##### 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 OCTOBER 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 OCTOBER 31, 2006
 INDEX
 PagesPART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements:
    
    
    1Consolidated Balance Sheets as of October 31, 2006 (unaudited) and April 30, 2006
    
    
    1Consolidated Statements of Operations for the Three Month and Six Month Periods Ended
October 31,2006 (unaudited) and October 31, 2005 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for the Six Month Periods Ended October 31, 2006
(unaudited) and October 31, 2005 (unaudited)
    
    
    3Notes to Consolidated Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    39EX-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 ofOctober 31, 2006
    
    
    April 30, 2006(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    17,010,669
    
    
    $
    16,768,372Restricted cash and cash equivalents
    
    
    
    
    
    
    18,171,534Accounts receivable, net of allowance for doubtful accounts
    
    
    655,310
    
    
    
    565,420Inventories
    
    
    469,900
    
    
    
    809,789Prepaid expenses
    
    
    636,749
    
    
    
    372,774Total current assets
    
    
    18,772,628
    
    
    
    36,687,889NON CURRENT ASSETS:Property, plant and equipment
    
    
    301,154,673
    
    
    
    300,320,136Accumulated depreciation and amortization
    
    
    (80,591,446
    )
    
    
    (71,385,662
    )Property, plant and equipment, net
    
    
    220,563,227
    
    
    
    228,934,474Deferred financing cost
    
    
    6,883,275
    
    
    
    7,695,897Other long-term assets
    
    
    50,000
    
    
    
    42,003Total assets
    
    $
    246,269,130
    
    
    $
    273,360,263LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable and other short-term liabilities
    
    $
    984,931
    
    
    $
    2,606,670Construction accounts payable
    
    
    1,477,078
    
    
    
    2,274,874Accrued expenses
    
    
    6,919,101
    
    
    
    10,760,344Accrued interest
    
    
    11,200,000
    
    
    
    11,200,000Deposits and advance payments
    
    
    115,051
    
    
    
    372,470Current portion of long-term debt
    
    
    4,091,945
    
    
    
    3,250,329Total current liabilities
    
    
    24,788,106
    
    
    
    30,464,687NON CURRENT LIABILITIES:Long-term debt, net of current portion
    
    
    209,842,793
    
    
    
    211,530,149Total liabilities
    
    
    234,630,899
    
    
    
    241,994,836COMMITMENTS AND CONTINGENCIES (Note 10)EQUITY:Contributed capital
    
    
    33,654,938
    
    
    
    52,633,096Accumulated deficit
    
    
    (22,016,707
    )
    
    
    (21,267,669
    )Total equity
    
    
    11,638,231
    
    
    
    31,365,427Total liabilities and equity
    
    $
    246,269,130
    
    
    $
    273,360,263
  1




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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months Ended
    
    
    Three Months Ended
    
    
    Six months Ended
    
    
    Six months EndedOctober 31, 2006
    
    
    October 31, 2005
    
    
    October 31, 2006
    
    
    October 31, 2005Revenues:Gaming
    
    $
    21,443,594
    
    
    $
    19,670,636
    
    
    $
    42,146,526
    
    
    $
    41,697,985Hotel
    
    
    3,886,542
    
    
    
    3,264,347
    
    
    
    7,576,176
    
    
    
    6,176,032Food and Beverage
    
    
    3,750,541
    
    
    
    3,422,562
    
    
    
    7,200,024
    
    
    
    6,879,138Recreation and other
    
    
    4,884,330
    
    
    
    5,708,057
    
    
    
    9,557,936
    
    
    
    8,886,501Gross Revenue
    
    
    33,965,007
    
    
    
    32,065,602
    
    
    
    66,480,662
    
    
    
    63,639,656Less-Promotional Allowances
    
    
    642,721
    
    
    
    827,430
    
    
    
    977,186
    
    
    
    1,773,000Net Revenue
    
    
    33,322,286
    
    
    
    31,238,172
    
    
    
    65,503,476
    
    
    
    61,866,656Operating ExpensesGaming
    
    
    3,807,623
    
    
    
    4,601,701
    
    
    
    8,492,073
    
    
    
    8,989,519Hotel expenses
    
    
    1,102,217
    
    
    
    1,309,992
    
    
    
    2,436,421
    
    
    
    2,735,989Food and beverage
    
    
    3,482,234
    
    
    
    4,395,647
    
    
    
    7,366,288
    
    
    
    9,447,470Recreation and other
    
    
    3,074,129
    
    
    
    3,423,034
    
    
    
    6,946,507
    
    
    
    6,324,671Marketing and Advertising
    
    
    2,873,606
    
    
    
    2,475,018
    
    
    
    5,390,989
    
    
    
    4,759,693General and administrative
    
    
    6,624,612
    
    
    
    6,469,518
    
    
    
    11,037,400
    
    
    
    13,675,726Health Insurance  Medical
    
    
    556,310
    
    
    
    852,900
    
    
    
    1,087,296
    
    
    
    1,369,522Mescalero Apache Telecom
    
    
    39,059
    
    
    
    18,384
    
    
    
    103,595
    
    
    
    76,010Tribal Regulatory Fees
    
    
    600,000
    
    
    
