    
    
    
    
    
    4,511,099Total Operating Expenses
    
    
    1,632,990
    
    
    
    24,778,888
    
    
    
    
    
    
    
    26,411,878Operating Income (Loss)
    
    
    (1,620,340
    )
    
    
    7,389,654
    
    
    
    
    
    
    
    5,769,314Other Income (Expense)Interest Income
    
    
    81,998
    
    
    
    
    
    
    
    
    
    
    
    81,998Interest Expense
    
    
    (6,688,173
    )
    
    
    
    
    
    
    
    
    
    
    (6,688,173
    )Income from subsidiaries
    
    
    7,389,654
    
    
    
    
    
    
    
    (7,389,654
    )
    
    
    Other income (expense)
    
    
    (582
    )
    
    
    
    
    
    
    
    
    
    
    (582
    )Total Other Income (expense)
    
    
    782,897
    
    
    
    
    
    
    
    (7,389,654
    )
    
    
    (6,606,757
    )Net Income (Loss)
    
    $
    (837,443
    )
    
    $
    7,389,654
    
    
    $
    (7,389,654
    )
    
    $
    (837,443
    )
 15




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Quarter Ended July 31, 2006
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (837,443
    )
    
    $
    7,389,654
    
    
    $
    (7,389,654
    )
    
    $
    (837,443
    )Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    (406,063
    )
    
    
    5,597,701
    
    
    
    
    
    
    
    5,191,638Loss on disposal fixed assets
    
    
    
    
    
    
    7,439
    
    
    
    
    
    
    
    7,439Changes in assets and liabilities:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net of allowance
    
    
    (137,314
    )
    
    
    (150,883
    )
    
    
    
    
    
    
    (288,197
    )Inventories
    
    
    
    
    
    
    111,913
    
    
    
    
    
    
    
    111,913Prepaid expenses
    
    
    334,660
    
    
    
    (703,481
    )
    
    
    
    
    
    
    (368,821
    )Other long term assets
    
    
    
    
    
    
    (7,997
    )
    
    
    
    
    
    
    (7,997
    )Accounts payable
    
    
    (636,364
    )
    
    
    
    
    
    
    
    
    
    
    (636,364
    )Accrued expenses
    
    
    
    
    
    
    1,187,496
    
    
    
    
    
    
    
    1,187,496Interest payable
    
    
    (6,000,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000,000
    )Net cash provided by (used in) operating
activities
    
    
    (7,682,524
    )
    
    
    13,431,842
    
    
    
    (7,389,654
    )
    
    
    (1,640,336
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (40,781
    )
    
    
    
    
    
    
    (40,781
    )Investment in subsidiaries
    
    
    930,342
    
    
    
    
    
    
    
    (930,342
    )
    
    
    Net cash used by investing activities
    
    
    930,342
    
    
    
    (40,781
    )
    
    
    1,313,734
    
    
    
    (40,781
    )Cash flows from financing activities:Cash held from construction payments
    
    
    (55,997
    )
    
    
    
    
    
    
    
    
    
    
    (55,997
    )Advances to (from) affiliates
    
    
    3,633,657
    
    
    
    (11,953,653
    )
    
    
    8,319,996
    
    
    
    Principal borrowings (payments) on debt
    
    
    (684,017
    )
    
    
    (132,250
    )
    
    
    
    
    
    
    (816,267
    )Distributions to Mescalero Apache Tribe
    
    
    (1,244,847
    )
    
    
    
    
    
    
    
    
    
    
    (1,244,847
    )Net cash provided by (used in) financing
activities
    
    
    1,648,796
    
    
    
    (12,085,093
    )
    
    
    8,319,996
    
    
    
    (2,117,111
    )Net (decrease) increase in cash and cash equivalents
    
    
    (5,103,386
    )
    
    
    1,305,158
    
    
    
    
    
    
    
    (3,798,228
    )Cash and cash equivalents, beginning of period
    
    
    11,111,229
    
    
    
    5,657,143
    
    
    
    
    
    
    
    16,768,372Cash and cash equivalents, end of period
    
    $
    6,007,843
    
    
    $
    6,962,301
    
    
    $
    
    
    
    $
    12,970,144
 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, 2006
 IMG Resort
    
    
    Wholly-ownedand Casino
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    11,111,229
    
    
    $
    5,657,143
    
    
    $
    
    
    
