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, 2009


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

(Exact name of registrant as specified in its charter)


Not Applicable		75-3158926
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification Number)


287 Carrizo Canyon Road
Mescalero, New Mexico		88340
(Address of principal executive offices)		(Zip Code)

(505) 464-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2009
INDEX


	Pages
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:		1
Consolidated Balance Sheets as of April 30, 2009 and July 31, 2009 (unaudited)		3
Consolidated Statements of Operations for the Three Month Periods Ended July 31, 2008 (unaudited) and 2009 (unaudited)		4
Consolidated Statements of Cash Flows for the Three Month Periods Ended July 31, 2008 (unaudited) and 2009 (unaudited)		5
Notes to Consolidated Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures about Market Risk		31
Item 4T. Controls and Procedures		32
PART II. OTHER INFORMATION		32
Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3. Defaults Upon Senior Securities.		32
Item 4. Submission of Matters to a Vote of Security Holders		32
Item 5. Other Information		32
Item 6. Exhibits		34
Signatures		35
EX-31.1
EX-32.1

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	As of April 30,			As of July 31,
	2009			2009 ( unaudited)
Current assets
Cash and cash equivalents	$	7,556,735		$	9,518,994
Accounts receivable, net of allowance for doubtful accounts		380,936			385,352
Inventories		789,564			870,680
Prepaid expenses and other assets		449,368			1,135,082

Total current assets		9,176,603			11,910,108
Non-current assets
Property plant and equipment		307,605,269			308,317,223
Accumulated depreciation		(114,666,272	)		(117,624,698	)

Property plant and equipment, net		192,938,997			190,692,525
Other assets		161,000			51,000
Deferred financing cost		2,820,165			2,990,306

Total assets	$	205,096,765		$	205,643,939


Liabilities and deficit
Current liabilities
Accounts payable	$	2,122,703		$	2,395,903
Accrued expenses		3,744,079			4,237,548
Accrued payroll and benefits		1,378,300			1,749,119
Accrued interest		11,200,000			17,200,000
Advance deposits		347,995			566,923
Current portion of long-term debt		203,931,091			203,474,802

Total current liabilities		222,724,168			229,624,295
Non-current liabilities
Long-term debt, net of current portion		990,786			492,452

Total liabilities		223,714,954			230,116,747

Deficit
Contributed capital		13,644,939			5,610,939
Accumulated deficit		(32,263,128	)		(30,083,747	)

Total deficit		(18,618,189	)		(24,472,808	)

Total liabilities and deficit	$	205,096,765		$	205,643,939

The accompanying notes are an integral part of these statements.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three months ended			Three months ended
	July 31, 2008			July 31, 2009
Revenues:
Gaming	$	21,439,995		$	20,779,971
Hotel		4,104,367			3,639,388
Food and beverage		3,866,700			3,628,663
Recreation and other		4,232,600			3,052,957

Gross revenue		33,643,662			31,100,979

Less-promotional allowances		256,784			173,205

Net revenue		33,386,878			30,927,774


Operating expenses
Gaming		7,346,919			6,750,288
Hotel expenses		1,421,946			965,671
Food and beverage		3,885,545			3,174,236
Recreation and other		3,589,158			2,304,600
Marketing		1,764,509			2,292,990
General and administrative		4,315,667			3,731,220
Depreciation and amortization		3,076,918			3,046,303
Insurance reimbursement (Note 11)		(1,100,000	)		(20,000	)
Storm costs (Note 11)		62,227			14,605
Loss on disposal of assets		46,118			—

Total operating expenses		24,409,007			22,259,913


Operating income		8,977,871			8,667,861


Other expense
Interest income		12,271			4,270
Interest expense		(6,559,504	)		(6,497,499	)
Other income		—			4,750

Total other expense		(6,547,233	)		(6,488,479	)