    776,369
    
    
    
    1,200,000
    
    
    
    1,738,697Depreciation and amortization
    
    
    4,563,267
    
    
    
    4,067,426
    
    
    
    9,074,366
    
    
    
    8,832,650Total Operating Expenses
    
    
    26,723,057
    
    
    
    28,389,989
    
    
    
    53,134,935
    
    
    
    57,949,947Operating Income
    
    
    6,599,229
    
    
    
    2,848,183
    
    
    
    12,368,541
    
    
    
    3,916,709Other Income (Expense)Interest Income
    
    
    98,583
    
    
    
    87,351
    
    
    
    180,581
    
    
    
    262,134Interest Expense
    
    
    (6,669,410
    )
    
    
    (7,438,043
    )
    
    
    (13,357,584
    )
    
    
    (13,638,879
    )Other Income (expense)
    
    
    60,006
    
    
    
    409,542
    
    
    
    59,424
    
    
    
    (299,214
    )Total Other Income
(expense)
    
    
    (6,510,821
    )
    
    
    (6,941,150
    )
    
    
    (13,117,579
    )
    
    
    (13,675,959
    )Net Income (Loss)
    
    $
    88,408
    
    
    $
    (4,092,967
    )
    
    $
    (749,038
    )
    
    $
    (9,759,250
    )
  2




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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 For the six months ended October 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (749,038
    )
    
    $
    (9,759,250
    )Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    10,486,987
    
    
    
    9,645,273Changes in assets and liabilities:Accounts receivable, net of allowance
    
    
    (89,890
    )
    
    
    (877,345
    )Inventories
    
    
    339,889
    
    
    
    459,586Prepaid expenses
    
    
    (263,975
    )
    
    
    300,419Other long-term assets
    
    
    (7,997
    )
    
    
    95,037Accounts payable
    
    
    (1,621,739
    )
    
    
    (343,854
    )Accrued expenses
    
    
    (3,967,243
    )
    
    
    (181,256
    )Accrued interest payable
    
    
    
    
    
    
    312,780Net cash provided (used) by operating activities
    
    
    4,126,994
    
    
    
    (348,610
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (263,517
    )
    
    
    (11,545,118
    )Construction accounts payable
    
    
    (797,796
    )
    
    
    Net cash used in investing activities
    
    
    (1,061,313
    )
    
    
    (11,545,118
    )Cash flows from financing activities:Cash held for construction payments
    
    
    18,171,534
    
    
    
    11,753,715Principal borrowings (payments) on long-term debt
    
    
    (2,016,760
    )
    
    
    14,797,193Distributions to Mescalero Apache Tribe
    
    
    (18,978,158
    )
    
    
    (4,620,598
    )Net cash
provided (used) by financing activities
    
    
    (2,823,384
    )
    
    
    21,930,310Net increase in cash and cash equivalents
    
    
    242,297
    
    
    
    10,036,582Cash and cash equivalents, beginning of period
    
    
    16,768,372
    
    
    
    13,718,521Cash and cash equivalents, end of period
    
    $
    17,010,669
    
    
    $
    23,755,103Supplemental cash flow information:Cash paid for interest
    
    $
    13,805,752
    
    
    $
    12,136,517Non-cash investing and financing activities:Property, plant and equipment acquired through capital leases
    
    $
    1,171,020
    
    
    $
    900,000
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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 Ski Apache Resort Inn Inn Hotel
 Inn of the Mountain Gods Casino IGRA
 SEC
 Principles of Consolidation
  Use of Estimates
  Cash and Cash Equivalents
  4




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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
  Impairment of Long Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets SFAS 144
 Fair Value of Financial Instruments
 5




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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 Oct. 31,
    
    
    Six Months Ended Oct. 312006
    
    
    2005
    
    
    2006
    
    
    2005Rooms
    
    $
    354,065
    
    
    $
    187,547
    
    
    $
    536,798
    
    
    $
    185,975Food and beverage
    
    
    177,731
    
    
    
    567,111
    
    
    
    340,588
    
    
    
    1,300,434Other
    
    
    3,673
    
    
    
    (101,531
    )
    
    
    6,403
    
    
    
    (99,453
    )$
    535,469
    
    
    $
    653,127
    
    
    $
    883,789
    
    
    $
    1,386,956
 6




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##### Table of Contents



Compensated Absences
    
    
    20 days or 160 hours for team members with one to three years of employment.
    
    27 days or 216 hours for team members with four to fifteen years of employment.
    
    33 days or 264 hours for team members with sixteen or more years of employment.
    