    $
    16,768,372Restricted cash and cash equivalents
    
    
    18,171,534
    
    
    
    0
    
    
    
    
    
    
    
    18,171,534Accounts receivable
    
    
    4,421
    
    
    
    560,999
    
    
    
    
    
    
    
    565,420Inventories
    
    
    
    
    
    
    809,789
    
    
    
    
    
    
    
    809,789Prepaid expenses
    
    
    334,660
    
    
    
    38,114
    
    
    
    
    
    
    
    372,774Total current assets
    
    
    29,621,844
    
    
    
    7,066,045
    
    
    
    
    
    
    
    36,687,889Fixed Assets
    
    
    2,371,311
    
    
    
    297,948,825
    
    
    
    
    
    
    
    300,320,136Depreciation
    
    
    (251,806
    )
    
    
    (71,133,856
    )
    
    
    
    
    
    
    (71,385,662
    )Net fixed assets
    
    
    2,119,505
    
    
    
    226,814,969
    
    
    
    
    
    
    
    228,934,474Non Current AssetsOther Assets
    
    
    50,000
    
    
    
    (7,997
    )
    
    
    
    
    
    
    42,003Capitalized interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred financing costs
    
    
    7,695,897
    
    
    
    
    
    
    
    
    
    
    
    7,695,897Advances to Subsidiaries
    
    
    186,971,842
    
    
    
    42,824,251
    
    
    
    (229,796,093
    )
    
    
    Investment in Subsidiaries
    
    
    75,288,309
    
    
    
    
    
    
    
    (75,288,309
    )
    
    
    Total Assets
    
    $
    301,747,397
    
    
    $
    276,697,268
    
    
    $
    (305,084,402
    )
    
    $
    273,360,263Accounts Payable and other short term
liabilities
    
    $
    2,606,670
    
    
    $
    
    
    
    $
    
    
    
    $
    2,606,670Construction in progress accounts
payable
    
    
    2,274,874
    
    
    
    
    
    
    
    
    
    
    
    2,274,874Accrued expenses
    
    
    11,090,735
    
    
    
    (330,391
    )
    
    
    
    
    
    
    10,760,344Accrued interest
    
    
    11,200,000
    
    
    
    
    
    
    
    
    
    
    
    11,200,000Advanced deposits
    
    
    815
    
    
    
    371,655
    
    
    
    
    
    
    
    372,470Current portion of long-term debt
    
    
    3,039,808
    
    
    
    210,521
    
    
    
    
    
    
    
    3,250,329Total current liabilities
    
    
    30,212,902
    
    
    
    251,785
    
    
    
    
    
    
    
    30,464,687Non Current Liabilities:Advances from subsidiaries
    
    
    29,885,898
    
    
    
    199,910,195
    
    
    
    (229,796,093
    )
    
    
    Long-term debt, net of current portion
    
    
    210,283,170
    
    
    
    1,246,979
    
    
    
    
    
    
    
    211,530,149Total liabilities
    
    
    270,381,970
    
    
    
    201,408,959
    
    
    
    (229,796,093
    )
    
    
    241,994,836Contributed Capital
    
    
    52,633,096
    
    
    
    (19,109,994
    )
    
    
    19,109,994
    
    
    
    52,633,096Retained earnings (deficit)
    
    
    (21,267,669
    )
    
    
    94,398,303
    
    
    
    (94,398,303
    )
    
    
    (21,267,669
    )Total equity
    
    
    31,365,427
    
    
    
    75,288,309
    
    
    
    (75,288,309
    )
    
    
    31,365,427Total liabilities and equity
    
    $
    301,747,397
    
    
    $
    276,697,268
    
    
    $
    (305,084,402
    )
    
    $
    273,360,263
 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, 2005
 IMG Resort
    
    
    Wholly-ownedand Casino
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    22,027,349
    
    
    $
    
    
    
    $
    22,027,349Food and Beverage
    
    
    
    
    
    
    3,456,576
    
    
    
    
    
    
    
    3,456,576Hotel
    
    
    
    
    
    
    2,911,685
    
    
    
    
    
    
    
    2,911,685Recreation and other
    
    
    
    
    
    
    3,178,444
    
    
    
    
    
    
    
    3,178,444Gross Revenue
    
    
    
    
    
    
    31,574,054
    
    
    
    
    
    
    
    31,574,054Less -Promotional Allowances
    
    
    55
    
    
    
    945,515
    
    
    