Net income	$	2,430,638		$	2,179,382

The accompanying notes are an integral part of these statements.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three months ended			Three months ended
	July 31, 2008			July 31, 2009
Cash flows from operating activities:
Net income	$	2,430,638		$	2,179,382
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3,498,170			2,788,285
Insurance reimbursement (paid directly to contractor)		(1,100,000	)		—
Loss on disposal of assets		46,118			—
Changes in assets and liabilities:
Accounts receivable		(27,895	)		(4,416	)
Tribal accounts receivable		(191,750	)		—
Inventories		79,103			(81,116	)
Prepaid expenses		(134,512	)		(685,714	)
Other long-term assets		(213,502	)		110,000
Accounts payable		510,172			273,200
Accrued expenses, payroll and benefits		203,832			864,288
Accrued interest payable		(6,000,000	)		6,000,000
Deposits and advanced payments		645,875			218,928

Net cash (used in) provided by operating activities		(253,751	)		11,662,837


Cash flows from investing activities:
Purchase of property, plant and equipment		(494,032	)		(711,954	)

Net cash used in investing activities		(494,032	)		(711,954	)


Cash flows from financing activities:
Principal payments on long-term debt		(858,617	)		(954,624	)
Distributions to Mescalero Apache Tribe		(2,001,001	)		(8,034,000	)

Net cash used in financing activities		(2,859,618	)		(8,988,624	)


Net (decrease) increase in cash and cash equivalents		(3,607,401	)		1,962,259
Cash and cash equivalents, beginning of period		14,975,093			7,556,735

Cash and cash equivalents, end of period	$	11,367,692		$	9,518,994


Supplemental cash flow information:
Cash paid for interest	$	12,153,193		$	497,499

The accompanying notes are an integral part of these statements.

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

The Inn of the Mountain Gods Resort and Casino and subsidiaries (“IMG Resort and Casino” or the “Company"), an unincorporated enterprise of the Mescalero Apache Tribe (the “Tribe”), was established April 30, 2003 by the Tribe and manages and owns all resort, hotel and gaming enterprises of the Tribe including the Inn of the Mountain Gods Resort and Casino (the “Resort”), a gaming, hotel and resort complex opened on March 15, 2005, and its wholly-owned subsidiaries, each of which is an unincorporated enterprise of the Tribe: Casino Apache (the “Casino Apache Enterprise”), which owned and operated the Tribe’s former casino, Casino Apache, closed in February 2005; Casino Apache Travel Center (the “Travel Center”), which owns the Tribe’s second casino facility opened in May 2003 (the “Travel Center Casino”); Ski Apache (the “Ski Apache”), which owns the Tribe’s ski resort, Ski Apache (the “Ski Apache Resort”); and Inn of the Mountain Gods (the "Inn”), which owned the Tribe’s former resort hotel, Inn of the Mountain Gods (the “Inn Hotel”). The Tribe is the sole owner of IMG Resort and Casino. IMG Resort and Casino is a separate legal entity from the Tribe and is managed by a separate management board.

The Resort, which opened for commercial business on March 15, 2005, is located on tribal land in Mescalero, New Mexico and consists of a casino (the “Inn of the Mountain Gods Casino”) offering Class III gaming as defined by the Indian Gaming Regulatory Act (“IGRA”) and a 273 luxury room resort hotel. The Travel Center Casino, which opened for business on May 22, 2003, also offers Class III gaming as defined by IGRA, on tribal land in Mescalero. Ski Apache operates the Ski Apache Resort, a ski resort located within the Tribe’s reservation in Mescalero and on the U.S. Forest Service land.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the IMG Resort and Casino and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. These consolidated financial statements present only the consolidated financial position, results of operations and cash flows of the IMG Resort and Casino and subsidiaries and are not intended to present fairly the financial position of the Tribe and the results of its operations and cash flows.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has incurred significant losses and did not generate sufficient cash to make the May 15, 2009 interest payment on its 12% senior notes due 2010. This non-payment of interest constitutes an event of default under the indenture governing the senior notes. The Company is currently in discussions with certain of its debtholders regarding these issues. As of July 31, 2009, the Company had negative working capital of approximately $218 million and a total deficit of approximately $30.1 million. The event of default, along with the Company’s history of recurring losses, negative working capital and limited access to capital, has raised substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Historically, IMG Resort and Casino has not generated sufficient cash flow from operations to satisfy its capital requirements and relied upon debt financing arrangements to satisfy such requirements. The current cash flows and capital resources may force IMG Resort and Casino to reduce or delay activities and capital expenditures if IMG Resort and Casino is unable to refinance its debt. In the event that IMG Resort and Casino is unable to refinance or restructure its debt, IMG Resort and Casino will be left without sufficient liquidity and IMG Resort and Casino will not be able to meet the debt service requirements and repayment obligations.