    
    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
  7




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##### Table of Contents



Tribal Taxes
  Classification of Departmental Costs
  Income Taxes
  New Accounting Pronouncements
 SFAS 154
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements ( SAB 108 ),
 NOTE 2ALLOWANCE FOR DOUBTFUL ACCOUNTS
  8




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##### Table of Contents



NOTE 3RESTRICTED CASH AND CASH EQUIVALENTS
  October 31, 2006
    
    
    April 30, 2006Interest reserve
    
    $
    
    
    
    $
    22,881Construction reserve
    
    
    
    
    
    
    15,818,236Construction retainage
    
    
    
    
    
    
    2,330,417Total restricted cash
    
    $
    0
    
    
    $
    18,171,534
 NOTE 4INVENTORIES
  October 31, 2006
    
    
    April 30, 2006Food and beverage
    
    $
    265,784
    
    
    $
    259,580Golf and pro shop
    
    
    126,694
    
    
    
    134,377Gift shops, fuel and other,
    
    
    386,521
    
    
    
    567,577Reserves
    
    
    (309,099
    )
    
    
    (151,745
    )Inventories- Net of Reserves
    
    $
    469,900
    
    
    $
    809,789
 NOTE 5PROPERTY, PLANT AND EQUIPMENT, NET
  October 31, 2006
    
    
    April 30, 2006Land
    
    $
    538,894
    
    
    $
    538,894Buildings, lifts and snowmaking equipment
    
    
    217,928,997
    
    
    
    217,928,997Non-gaming equipment, furniture and other
    
    
    50,668,093
    
    
    
    51,167,661Gaming equipment
    
    
    22,640,789
    
    
    
    21,469,769Leasehold and land improvements, lake and golf course
    
    
    6,842,477
    
    
    
    6,842,477Subtotal
    
    $
    298,619,250
    
    
    $
    297,947,798Less accumulated depreciation and amortization
    
    
    (80,591,446
    )
    
    
    (71,385,662
    )Property, plant and equipment, net
    
    
    218,027,804
    
    
    
    226,562,136Construction in progress (CIP)
    
    
    2,535,423
    
    
    
    2,372,338Net Property, plant and equipment
    
    $
    220,563,227
    
    
    $
    228,934,474
 NOTE 6LONG-TERM DEBT
 Notes
   9




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##### Table of Contents



October 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
    
    
    1,273,738
    
    
    
    1,457,501Capital Equipment Loans with Keybank, five (5) year term, fixed rate
between 7.55% and 8.18%
    
    
    11,718,139
    
    
    
    13,099,354Short-Term Notes, up to 8% imputed interest
    
    
    942,861
    
    
    
    223,623213,934,738
    
    
    
    214,780,478Less current portion
    
    
    (4,091,945
    )
    
    
    (3,250,329
    )Long-term portion
    
    $
    209,842,793
    
    
    $
    211,530,149
  2007 (six months)
    
    $
    2,4872008
    
    
    3,2732009
    
    
    3,5342010
    
    
    203,8172011
    
    
    7222012+
    
    
    102$
    213,935
  10




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##### Table of Contents



NOTE 7GAMING REVENUE SHARING AND REGULATORY FEES
    NOTE 8RISK MANAGEMENT
     NOTE 9  COMMITMENTS AND CONTINGENCIES
 Legal Matters
  Occupancy Fee
  11




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Construction Agreement
  Employment Agreements
   NOTE 10RELATED-PARTY TRANSACTIONS
   Shared Services and Cost Allocations
  Employee Benefits Cost Allocations
  12




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NOTE 11OPERATING SEGMENTS
    13




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SELECTED OPERATING SEGMENT FINANCIAL INFORMATION
 $(000s)Three Months ended:
    
    IMG
    
    Travel Ctr
    
    Ski
    
    Non Gaming
    
    Non Segment
    
    ConsolidatedOctober 31, 2006Net Revenue
    
    $
    13,173
    
    
    $
    8,251
    
    
    $
    
    
    
    $
    12,308
    
    
    $
    (410
    )
    
    $
    33,322Operating Income (Loss)
    
    
    10,571
    
    
    
    6,866
    
    
    
    (65
    )
    
    
    4,653
    
    
    
    (15,425
    )
    
    
    6,600Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,563
    
    
    
    4,563Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,669
    
    
    
    6,669Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    99October 31, 2005Net Revenue
    
    $
    11,955
    
    
    $
    7,654
    
    
    $
    1
    
    
    $
    12,394
    
    
    $
    (766
    )
    
    $
    31,238Operating Income (Loss)
    
    
    7,915
    
    
    
    6,094
    
    
    
    (100
    )
    
    
    3,541
    
    
    
    (14,602
    )
    
    
    2,848Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,067
    
    
    
    4,067Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,438
    
    
    
    7,438Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    87
 GamingSix Months Ended
    
    IMG
    
    Travel Ctr
    
    Ski
    
    Non Gaming
    
    Non Segment
    
    ConsolidatedOctober 31, 2006Net Revenue
    
    $
    25,739
    
    
    $
    16,395
    
    
    $
    1
    
    
    $
    24,123
    
    
    $
    (755
    )
    
    $
    65,503Operating Income (Loss)
    
    
    19,941
    
    
    
    13,313
    
    
    
    
    
    
    
    7,300
    
    
    
    (28,185
    )
    
    
    12,369Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,074
    
    
    
    9,074Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,358
    
    
    
    13,358Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    181October 31, 2005Net Revenue
    
    $
    25,753
    
    
    $
    15,679
    
    
    $
    (20
    )
    
    $
    21,953
    
    
    $
    (1,498
    )
    
    $
    61,867Operating Income (Loss)
    
    
    17,880
    
    
    
    12,509
    
    
    