    
    
    
    
    945,570Net Revenue
    
    
    (55
    )
    
    
    30,628,539
    
    
    
    
    
    
    
    30,628,484Operating ExpensesGaming
    
    
    49,134
    
    
    
    4,338,684
    
    
    
    
    
    
    
    4,387,818Hotel expenses
    
    
    
    
    
    
    1,425,997
    
    
    
    
    
    
    
    1,425,997Food and beverage
    
    
    30,993
    
    
    
    5,020,830
    
    
    
    
    
    
    
    5,051,823Recreation and other
    
    
    
    
    
    
    2,901,636
    
    
    
    
    
    
    
    2,901,636Marketing and advertising
    
    
    
    
    
    
    2,284,675
    
    
    
    
    
    
    
    2,284,675General and administrative
    
    
    6,086,842
    
    
    
    1,119,482
    
    
    
    
    
    
    
    7,206,324Health
Insurance  Medical
    
    
    258,679
    
    
    
    257,862
    
    
    
    
    
    
    
    516,541Mescalero Apache Telecom
    
    
    57,626
    
    
    
    
    
    
    
    
    
    
    
    57,626Tribal Regulatory Fees
    
    
    
    
    
    
    962,294
    
    
    
    
    
    
    
    962,294Depreciation and amortization
    
    
    
    
    
    
    4,765,225
    
    
    
    
    
    
    
    4,765,225Total Operating Expenses
    
    
    6,483,274
    
    
    
    23,076,685
    
    
    
    
    
    
    
    29,559,959Operating Income (Loss)
    
    
    (6,483,329
    )
    
    
    7,551,854
    
    
    
    
    
    
    
    1,068,525Other Income (Expense)Interest Income
    
    
    173,523
    
    
    
    1,260
    
    
    
    
    
    
    
    174,783Interest Expense
    
    
    (6,607,147
    )
    
    
    
    
    
    
    
    
    
    
    (6,607,147
    )Income from subsidiaries
    
    
    7,553,114
    
    
    
    
    
    
    
    (7,553,114
    )
    
    
    Other income (expense)
    
    
    (302,444
    )
    
    
    
    
    
    
    
    
    
    
    (302,444
    )Total Other Income (expense)
    
    
    817,046
    
    
    
    1,260
    
    
    
    (7,553,114
    )
    
    
    (6,734,808
    )Net Income (Loss)
    
    $
    (5,666,283
    )
    
    $
    7,553,114
    
    
    $
    (7,553,114
    )
    
    $
    (5,666,283
    )
 18




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
Quarter Ended July 31, 2005
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (5,666,283
    )
    
    $
    7,553,114
    
    
    $
    (7,553,114
    )
    
    $
    (5,666,283
    )Adjustments to reconcile net income to netCash (used in) operating activities:Depreciation and amortization
    
    
    406,311
    
    
    
    4,878,737
    
    
    
    
    
    
    
    5,285,048Changes in assets and liabilities:Restricted cash and cash equivalents
    
    
    340,742
    
    
    
    
    
    
    
    
    
    
    
    340,742Accounts receivable, net of allowance
    
    
    242,720
    
    
    
    (546,740
    )
    
    
    
    
    
    
    (304,020
    )Inventories
    
    
    
    
    
    
    223,840
    
    
    
    
    
    
    
    223,840Prepaid expenses
    
    
    765,487
    
    
    
    (193,938
    )
    
    
    
    
    
    
    571,549Other long term assets
    
    
    105,253
    
    
    
    (158,308
    )
    
    
    
    
    
    
    (53,055
    )Accounts payable
    
    
    (760,976
    )
    
    
    
    
    
    
    
    
    
    
    (760,976
    )Accrued expenses
    
    
    (2,961,111
    )
    
    
    1,999,767
    
    
    
    
    
    
    
    (961,344
    )Accrued interest payable
    
    
    (5,966,729
    )
    
    
    (450
    )
    
    
    
    
    
    
    (5,967,179
    )Net cash provided (used in) by operating
activities
    
    
    (13,494,586
    )
    
    
    13,756,022
    
    
    
    (7,553,114
    )
    
    
    (7,291,678
    )Cash flows from investing activities:Investment in subsidiaries
    
    
    (7,553,114
    )
    
    
    
    
    
    
    7,553,114
    
    
    
    Construction in progress accounts payable
    
    
    286,956
    
    
    
    
    