The Tribe has been exploring the potential to refinance the Notes. If the refinancing transaction fails to close on or before the maturity date of the outstanding Notes, the existing noteholders have certain rights under the Notes. If the existing noteholders pursue those rights upon the collateral securing the Notes; our financial viability may be materially and adversely impacted, and we may be forced to: (1) negotiate with the noteholders regarding the restructuring of the Notes; (2) sell some or all of the assets to satisfy our obligations under the Notes; or (3) pursue other alternatives available through formal proceedings, any of which would cause the business to suffer.

Reclassifications

Certain reclassifications have been made in the prior year’s financial statements to conform to the current presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates included in the accompanying financial statements relate to the liability associated with the unredeemed Apache Spirit Club points, the estimated lives of depreciable assets, the determination of bad debt, inventory reserves, asset impairment and the capitalization of construction bond interest costs. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash includes cash on hand for change drawers and in the vault for daily casino activities and cash on deposit with financial institutions in demand accounts, savings accounts and short-term certificates of deposit. For purposes of the statement of cash flows all cash accounts that are not subject to withdrawal restrictions or penalties and all highly liquid debt instruments purchased with an original maturity of nine months or less are considered to be cash equivalents.

Accounts Receivable

Accounts receivable consists primarily of hotel and other non-gaming receivables. IMG Resort and Casino maintains an allowance for doubtful accounts which is based on management’s estimate of the amount expected to be uncollectible considering historical experience and the information management obtains regarding the creditworthiness of the non-gaming customer. The collectability of these receivables could be affected by future business or economic trends.

Inventories

Inventories consist of food and beverage items, fuel, retail merchandise in the golf and pro shop, ski shop, gift shops and other miscellaneous items, parts and supplies. All inventories are stated at the lower of cost or market using the first-in, first-out method.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Property, Plant and Equipment

Property, plant and equipment are presented at historical cost, less accumulated depreciation and amortization. Expenditures for additions, improvements and replacements are capitalized while maintenance and repairs, which do not improve or extend the service lives of the respective assets, are expensed as incurred. Interest incurred during the construction period is capitalized at the borrowing rate for the related loan and is amortized over the life of the related asset. Equipment sold, or otherwise disposed of, is removed from the accounts with gains or losses on disposal recorded in the statements of income.

Depreciation and amortization is provided over the estimated service lives of the respective assets, using the straight-line method based on the following useful lives:


Non —gaming equipment, furniture and other		3 - 15 years
Gaming equipment		5 - 7 years
Leasehold and land improvements, lake and golf course		5 - 30 years
Buildings, lifts and snowmaking equipment		10 - 39 years

Deferred Financing and Refinancing Costs

Debt issuance costs incurred in connection with the issuance of the Resort Project financing were capitalized and are being amortized to interest expense using the straight-line method over the stated maturity of the debt, which approximates the effective interest method. Unamortized deferred financing costs totaled $2.8 million as of April 30, 2009 and $3.0 million as of July 31, 2009, of which $576,451 was capitalized in association with the refinancing transaction described above during the quarter ended July 31, 2009 but are not currently being amortized.

Impairment of Long Lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. In August 2001, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which established the approach to be used in the determination of impairment.

Under the provisions of SFAS 144, a long-lived asset to be abandoned is disposed of when it ceases to be used. If an entity commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, depreciation estimates shall be revised to reflect the use of the asset over its shortened useful life.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, bank financing facilities and capital lease obligations approximate fair value.