    (23
    )
    
    
    3,664
    
    
    
    (30,113
    )
    
    
    3,917Depreciation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,833
    
    
    
    8,833Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,639
    
    
    
    13,639Interest Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    262
 NOTE 12CONSOLIDATING INFORMATION
 wholly-owned Guarantors
   14




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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of October 31, 2006
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    12,289,790
    
    
    $
    4,720,879
    
    
    $
    
    
    
    $
    17,010,669Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable
    
    
    
    
    
    
    655,310
    
    
    
    
    
    
    
    655,310Inventories
    
    
    (119,870
    )
    
    
    589,770
    
    
    
    
    
    
    
    469,900Prepaid expenses
    
    
    597,508
    
    
    
    39,241
    
    
    
    
    
    
    
    636,749Total current assets
    
    
    12,767,428
    
    
    
    6,005,200
    
    
    
    
    
    
    
    18,772,628Fixed Assets
    
    
    2,535,423
    
    
    
    298,619,250
    
    
    
    
    
    
    
    301,154,673Depreciation
    
    
    (383,225
    )
    
    
    (80,208,221
    )
    
    
    
    
    
    
    (80,591,446
    )Net fixed assets
    
    
    2,152,198
    
    
    
    218,411,029
    
    
    
    
    
    
    
    220,563,227Non-Current Assets Other Assets
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Deferred financing costs
    
    
    6,883,275
    
    
    
    
    
    
    
    
    
    
    
    6,883,275Advances to Subsidiaries
    
    
    144,028,345
    
    
    
    54,545,822
    
    
    
    (198,574,167
    )
    
    
    Investment in Subsidiaries
    
    
    95,065,926
    
    
    
    
    
    
    
    (95,065,926
    )
    
    
    Total Assets
    
    $
    260,947,172
    
    
    $
    278,962,051
    
    
    $
    (293,640,093
    )
    
    $
    246,269,130Accounts Payable and other short term liabilities
    
    $
    984,931
    
    
    $
    
    
    
    $
    
    
    
    $
    984,931Construction accounts payable
    
    
    1,477,078
    
    
    
    
    
    
    
    
    
    
    
    1,477,078Accrued expenses
    
    
    5,563,874
    
    
    
    1,355,227
    
    
    
    
    
    
    
    6,919,101Accrued interest
    
    
    11,200,000
    
    
    
    
    
    
    
    
    
    
    
    11,200,000Advanced deposits
    
    
    
    
    
    
    115,051
    
    
    
    
    
    
    
    115,051Current portion of long-term debt
    
    
    3,868,649
    
    
    
    223,296
    
    
    
    
    
    
    
    4,091,945Total current liabilities
    
    
    23,094,532
    
    
    
    1,693,574
    
    
    
    
    
    
    
    24,788,106Non-Current LiabilitiesAdvances from subsidiaries
    
    
    17,422,058
    
    
    
    181,152,109
    
    
    
    (198,574,167
    )
    
    
    Long-term debt, net of current portion
    
    
    208,792,351
    
    
    
    1,050,442
    
    
    
    
    
    
    
    209,842,793Total liabilities
    
    
    249,308,941
    
    
    
    183,896,125
    
    
    
    (198,574,167
    )
    
    
    234,630,899Contributed Capital
    
    
    33,654,938
    
    
    
    (19,109,994
    )
    
    
    19,109,994
    
    
    
    33,654,938Retained Earnings (deficit)
    
    
    (22,016,707
    )
    
    
    114,175,920
    
    
    
    (114,175,920
    )
    
    
    (22,016,707
    )Total equity
    
    
    11,638,231
    
    
    
    95,065,926
    
    
    
    (95,065,926
    )
    
    
    11,638,231Total liabilities and equity
    
    $
    260,947,172
    
    
    $
    278,962,051
    
    
    $
    (293,640,093
    )
    
    $
    246,269,130
 15




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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 October 31, 2006
 IMG Resort
    
    
    Guarantorand Casino
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    21,443,594
    
    
    $
    
    
    
    $
    21,443,594Hotel
    
    
    
    
    
    
    3,886,542
    
    
    
    
    
    
    
    3,886,542Food and Beverage
    
    
    
    
    
    
    3,750,541
    
    
    
    
    
    
    
    3,750,541Recreation and other
    
    
    3,564
    
    
    
    4,880,766
    
    
    
    
    
    
    
    4,884,330Gross Revenue
    
    
    3,564
    
    
    
    33,961,443
    
    
    
    
    
    
    
    33,965,007Less -Promotional Allowances
    
    
    
    
    
    
    642,721
    
    
    
    
    
    
    
    642,721Net Revenue
    
    
    3,564
    
    
    
    33,318,722
    
    
    
    
    
    
    
    33,322,286Operating ExpensesGaming
    
    
    (5,867
    )
    
    
    3,813,490
    
    
    
    
    
    
    
    3,807,623Hotel expenses
    
    
    
    
    
    
    1,102,217
    
    
    
    
    
    
    
    1,102,217Food and beverage
    
    
    7,213
    
    
    
    3,475,021
    
    
    
    
    
    
    
    3,482,234Recreation and other
    
    
    90,000
    
    
    