    
    
    
    
    
    
    286,956Purchase of property, plant and equipment
    
    
    
    
    
    
    (9,905,741
    )
    
    
    
    
    
    
    (9,905,741
    )Net cash provided (used in) by investing
activities
    
    
    (7,266,158
    )
    
    
    (9,905,741
    )
    
    
    7,553,114
    
    
    
    (9,618,785
    )Cash flows from financing activities:Cash held for construction payments
    
    
    11,167,345
    
    
    
    
    
    
    
    
    
    
    
    11,167,345Advances to (from) affiliates
    
    
    3,504,047
    
    
    
    (3,504,047
    )
    
    
    
    
    
    
    Principal borrowings (payments) on
long-term debt, net
    
    
    14,478,673
    
    
    
    
    
    
    
    
    
    
    
    14,478,673Distributions to Mescalero Apache Tribe
    
    
    (2,308,800
    )
    
    
    
    
    
    
    
    
    
    
    (2,308,800
    )Net cash used in (provided by) financing
activities
    
    
    26,841,265
    
    
    
    (3,504,047
    )
    
    
    
    
    
    
    23,337,218Net increase in cash and cash equivalents
    
    
    6,080,521
    
    
    
    346,234
    
    
    
    
    
    
    
    6,426,755Cash and cash equivalents, beginning of year
    
    
    524,959
    
    
    
    13,193,562
    
    
    
    
    
    
    
    13,718,521Cash and cash equivalents, end of year
    
    $
    6,605,480
    
    
    $
    13,539,796
    
    
    $
    
    
    
    $
    20,145,276
 19




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##### Table of Contents



NOTE 14SUBSEQUENT EVENTS
   20




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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 federal
securities laws. 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
 21




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Rooms
 Recreation and Other
 Critical Accounting Policies
  Revenue Recognition
 Promotional Allowances
 Classification of Departmental Costs
 22




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Capitalization of Interest
 Deferred Financing Costs
 Results of Operations
 Quarter Ended July 31, 2006 Compared to Quarter Ended July 31, 2005.
 Net Revenues
 Gaming
 Food and Beverage
 Hotel
 Recreation and Other
 23




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##### Table of Contents



Promotional Allowances
 Total Operating Expenses
 Gaming
 Food and Beverage
 Hotel
 Recreation and Other
 Marketing and Advertising
 General and Administrative
 Depreciation
 Income from Operations
 Other Income (Expenses)
 Liquidity and Capital Resources
   24




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##### Table of Contents



Description of Indebtedness
 The
Notes
  
    
    an interest reserve account, which was funded at the time the notes were sold
with approximately $36.4 million, which, together with interest earned thereon, was
used to make the first three (3) interest payments on the notes. As of July 31, 2006,
the balance in the interest reserve account was $22,682;
    
    a construction disbursement account, which was funded at the time the Notes
were sold with approximately $94.3 million and was used to fund completion of the
Resort. As of July 31, 2006, the balance in the construction disbursement account was
$0.0 million;
    
    a construction reserve account, which was funded at the time the Notes were
sold approximately $53.6 million and was to be used to (i) fund contingencies related
to the construction of the Resort and (ii) fund a resolution relating to a disagreement
over the Tribes prior gaming compact. As of July 31, 2006, the balance in the
construction reserve account was $15.9 million; and
    
    a construction retainage account. As of July 31, 2006, the balance the
construction retainage accounts was $2.3 million.
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General Indebtedness
  Credit Facility
  Credit Rating
  Off-Balance Sheet Arrangements
  Regulation and Taxes
  26




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RISK FACTORS
  Risks Relating to Our Business
 We have a substantial amount of indebtedness, which could adversely affect our financial condition.
  
    
    make it more difficult for us to satisfy our debt service obligations;
    
    increase our vulnerability to general adverse economic and industry conditions
or a downturn in our business;
    
    limit our ability to fund future working capital, capital expenditures and
other general operating requirements;
    
    require us to dedicate a substantial portion of our cash flow from operations
to service our outstanding indebtedness, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, the Resort and other general
operating requirements;
    
    place us at a competitive disadvantage compared to our competitors that have less debt; and
    
    limit our ability to borrow additional funds.
 Our indebtedness could result in a material adverse effect on our business, financial condition and
results of operations. If we incur additional debt in the future, these adverse consequences could
intensify.
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##### Table of Contents