The fair value of IMG Resort and Casino’s senior notes were approximately $28.0 million at July 31, 2009, versus $200.0 million recorded value, based on the most recent quoted market price. The notes are not heavily traded, and price quotes ranged from $41.00 to $14.00 during the quarter ended July 31, 2009.

Contributed Capital

Contributed capital represents contributions from the Tribe and consists of (i) cash to fund certain construction and development of the Resort Project, (ii) forgiveness of debt from the Inn to the Tribe and (iii) allocated costs related to the Mescalero Apache Tribe Defined Benefit Plan (see Note 7). For the quarter ended July 31, 2009, IMG Resort and Casino distributed $8.0 million to the Tribe.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Revenues

In accordance with gaming industry practice, the Casino recognizes casino revenue as the net win from gaming activities, which is the difference between gaming wins and losses. Gaming revenues are net of accruals for anticipated payouts of progressive slot jackpots and table games. Such anticipated jackpot payments are reflected as accrued expenses in the accompanying consolidated balance sheets. The total accrual for jackpots and progressives was approximately $271,000 and $213,000 at April 30, 2009 and July 31, 2009, respectively.

Revenues from food and beverage, rooms, recreation and other are recognized at the time the related service or sale is completed. Revenues include the retail value of food and beverages and other items which are provided to customers on a reward basis.

Promotional Allowances

IMG Resort and Casino periodically rewards rooms and other promotions, including Apache Spirit Club points and gift certificates, to its customers. The retail value of these player rebates are recognized by IMG Resort and Casino as a reduction from gross revenue. The total vouchers recognized by IMG Resort and Casino were approximately $257,000 and $173,000 for the three months ended July 31, 2008 and 2009, respectively.

The Casino’s Apache Spirit Club allows customers to earn “points” based on the volume of their gaming activity. These points are redeemable for certain complimentary services or merchandise. Points are accrued based upon their historical redemption rate multiplied by the cash value or the cost of providing the applicable complimentary services. The player’s club point liability is included in accrued expenses and totaled $1,153,398 at April 30, 2009 and $1,091,394 at July 31, 2009.

Emerging Issues Task Force (“EITF”) Issue No. 00-14, Accounting for Certain Sales Incentives requires that discounts which result in a reduction in or refund of the selling price of a product or service in a single exchange transaction be recorded as a reduction of revenues. IMG Resort and Casino adopted EITF 00-14 on April 30, 2001. IMG Resort and Casino’s accounting policy related to free or discounted food and beverage and other services already complies with EITF 00-14, and those free or discounted services are generally deducted from gross revenues as “promotional allowances.” In January 2001, the EITF reached a consensus on certain issues related to Issue No. 00-22, Accounting for “Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Reproduces, or Services to be delivered in the future. Effective January 1, 2001, IMG Resort and Casino, through its wholly-owned subsidiaries adopted EITF 00-22, which requires that cash or equivalent amounts provided or returned to customers as part of a transaction not be shown as an expense, but instead as an offset to the related revenue.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The estimated retail cost of providing such discounted allowances, as they relate to operations, was included in casino expenses as follows:


	Quarter ended July 31,
	2008			2009
Rooms	$	25,792		$	55,272
Food and beverage		159,905			198,252
Other		(20	)		(265	)

Retail	$	185,677		$	253,259

Marketing

IMG Resort and Casino’s marketing costs to outside parties are expensed as incurred and for the three months ended July 31, 2008 and 2009 were $1.8 million and $2.3 million, respectively.