    2,984,129
    
    
    
    
    
    
    
    3,074,129Marketing
    
    
    214,332
    
    
    
    2,659,274
    
    
    
    
    
    
    
    2,873,606General and administrative
    
    
    5,531,708
    
    
    
    1,092,904
    
    
    
    
    
    
    
    6,624,612Health Insurance  Medical
    
    
    69,499
    
    
    
    486,811
    
    
    
    
    
    
    
    556,310Mescalero Apache Telecom
    
    
    39,059
    
    
    
    
    
    
    
    
    
    
    
    39,059Tribal Regulatory Fees
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    600,000Depreciation and amortization
    
    
    103,676
    
    
    
    4,459,591
    
    
    
    
    
    
    
    4,563,267Total Operating Expenses
    
    
    6,649,620
    
    
    
    20,073,437
    
    
    
    
    
    
    
    26,723,057Operating Income (Loss)
    
    
    (6,646,056
    )
    
    
    13,245,285
    
    
    
    
    
    
    
    6,599,229Other Income (Expense)Interest Income
    
    
    98,583
    
    
    
    
    
    
    
    
    
    
    
    98,583Interest Expense
    
    
    (6,669,410
    )
    
    
    
    
    
    
    
    
    
    
    (6,669,410
    )Income from subsidiaries
    
    
    13,245,285
    
    
    
    
    
    
    
    (13,245,285
    )
    
    
    Other income (expense)
    
    
    60,006
    
    
    
    
    
    
    
    
    
    
    
    60,006Total Other Income (expense)
    
    
    6,734,464
    
    
    
    
    
    
    
    (13,245,285
    )
    
    
    (6,510,821
    )Net Income (Loss)
    
    $
    88,408
    
    
    $
    13,245,285
    
    
    $
    (13,245,285
    )
    
    $
    88,408
 16




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended October 31, 2006
 IMG Resort
    
    
    Guarantorand Casino
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    42,146,526
    
    
    $
    
    
    
    $
    42,146,526Hotel
    
    
    
    
    
    
    7,576,176
    
    
    
    
    
    
    
    7,576,176Food and Beverage
    
    
    
    
    
    
    7,200,024
    
    
    
    
    
    
    
    7,200,024Recreation and other
    
    
    16,256
    
    
    
    9,541,680
    
    
    
    
    
    
    
    9,557,936Gross Revenue
    
    
    16,256
    
    
    
    66,464,406
    
    
    
    
    
    
    
    66,480,662Less -Promotional Allowances
    
    
    43
    
    
    
    977,143
    
    
    
    
    
    
    
    977,186Net Revenue
    
    
    16,213
    
    
    
    65,487,263
    
    
    
    
    
    
    
    65,503,476Operating ExpensesGaming
    
    
    69,703
    
    
    
    8,422,370
    
    
    
    
    
    
    
    8,492,073Hotel expenses
    
    
    
    
    
    
    2,436,421
    
    
    
    
    
    
    
    2,436,421Food and beverage
    
    
    
    
    
    
    7,366,288
    
    
    
    
    
    
    
    7,366,288Recreation and other
    
    
    
    
    
    
    6,946,507
    
    
    
    
    
    
    
    6,946,507Marketing
    
    
    
    
    
    
    5,390,989
    
    
    
    
    
    
    
    5,390,989General and administrative
    
    
    7,258,081
    
    
    
    3,779,319
    
    
    
    
    
    
    
    11,037,400Health Insurance  Medical
    
    
    
    
    
    
    1,087,296
    
    
    
    
    
    
    
    1,087,296Mescalero Apache Telecom
    
    
    
    
    
    
    103,595
    
    
    
    
    
    
    
    103,595Tribal Regulatory Fees
    
    
    
    
    
    
    1,200,000
    
    
    
    
    
    
    
    1,200,000Depreciation and amortization
    
    
    
    
    
    
    9,074,366
    
    
    
    
    
    
    
    9,074,366Total Operating Expenses
    
    
    7,327,784
    
    
    
    45,807,151
    
    
    
    
    
    
    
    53,134,935Operating Income (Loss)
    
    
    (7,311,571
    )
    
    
    19,680,112
    
    
    
    
    
    
    
    12,368,541Other Income (Expense)Interest Income
    
    
    180,581
    
    
    
    
    
    
    
    
    
    
    
    180,581Interest Expense
    
    
    (13,357,584
    )
    
    
    
    
    
    
    
    
    
    
    (13,357,584
    )Income from subsidiaries
    
    
    19,680,112
    
    
    
    
    
    
    
    (19,680,112
    )
    
    
    Other income (expense)
    
    
    59,424
    
    
    
    
    
    
    
    
    
    
    
    59,424Total Other Income (expense)
    
    
    6,562,533
    
    
    
    
    
    
    
    (19,680,112
    )
    
    
    (13,117,579
    )Net Income (Loss)
    
    $
    (749,038
    )
    
    $
    19,680,112
    
    
    $
    (19,680,112
    )
    
    $
    (749,038
    )
 17




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended October 31, 2006
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (749,038
    )
    
    $
    19,680,112
    
    
    $
    (19,680,112
    )
    