    
    unlike non-governmental businesses, we are prohibited by law from generating
cash through an offering of equity securities;
    
    our ability to incur additional debt is limited by the covenants of the
indenture governing the notes; and
    
    the indenture governing the notes includes covenants which limit our ability to
create liens on or sell our assets.
  Restrictive covenants in the indenture governing the notes may limit our ability to expand our
operations and capitalize on our business opportunities.
  We may not be able to realize the benefits of our business strategy.
  Federal, state and Tribal laws and regulations, and our gaming compact, regulate our gaming
operations and noncompliance with these laws and regulations by us or the Tribe, as well as changes
in these laws and regulations (which are susceptible to changes in public policy) or future
interpretations thereof, could have a material adverse effect on our ability to conduct gaming, and
thus on our ability to meet our debt service obligations.
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We compete with casinos, other forms of gaming and other resort properties. If we are not able to
successfully compete, we will not be able to generate sufficient cash flow to meet our debt service
obligations.
  We are highly dependent on our surrounding market area. As a result, we face greater risks than a
geographically diverse company.
  
    
    a decline in the economies of our primary market area or a decline in the
number of gaming customers from these areas for any reason;
    
    an increase in competition in our primary market area or the surrounding area;
    
    continued increase in automotive fuel prices;
    
    inaccessibility due to road construction or closures of primary access routes; and
    
    natural and other disasters in the surrounding area including forest fires and floods.
  29




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Our business is subject to contingencies beyond our control, including the aftermath of terrorist
acts and wars, which may significantly and adversely affect our business, financial condition,
results of operations and ability to meet our debt service obligations.
 We may face difficulties in recruiting, training and retaining qualified employees.
  We do not have a history of operating on as large of a scale as contemplated by the Resort.
  Additional and ongoing construction at the Resort could adversely affect our financial condition,
results of operations and our ability to meet our debt service obligations.
  A change in our current non-taxable status could have a material adverse effect on our cash flow
and our ability to fulfill our debt service obligations.
   The terms of four of the eight voting members of the Tribal Council expire each year and the terms
of the Tribes President and Vice President expire every two years; changes in the Tribal Council
or its policies could affect the Resort or other aspects of our business.
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We have material weaknesses in our internal controls over financial reporting that may prevent us
from being able to accurately report our financial results or prevent fraud, which could harm our
business and operating results.
   
    
    our system of entering transactions into our general and subsidiary ledgers,
including the time for entering transactions;
    
    timely and effective documentation of transactions to be entered into our accounting system;
    
    timely reconciliation of general ledger to appropriate underlying subsidiary records;
    
    implementation of an appropriate checks and balances system with respect to
documentation and recording of transactions;
    
    provision of adequate education to our finance staff with respect to our
accounting and financial reporting policies and procedures; and
    
    maintenance of a comprehensive written accounting policies and procedures
manual.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  31




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Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  Material Weaknesses in Internal Control Over Financial Reporting
  
    
    our system of entering transactions into our general and subsidiary ledgers,
including the time for entering transactions;
    
    timely and effective documentation of transactions to be entered into our accounting system;
    
    timely reconciliation of general ledger to appropriate underlying subsidiary records;
    
    implementation of an appropriate checks and balances system with respect to
documentation and recording of transactions;
    
    provision of adequate education to our finance staff with respect to our
accounting and financial reporting policies and procedures; and
    
    maintenance of a comprehensive written accounting policies and procedures
manual.
  
    
    improved system for documentation and verification of transactions;
    
    improved system of entering transaction into general and subsidiary ledgers in
a timely and complete manner;
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##### Table of Contents




    
    implementing improved and additional systems relating to account reconciliation
and transaction reporting, including the review, analysis and reconciliation of ledger
details and timely recording of transactions;
    
    developing a comprehensive policies and procedures manual that is accessible
and understood by all members of our finance staff;
    
    specifically defining and documenting the responsibilities of our financial reporting personnel;
    
    improved training of our financial reporting personnel; and
    
    retaining Protivit, Inc., an independent advisory firm, to assist in evaluating
our internal controls, including the identification, documentation and testing of
significant controls, policies and procedures.
  