Tribal Taxes

IMG Resort and Casino is subject to Tribal taxes as long as its enterprises are not subject to New Mexico State Gross Receipts Tax. IMG Resort and Casino operations, other than a portion of the operations at Ski Apache, are not subject to the New Mexico State Gross Receipts Tax. A Tribal tax charge of 10.75% of room revenue, 6.75% of food and beverage revenue, and 6.5% of other revenue is charged at non-Ski Apache outlets. There is also a Tribal excise tax that equals the difference between a fixed rate of $200,000 per month and the total of the non-Ski Apache taxes collected, should the taxes collected be less than $200,000 per month. The related tax ordinances are unclear as to what happens when the amount collected from sales is greater than $200,000 per month. Additionally, the taxes collected are included in net revenue and tax payments are included in expenses as opposed to being recorded as a liability and subsequent release of the liability. The tax payment is made at the beginning of the month of the same month that the taxes are being collected. IMG Resort and Casino has recorded and paid the Tribe $600,000 for the three months ended July 31, 2008 and 2009. The amount of taxes collected from sales materially approximates the amount paid to the Tribe each month.

Classification of Departmental Costs

Gaming direct costs are comprised of all costs of the Resorts’ gaming operation, including labor costs employed in gaming departments, casino-based supply costs and other direct operating costs of the casinos (including costs in operating our player’s club). Food and beverage direct costs are comprised of all costs of the Resorts’ food and beverage operations, including labor costs for personnel employed by the Resorts’ restaurants and food and beverage, supply costs for all food and beverages served in the casinos or sold in the Resorts’ restaurants and other food outlets and other expenses including other direct operating expenses related to these activities. General and administrative direct costs are comprised of administrative expenses at our headquarters, including the salaries of corporate officers, accounting, finance, legal and other professional expense and occupancy, facilities, utility costs and other indirect costs not included in the direct costs of our operating departments.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Income Taxes

As unincorporated enterprises of the Tribe, IMG Resort and Casino and its subsidiaries are exempt from federal and state income taxes.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 Fair Value Measurements (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 was effective for the Company as of May 1, 2008 and the adoption of this standard did not have a material effect on IMG Resort and Casino’s financial statements.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 provides that companies may elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. The election, called the “fair value option,” will enable some companies to reduce the variability in reported earnings caused by measuring related assets and liabilities differently. Companies may elect fair-value measurement when an eligible asset or liability is initially recognized or when an event, such as a business combination, triggers a new basis of accounting for that asset or liability. The election is irrevocable for every contract chosen to be measured at fair value and must be applied to an entire contract, not to only specified risks, specific cash flows, or portions of that contract. SFAS 159 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2007. Retrospective application is not allowed. Companies may adopt SFAS 159 as of the beginning of a fiscal year that begins on or before November 15, 2007 if the choice to adopt early is made after SFAS 159 has been issued and within 120 days of the beginning of the fiscal year of adoption and the entity has not issued GAAP financial statements for any interim period of the fiscal year that includes the early adoption date. Companies are permitted to elect fair-value measurement for any eligible item within SFAS 159’s scope at the date they initially adopt SFAS 159. The adjustment to reflect the difference between the fair value and the current carrying amount of the assets and liabilities for which a company elects fair-value measurement is reported as a cumulative-effect adjustment to the opening balance of retained earnings upon adoption. Companies that adopt SFAS 159 early must also adopt all of SFAS 157’s requirements at the early adoption date. The adoption of this standard did not have a material effect on IMG Resort and Casino’s financial statements.

In April 2008, the FASB issued Staff Position FSP FAS 142-3,“Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under other accounting principles generally accepted in the United States of America. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The company adopted SFAS No. 142 at the beginning of fiscal year 2010. The adoption did not have a significant effect on the Company’s financial statements.

In April 2009, the FASB issued FSP No. 107-1 and Accounting Principles Board Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments “(“FSP No. 107-1”). FSP No. 107-1 extends the disclosure requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to interim period financial statements, in addition to the existing requirements for annual periods and reiterates SFAS No. 107’s requirement to disclose the methods and significant assumptions used to estimate fair value. FSP No. 107-1 is effective for interim and annual periods ending after June 15, 2009. The adoption of this statement did have a material impact on the Company’s consolidated financial position or results of operations.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim and annual fiscal periods ending after June 15, 2009. The Company is required to adopt SFAS No. 165 in the first quarter of fiscal 2010 and does not expect that adoption of SFAS No. 165 will have a material impact on its consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, “the FASB Accounting Codification and the Hierarchy of Generally Accepted Accounting Principles”, Replaces SFAS No. 162, establishes the sources of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. On the effective date for financial statements issued for interim and annual periods ending after September 15, 2009, the Codification will supersede all then-existing non –SEC accounting and reporting standards. SFAS No. 168 became effective on July 1, 2009. The adoption of SFAS No. 168 did not have a material effect on the Company’s results of operations and financial position.