    $
    (749,038
    )Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    944,041
    
    
    
    9,542,946
    
    
    
    
    
    
    
    10,486,987Changes in assets and liabilities:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net of allowance
    
    
    4,421
    
    
    
    (94,311
    )
    
    
    
    
    
    
    (89,890
    )Inventories
    
    
    119,870
    
    
    
    220,019
    
    
    
    
    
    
    
    339,889Prepaid expenses
    
    
    (262,848
    )
    
    
    (1,127
    )
    
    
    
    
    
    
    (263,975
    )Other long term assets
    
    
    
    
    
    
    (7,997
    )
    
    
    
    
    
    
    (7,997
    )Accounts payable
    
    
    (1,621,739
    )
    
    
    
    
    
    
    
    
    
    
    (1,621,739
    )Accrued expenses
    
    
    (5,527,676
    )
    
    
    1,560,433
    
    
    
    
    
    
    
    (3,967,243
    )Interest payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) operating activities
    
    
    (7,092,969
    )
    
    
    30,900,075
    
    
    
    (19,680,112
    )
    
    
    4,126,994Cash flows from investing activities:Construction Payable
    
    
    (797,796
    )
    
    
    
    
    
    
    
    
    
    
    (797,796
    )Purchase of property, plant and equipment
    
    
    (164,112
    )
    
    
    (99,405
    )
    
    
    
    
    
    
    (263,517
    )Investment in subsidiaries
    
    
    (19,680,112
    )
    
    
    
    
    
    
    19,680,112
    
    
    
    Net cash used by investing activities
    
    
    (20,642,020
    )
    
    
    (99,405
    )
    
    
    19,680,112
    
    
    
    (1,061,313
    )Cash flows from financing activities:Cash held from construction payments
    
    
    18,171,534
    
    
    
    
    
    
    
    
    
    
    
    18,171,534Advances to (from) affiliates
    
    
    31,553,172
    
    
    
    (31,553,172
    )
    
    
    
    
    
    
    Principal borrowings (payments) on debt
    
    
    (1,832,998
    )
    
    
    (183,762
    )
    
    
    
    
    
    
    (2,016,760
    )Distributions to Mescalero Apache Tribe
    
    
    (18,978,158
    )
    
    
    
    
    
    
    
    
    
    
    (18,978,158
    )Net cash provided by (used in) financing activities
    
    
    28,913,550
    
    
    
    (31,736,934
    )
    
    
    
    
    
    
    (2,823,384
    )Net (decrease) increase in cash and cash equivalents
    
    
    1,178,561
    
    
    
    (936,264
    )
    
    
    
    
    
    
    242,297Cash and cash equivalents, beginning of period
    
    
    11,111,229
    
    
    
    5,657,143
    
    
    
    
    
    
    
    16,768,372Cash and cash equivalents, end of period
    
    $
    12,289,790
    
    
    $
    4,720,879
    
    
    $
    
    
    
    $
    17,010,669
 18




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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
 19




---



##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended October 31, 2005
 IMG Resort
    
    
    Wholly-ownedand Casino
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    19,670,636
    
    
    $
    
    
    
    $
    19,670,636Food and Beverage
    
    
    
    
    
    
    3,422,562
    
    
    
    
    
    
    
    3,422,562Hotel
    
    
    
    
    
    
    3,264,347
    
    
    
    
    
    
    
    3,264,347Recreation and other
    
    
    
    
    
    
    5,708,057
    
    
    
    
    
    
    
    5,708,057Gross Revenue
    
    
    
    
    
    
    32,065,602
    
    
    
    
    
    
    
    32,065,602Less -Promotional Allowances
    
    
    
    
    
    
    827,430
    
    
    
    
    
    
    
    827,430Net Revenue
    
    
    
    
    
    
    31,238,172
    
    
    
    
    
    
    
    31,238,172Operating Expenses
Gaming
    
    
    67,634
    
    
    
    4,534,067
    
    
    
    
    
    
    
    4,601,701Hotel expenses
    
    
    
    
    
    
    1,309,992
    
    
    
    
    
    
    
    1,309,992Food and beverage
    
    
    53,547
    
    
    
    4,342,100
    
    
    
    
    
    
    
    4,395,647Recreation and other
    
    
    521
    
    
    
    3,422,513
    
    
    
    
    
    
    
    3,423,034Marketing and advertising
    
    
    1,099,479
    
    
    
    1,375,539
    
    
    
    
    
    
    
    2,475,018General and administrative
    
    
    4,116,229
    
    
    
    2,353,289
    
    
    
    
    
    
    
    6,469,518Health Insurance  Medical
    
    
    315,883
    
    
    
    537,017
    
    
    
    
    
    
    
    852,900Mescalero Apache Telecom
    
    
    18,384
    
    
    
    
    
    
    
    
    
    
    
    18,384Tribal Regulatory Fees
    
    
    
    
    
    
    776,369
    
    
    
    
    
    
    
    776,369Depreciation and amortization
    
    
    
    
    
    
    4,067,426
    
    
    
    
    
    
    
    4,067,426Total Operating Expenses
    
    
    5,671,677
    
    
    