    
    implementation of a focused and detailed review and cross-checking of prior
financial statements by internal audit personnel, supervised and cross-checked by
senior management, outside advisors and our audit committee;
    
    increase in number of internal and external accounting and financial personnel;
    
    frequent reviews and cross-checking of this Report by senior management,
internal audit personnel and Protiviti, Inc.;
    
    extensive research, review, cross-checking and documentation of material
transactions with focus on reporting for revenue recognition, cash transactions and
balances, receivables, fixed assets, payroll, inventory, payables and accrued expenses,
and payments to affiliates; and
    
    utilization of existing financial management software, reports for ledger and
sub-ledger details for financial transactions.
  Managements Report on Internal Control Over Financial Reporting
  33




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
    
    our system of entering transactions into our general and subsidiary ledgers,
including the time for entering transactions;
    
    timely and effective documentation of transactions to be entered into our accounting system;
    
    timely reconciliation of general ledger to appropriate underlying subsidiary records;
    
    implementation of an appropriate checks and balances system with respect to
documentation and recording of transactions;
    
    provision of adequate education to our finance staff with respect to our
accounting and financial reporting policies and procedures; and
    
    maintenance of a comprehensive written accounting policies and procedures
manual.
  
    
    developing a comprehensive policies and procedures manual that is accessible
and understood by all members of our finance staff;
    
    specifically defining and documenting the responsibilities of our financial reporting personnel;
    
    improved training of our financial reporting personnel; and
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##### Table of Contents




    
    retaining Protivit, Inc., an independent advisory firm, to assist in evaluating
our internal controls, including the identification, documentation and testing of
significant controls, policies and procedures.
  
    
    implementation of a focused and detailed review and cross-checking of prior
financial statements by internal audit personnel, supervised and cross-checked by
senior management, outside advisors and our audit committee;
    
    increase in number of internal and external accounting and financial personnel;
    
    frequent reviews and cross-checking of the data used to create this Report by
senior management, internal audit personnel and consultants;
    
    extensive research, review, cross-checking and documentation of material
transactions with focus on reporting for revenue recognition, cash transactions and
balances, receivables, fixed assets, payroll, inventory, payables and accrued expenses,
and payments to affiliates; and
    
    utilization of existing financial management software, reports for ledger and
sub-ledger details for financial transactions.
  Changes in Internal Control over Financial Reporting
   
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  35




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Item 1A. Risk Factors.
 
 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.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description3.1*
    
    Mescalero Apache Tribe Resolutions 03-05, 03-28 and 03-29 establishing and
governing the Inn of the Mountain Gods Resort and Casino adopted and approved
April 2, 2003, July 15, 2003 and July 15, 2003, respectively.3.2*
    
    Charter of the Management Board of Inn of the Mountain Gods Resort and Casino.4.1*
    
    Indenture, dated as of November 3, 2003, among the Mescalero Apache Tribe, Inn of
the Mountain Gods Resort and Casino, Casino Apache, Inn of the Mountain Gods,
Casino Apache Travel Center, Ski Apache and U.S. Bank National Association, as
Trustee, relating to the 12% Senior Notes due 2010 of the Inn of the Mountain Gods
Resort and Casino.4.2*
    
    Form of 12% Senior Note Due 2010 of the Inn of the Mountain Gods Resort and Casino.4.3*
    
    Registration Rights Agreement, dated as of November 3, 2003, among the Mescalero
Apache Tribe, Inn of the Mountain Gods Resort and Casino, Casino Apache, Inn of
the Mountain Gods, Casino Apache Travel Center, Ski Apache and Citigroup Global
Markets Inc, as the Initial Purchaser.10.1*
    
    Second Amended Design/Build Construction Contract, by and among Inn of the
Mountain Gods Resort and Casino, Centex/WorthGroup, LLC, as Design/Builder, and
Rider Hunt Levett & Bailey, as Construction Manager, dated as of September 6,
2003, and Change Order No. 9 thereto, dated January 24, 2003.10.2*
    
    Cash Collateral and Disbursement Agreement, dated as of November 3, 2003, among
Inn of the Mountain Gods Resort and Casino, Casino Apache, Inn of the Mountain
Gods, Casino Apache Travel Center, Ski Apache, U.S. Bank National Association, as
Disbursement Agent, Professional Associates Construction Services, Inc., as
Independent Construction Consultant and U.S. Bank National Association, as
Trustee.10.3*
    
    Ski Apache Special Use Permit received from the United States Department of
Agriculture, Forest Service dated April 23, 1985.10.4**
    
    Employment Agreement dated December 12, 2002 between the Mescalero Apache Tribe
and Brian Parrish.10.5***
    
    Employment Agreement dated
September 12, 2005 between the Mescalero Apache Tribe and Lance
Kintz.10.6**
    
    2001 Compact between the Mescalero Apache Tribe and the State of New Mexico,
entered into June 1, 2004.31.1
    
    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.
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##### Table of Contents



Exhibit No.
    