NOTE 2—ALLOWANCE FOR DOUBTFUL ACCOUNTS

IMG Resort and Casino maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments, which results in bad debt expense. IMG Resort and Casino determines the adequacy of this allowance by periodically evaluating individual non-gaming customer receivables and considering its non-gaming customers financial condition, credit history and current economic conditions. If the financial condition of non-gaming customers were to deteriorate, resulting in an impairment of their ability to make payments, IMG Resort and Casino may increase the allowance.

The allowance for doubtful accounts was $37,104 as of April 30, 2009 and $57,669 as of July 31, 2009.

NOTE 3—INVENTORIES

Inventories consist of the following as of:


	April 30, 2009		July 31, 2009
Food and beverage	$	240,183	$	229,027
Golf and pro shop		60,962		93,813
Gift shops, fuel and other		488,419		547,840

Inventories, net of reserves	$	789,564	$	870,680

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 4—PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment is summarized as follows:


	April 30, 2009			July 31, 2009
Land	$	1,000,473		$	1,000,473
Buildings		212,103,949			212,103,949
Lifts and Snowmaking equipment		6,394,805			6,394,805
Non-gaming equipment, furniture and other		52,513,112			52,497,274
Gaming equipment		21,807,497			22,281,747
Leasehold and land improvements, lake and golf course		11,075,633			11,075,633

Subtotal		304,895,469			305,353,881
Less accumulated depreciation and amortization		(114,666,272	)		(117,624,698	)

Property, plant and equipment, net		190,229,197			187,729,183
Construction in progress (CIP)		2,709,800			2,963,342

Net Property, plant and equipment	$	192,938,997		$	190,692,525

NOTE 5—LONG-TERM DEBT

On November 3, 2003, IMG Resort and Casino issued $200.0 million of its 12% Senior Notes (the “Notes”). The Notes bear interest at 12% per year, payable on May 15 and November 15 of each year, beginning on May 15, 2004. The Notes will mature on November 15, 2010. The Notes may be redeemed at any time on or after November 15, 2007 at fixed redemption prices plus accrued and unpaid interest, if any. If a change in control occurs, holders of the Notes will have the right to require the repurchase of their Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. The Notes are guaranteed by all of IMG Resort and Casino’s subsidiaries.

The indenture governing the Notes contains covenants that limit, among other things, IMG Resort and Casino and the guarantors’ ability to pay dividends and make distributions to the Tribe; make investments; incur additional debt; create liens; sell equity interests in subsidiaries; enter into transactions with affiliates; enter into sale and leaseback transactions; engage in other businesses; transfer or sell assets; and merge or consolidate with or into other entities.

The Company did not make the scheduled $12.0 million interest payment on the Company’s Notes on May 15, 2009. Under the terms of the indenture governing the Notes (the “Indenture”), the Company had a 30 day grace period with respect to the interest payment but did not make this payment. Failure to make the interest payment on or before June 15, 2009 constitutes an event of default under the Indenture. Upon the occurrence of an event of default, the trustee or holders of at least 25% of the outstanding principal amount of the Notes could declare all of the Notes immediately due and payable. Pursuant to the indenture, we are obligated to pay interest on overdue installments of interest payable on the Notes at a rate equal to 13% per annum (1% per annum in excess of the then applicable annual interest rate on the Notes). The Tribe has engaged a financial advisor, to begin discussions with bondholders related to restructuring the Notes. If the Notes are declared immediately due and payable, it would constitute a default under the terms of the Company’s furniture and equipment loan and the lenders thereunder could declare the outstanding loan to be immediately due and payable. Although the furniture and equipment loans are not technically in default, the Company entered into forbearance agreements with its lenders whereby the lenders agreed to forebear existing rights and remedies in the event of default (see below). Due to the event of default, the Notes have been classified as current in the accompanying consolidated balance sheet.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