    22,718,312
    
    
    
    
    
    
    
    28,389,989Operating Income (Loss)
    
    
    (5,671,677
    )
    
    
    8,519,860
    
    
    
    
    
    
    
    2,848,183Other Income (Expense) Interest Income
    
    
    87,351
    
    
    
    
    
    
    
    
    
    
    
    87,351Interest Expense
    
    
    (7,368,415
    )
    
    
    (69,628
    )
    
    
    
    
    
    
    (7,438,043
    )Income from subsidiaries
    
    
    8,454,142
    
    
    
    
    
    
    
    (8,454,142
    )
    
    
    Other income (expense)
    
    
    405,632
    
    
    
    3,910
    
    
    
    
    
    
    
    409,542Total Other Income (expense)
    
    
    1,578,710
    
    
    
    (65,718
    )
    
    
    (8,454,142
    )
    
    
    (6,941,150
    )Net Income (Loss)
    
    $
    (4,092,967
    )
    
    $
    8,454,142
    
    
    $
    (8,454,142
    )
    
    $
    (4,092,967
    )
 20




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended October 31, 2005
 IMG Resort
    
    
    Wholly-ownedand Casino
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Gaming
    
    $
    
    
    
    $
    41,697,985
    
    
    $
    
    
    
    $
    41,697,985Food and Beverage
    
    
    
    
    
    
    6,879,138
    
    
    
    
    
    
    
    6,879,138Hotel
    
    
    
    
    
    
    6,176,032
    
    
    
    
    
    
    
    6,176,032Recreation and other
    
    
    
    
    
    
    8,886,501
    
    
    
    
    
    
    
    8,886,501Gross Revenue
    
    
    
    
    
    
    63,639,656
    
    
    
    
    
    
    
    63,639,656Less -Promotional Allowances
    
    
    
    
    
    
    1,773,000
    
    
    
    
    
    
    
    1,773,000Net Revenue
    
    
    
    
    
    
    61,866,656
    
    
    
    
    
    
    
    61,866,656Operating ExpensesGaming
    
    
    116,768
    
    
    
    8,872,751
    
    
    
    
    
    
    
    8,989,519Hotel expenses
    
    
    
    
    
    
    2,735,989
    
    
    
    
    
    
    
    2,735,989Food and beverage
    
    
    84,539
    
    
    
    9,362,931
    
    
    
    
    
    
    
    9,447,470Recreation and other
    
    
    521
    
    
    
    6,324,150
    
    
    
    
    
    
    
    6,324,671Marketing and advertising
    
    

    2,230,954
    
    
    
    2,528,739
    
    
    
    
    
    
    
    4,759,693General and administrative
    
    
    9,071,553
    
    
    
    4,604,173
    
    
    
    
    
    
    
    13,675,726Health Insurance  Medical
    
    
    574,598
    
    
    
    794,924
    
    
    
    
    
    
    
    1,369,522Mescalero Apache Telecom
    
    
    76,010
    
    
    
    
    
    
    
    
    
    
    
    76,010Tribal Regulatory Fees
    
    
    
    
    
    
    1,738,697
    
    
    
    
    
    
    
    1,738,697Depreciation and amortization
    
    
    
    
    
    
    8,832,650
    
    
    
    
    
    
    
    8,832,650Total Operating Expenses
    
    
    12,154,943
    
    
    
    45,795,004
    
    
    
    
    
    
    
    57,949,947Operating Income (Loss)
    
    
    (12,154,943
    )
    
    
    16,071,652
    
    
    
    
    
    
    
    3,916,709Other Income (Expense) Interest Income
    
    
    260,671
    
    
    
    1,463
    
    
    
    
    
    
    
    262,134Interest Expense
    
    
    (13,569,251
    )
    
    
    (69,628
    )
    
    
    
    
    
    
    (13,638,879
    )Income from subsidiaries
    
    
    16,007,250
    
    
    
    
    
    
    
    (16,007,250
    )
    
    
    Other income (expense)
    
    
    (302,977
    )
    
    
    3,763
    
    
    
    
    
    
    
    (299,214
    )Total Other Income (expense)
    
    
    2,395,693
    
    
    
    (64,402
    )
    
    
    (16,007,250
    )
    
    
    (13,675,959
    )Net Income (Loss)
    
    $
    (9,759,250
    )
    
    $
    16,007,250
    
    
    $
    (16,007,250
    )
    
    $
    (9,759,250
    )
 21




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##### Table of Contents



INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended Ended October 31, 2005
 GuarantorIMGRC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (9,759,250
    )
    
    $
    16,007,250
    
    
    $
    (16,007,250
    )
    
    $
    (9,759,250
    )Adjustments to reconcile net income to netCash (used in) operating activities:Depreciation and amortization
    
    
    812,622
    
    
    
    8,832,651
    
    
    
    
    
    
    
    9,645,273Changes in assets and liabilities:Restricted cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net of allowance
    
    
    316,854
    
    
    
    (1,194,199
    )
    
    
    
    
    
    
    (877,345
    )Inventories
    
    
    
    
    
    
    459,586
    
    
    
    
    
    
    