    Description32.1
    
    Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference to Inn of the Mountain Gods Resort and Casinos
Registration Statement on Form S-4 filed with the SEC on February 27, 2004 (SEC
File No. 333-113140).**
    
    Incorporated by reference to Inn of the Mountain Gods Resort and Casinos
Annual Report on Form 10-K filed with the SEC on July 29, 2004.***
    
    Incorporated by reference to Inn of the Mountain Gods Resort and Casinos
Annual Report on Form 10-K filed with the SEC on August 15, 2006. 37




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##### Table of Contents



SIGNATURES
  INN OF THE MOUNTAIN GODS RESORT AND CASINODate:
September 13, 2006
    
    By
    
    /s/ Brian D. ParrishName:
    
    Brian D. ParrishIts:
    
    Chief Operating Officer (PrincipalExecutive Officer)Date: September 13, 2006
    
    By
    
    /s/ Lance KintzName:
    
    Lance KintzIts:
    
    Chief Financial Officer (Principal Financial Officer)
 38




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description3.1*
    
    Mescalero Apache Tribe Resolutions 03-05, 03-28 and 03-29 establishing and
governing the Inn of the Mountain Gods Resort and Casino adopted and approved
April 2, 2003, July 15, 2003 and July 15, 2003, respectively.3.2*
    
    Charter of the Management Board of Inn of the Mountain Gods Resort and Casino.4.1*
    
    Indenture, dated as of November 3, 2003, among the Mescalero Apache Tribe, Inn of
the Mountain Gods Resort and Casino, Casino Apache, Inn of the Mountain Gods,
Casino Apache Travel Center, Ski Apache and U.S. Bank National Association, as
Trustee, relating to the 12% Senior Notes due 2010 of the Inn of the Mountain Gods
Resort and Casino.4.2*
    
    Form of 12% Senior Note Due 2010 of the Inn of the Mountain Gods Resort and Casino.4.3*
    
    Registration Rights Agreement, dated as of November 3, 2003, among the Mescalero
Apache Tribe, Inn of the Mountain Gods Resort and Casino, Casino Apache, Inn of
the Mountain Gods, Casino Apache Travel Center, Ski Apache and Citigroup Global
Markets Inc, as the Initial Purchaser.10.1*
    
    Second Amended Design/Build Construction Contract, by and among Inn of the
Mountain Gods Resort and Casino, Centex/WorthGroup, LLC, as Design/Builder, and
Rider Hunt Levett & Bailey, as Construction Manager, dated as of September 6,
2003, and Change Order No. 9 thereto, dated January 24, 2003.10.2*
    
    Cash Collateral and Disbursement Agreement, dated as of November 3, 2003, among
Inn of the Mountain Gods Resort and Casino, Casino Apache, Inn of the Mountain
Gods, Casino Apache Travel Center, Ski Apache, U.S. Bank National Association, as
Disbursement Agent, Professional Associates Construction Services, Inc., as
Independent Construction Consultant and U.S. Bank National Association, as
Trustee.10.3*
    
    Ski Apache Special Use Permit received from the United States Department of
Agriculture, Forest Service dated April 23, 1985.10.4**
    
    Employment Agreement dated December 12, 2002 between the Mescalero Apache Tribe
and Brian Parrish.10.5***
    
    Employment Agreement dated
September 12, 2005 between the Mescalero Apache Tribe and Lance
Kintz.10.6**
    
    2001 Compact between the Mescalero Apache Tribe and the State of New Mexico,
entered into June 1, 2004.31.1
    
    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.
 
 *
    
    Incorporated by reference to Inn of the Mountain Gods Resort and Casinos
Registration Statement on Form S-4 filed with the SEC on February 27, 2004 (SEC
File No. 333-113140).**
    
    Incorporated by reference to Inn of the Mountain Gods Resort and Casinos
Annual Report on Form 10-K filed with the SEC on July 29, 2004.***
    
    Incorporated by reference to Inn of the Mountain Gods Resort and Casinos
Annual Report on Form 10-K filed with the SEC on August 15, 2006. 39