On June 15, 2004, IMG Resort and Casino entered into a $15.0 million fixed credit facility with an equipment finance company. The fixed credit facility is fully amortizable over five years and bears fixed interest rates ranging from 7.55% to 8.18%. Proceeds from the loan were used to fund furniture, fixtures and equipment for the Resort. Although the furniture and equipment loans are not technically in default, the Company entered into forbearance agreements with its lenders whereby the lenders agreed to forebear existing rights and remedies in the event of default. As of April 30, 2009 and July 31, 2009, $4.2 million and $3.4 million, respectively, remained outstanding on this facility.

Long-term debt at April 30, 2009 and July 31, 2009 is summarized as follows:


	April 30, 2009			July 31, 2009
Senior Notes, bearing interest at a fixed rates of 12%, maturing in 2010	$	200,000,000		$	200,000,000
Bureau of Indian Affairs, unsecured notes payable with payments of $27,100 per month, including interest at 8.5%, maturing in 2011		673,505			606,209
Capital Equipment Loans,Three (3)to Five (5) year terms, interest ranging from 7.55% to 9.9%		4,248,372			3,361,045

		204,921,877			203,967,254
Less current portion		(203,931,091	)		(203,474,802	)

Long-term portion	$	990,786		$	492,452

The maturities of long-term debt as of July 31, 2009 are as follows:


2010	$	202,976,468
2011		847,467
2012		143,319

	$	203,967,254

NOTE 6—GAMING REVENUE SHARING AND REGULATORY FEES

The Tribe regulates IMG Resort and Casino’s gaming activities through the Mescalero Apache Tribe Gaming Regulatory Commission, an agency of the Tribe (“Commission”). The Commission reports directly to the Tribal Council of the Tribe. A regulatory fee is paid to the Tribe as reimbursement for the cost of regulating the gaming activities. IMG Resort and Casino also pays a federal regulatory fee. All tribal and federal regulatory fees due and payable have been properly accrued.

On June 1, 2004 the Tribe and the State of New Mexico (“State”) entered into a Tribal-State Compact (“Compact”) to govern gaming on the Mescalero Apache Reservation. The terms of the Compact subject the Casino to various regulatory fees and revenues sharing payable to the State.

On June 22, 2004, the Department of the Interior approved the 2001 Compact. The 2001 Compact provides for a revenue sharing amount equal to 8% of “net win” from gaming machines, payable no later than 25 days after the last day of each calendar quarter and an annual regulatory fee of $100,000 paid in quarterly installments of $25,000 on the first day of each calendar quarter. As of April 30, 2009 and July 31, 2009, the amount payable to the State was $392,817 and $568,992, respectively, for regulatory fees.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 7 — EMPLOYEE BENEFITS

In connection with the issuance of the original notes, IMG Resort and Casino and the Tribe entered into an employee benefits cost allocation agreement, which provides that the Tribe will continue to provide IMG Resort and Casino and its resort enterprises with certain employee benefits in accordance with past practice, including group health benefits, worker’s compensation insurance, disability insurance, unemployment benefits and pension benefits. IMG Resort and Casino reimburses the Tribe for its employees’ direct costs for coverage as billed by the third party.

On May 1, 2009, the Tribe suspended IMG Resort and Casino’s matching of employee contributions up to 4% in the Tribe sponsored 401(k) savings plan, as a cost saving measure. The total amount of match made by IMG Resort and Casino was $226,683 for the quarter ended July 31, 2008 and $0 for the quarter ended July 31, 2009. The IRS sets the maximum allowed each year for qualified 401(k) plans. The maximum the IRS allows for an employee deferral amount for 2008 and 2009 for an employee, who is under 50 years old, is $15,500, and for an employee who is over 50 years old, is $20,500.