    459,586Prepaid expenses
    
    
    331,122
    
    
    
    (30,703
    )
    
    
    
    
    
    
    300,419Other long term assets
    
    
    41,495
    
    
    
    53,542
    
    
    
    
    
    
    
    95,037Accounts payable
    
    
    (343,854
    )
    
    
    
    
    
    
    
    
    
    
    (343,854
    )Accrued expenses
    
    
    (514,132
    )
    
    
    332,876
    
    
    
    
    
    
    
    (181,256
    )Accrued interest payable
    
    
    (313,230
    )
    
    
    (450
    )
    
    
    
    
    
    
    (312,780
    )Net cash provided (used in) by operating activities
    
    
    (8,801,913
    )
    
    
    24,460,553
    
    
    
    (16,007,250
    )
    
    
    (348,610
    )Cash flows from investing activities:Investment in subsidiaries
    
    
    (16,007,250
    )
    
    
    
    
    
    
    16,007,250
    
    
    
    Purchase of property, plant and equipment
    
    
    
    
    
    
    (11,545,118
    )
    
    
    
    
    
    
    (11,545,118
    )Net cash provided (used in) by investing activities
    
    
    (16,007,250
    )
    
    
    (11,545,118
    )
    
    
    16,007,250
    
    
    
    (11,545,118
    )Cash flows from financing activities:Cash held for construction payments
    
    
    11,753,715
    
    
    
    
    
    
    
    
    
    
    
    11,753,715Advances to (from) affiliates
    
    
    16,747,237
    
    
    
    (16,747,237
    )
    
    
    
    
    
    
    Principal borrowings (payments) on long-term debt, net
    
    
    14,797,193
    
    
    
    
    
    
    
    
    
    
    
    14,797,193Distributions to Mescalero Apache Tribe
    
    
    (4,620,598
    )
    
    
    
    
    
    
    
    
    
    
    (4,620,598
    )Net cash used in (provided by) financing activities
    
    
    38,677,547
    
    
    
    (16,747,237
    )
    
    
    
    
    
    
    21,930,310Net increase in cash and cash equivalents
    
    
    13,868,384
    
    
    
    (3,831,802
    )
    
    
    
    
    
    
    10,036,582Cash and cash equivalents, beginning of year
    
    
    524,959
    
    
    
    13,193,562
    
    
    
    
    
    
    
    13,718,521Cash and cash equivalents, end of year
    
    $
    14,393,343
    
    
    $
    9,361,760
    
    
    $
    
    
    
    $
    23,755,103
 22




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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
 Rooms
 23




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##### Table of Contents



Recreation and Other
 Critical Accounting Policies
  Revenue Recognition
 Promotional Allowances
 Classification of Departmental Costs
 Capitalization of Interest
 Deferred Financing Costs
 Results of Operations
 24




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##### Table of Contents



Quarter Ended October 31, 2006 Compared to Quarter Ended October 31, 2005.
 Net Revenues
 Gaming
 Food and Beverage
 Hotel
 Recreation and Other
 Promotional Allowances
 Total Operating Expenses
 Gaming
 Food and Beverage
 Hotel
 Recreation and Other
 25




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##### Table of Contents



Marketing and Advertising
 General and Administrative
 Depreciation
 Income from Operations
 Other Income (Expenses)
 Six Months Ended October 31, 2006 Compared to Six Months Ended October 31, 2005.
 Net Revenues
 Gaming
 Food and Beverage
 Hotel
 Recreation and Other
 Promotional Allowances
 26




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##### Table of Contents



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
     27




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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 October 31, 2006, the balance in
the interest reserve account was $0;
    
    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
October 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 October 31, 2006, the balance in the construction
reserve account was $0; and
    
    a construction retainage account. As of October 31, 2006, the balance the construction
retainage accounts was $164,000.
   General Indebtedness
  Credit Facility
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##### Table of Contents



Credit Rating
  Off-Balance Sheet Arrangements
  Regulation and Taxes
  RISK FACTORS
  Risks Relating to Our Business
 We have a substantial amount of indebtedness, which could adversely affect our financial condition.
  29




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##### Table of Contents




    
    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.
   
    
    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.
  30




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##### Table of Contents



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.
   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;
 31




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##### Table of Contents




    
    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.
  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.
  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.
  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.
 32




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##### Table of Contents




    
    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.
    
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  Material Weaknesses in Internal Control Over Financial Reporting
 33




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##### Table of Contents




    
    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;
    
    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 Protiviti, 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.
 34




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##### Table of Contents



Managements Report on 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.
  35




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##### Table of Contents




    
    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 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
   36




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##### Table of Contents



PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 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.
 37




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##### Table of Contents



Exhibit No.
    
    Description10.3*
    
    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. 38




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##### Table of Contents



SIGNATURES
  INN OF THE MOUNTAIN GODS RESORT AND
CASINODate: December 13, 2006
    By
    /s/ Brian D. ParrishName:
    Brian D. ParrishIts:
    Chief Operating Officer (Principal Executive Officer) Date: December 13, 2006
    By
    /s/ Lance KintzName:
    Lance KintzIts:
    Chief Financial Officer (Principal Financial Officer) 39




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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.