NOTE 8 — RISK MANAGEMENT

IMG Resort and Casino manages the exposure to the risk of most losses through various commercial insurance policies. There have been no reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage for the period ended July 31, 2009.

The Tribe is self —insured for employee health and accident insurance. IMG Resort and Casino’s employees are covered by the Tribe’s policy and remit amounts to the Tribe for their share of the self-insurance costs.

The total amounts reimbursed to the Tribe were approximately $849,000 and $846,401 for the three months ended July 31, 2008 and 2009, respectively.

The Tribe maintains worker’s compensation insurance coverage under a retrospective rated policy whereby premiums and catastrophic cases are accrued based on the loss experience of the Tribe and its various enterprises. The IMG Resort and Casino’s employees are covered under this plan. Under this policy, premiums may be adjusted at the end of the coverage period based on loss experience for the coverage period. Management of the Tribe and the IMG Resort and Casino have monitored their claims and loss experiences. Workers compensation insurance coverage, combined with the Tribe and IMG Resort and Casino’s causality and liability claims, have been below projected levels and properly accrued for.

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Legal Matters

The IMG Resort and Casino and the Resorts are involved in various legal actions incident to their operations that, in the opinion of management, will not materially affect the IMG Resort and Casino’s financial position or the results of its operations.

Occupancy Fee

A special use permit was obtained from the United States Department of Agriculture Forest Service for Ski Apache’s use of 80 acres of land in Lincoln National Forest. The permit is dated April 23, 1985, and has a term of 30 years with an annual occupancy fee based on revenue and gross fixed assets. Occupancy fees for the three months ended July 31, 2008 and July 31, 2009 were $0 and $24,712, respectively.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Employment Agreements

The Company entered into an agreement with Ms. Pamela Gallegos on August 1, 2008 whereby Ms. Gallegos agreed to serve as Director of Finance of the Company from August 7, 2008 through July 31, 2010 and the Company agreed to pay Ms. Gallegos an annual base salary of $176,000. Ms. Gallegos was allowed to participate in all employee benefit plans and programs. The agreement also provided that Ms. Gallegos may receive one month of severance for every three full months of employment with the Company up to twelve months total. Ms. Gallegos left the Company as of July 10, 2009. On August 23, 2009, IMG Resort and Casino’s management board declined to mediate the employment agreement.

Consulting Agreement

On February 13, 2009, the IMG Resort and Casino executed a consulting agreement, dated February 10, 2009 (“Consulting Agreement”) with a subsidiary of Warner Gaming, LLC (“Consultant”). The Consulting Agreement provides that the Consultant will, over the three-year term of the Consulting Agreement, evaluate and make recommendations with respect to the following operations at the IMG Resort and Casino: gaming operations and related marketing, non-gaming marketing programs, hotel and other operations, food and beverage operations, human resources and finance and accounting.

The Company, the Subsidiaries and the Consultant currently intend to replace the Consulting Agreement with a Management Agreement which will allow the Consultant to actively manage all aspects of the operations (the “Management Agreement”). The Consulting Agreement became effective February 13, 2009, and terminates on February 18, 2012, upon the approval by the National Indian Gaming Commission (the “NIGC”) of the Management Agreement, or upon the occurrence of certain other events as set forth in the Consulting Agreement. Unless and until the Management Agreement is approved by the NIGC, IMG Resort and Casino will continue to manage the day-to-day operations.

NOTE 10—RELATED-PARTY TRANSACTIONS

The Tribe operates other entities and enterprises in various industries, including telecommunication, timber and forest products, gas and convenience store; in addition, the Tribe has a housing authority, school and nursing facility. Financial results of the Tribe and its other enterprises and entities are not included in these consolidated financial statements.

The Tribe provides certain shared services which it administers for all of its enterprises. IMG Resort and Casino uses Mescalero Apache Telecommunications for some of its telecommunications related services. IMG Resort and Casino paid Mescalero Apache Telecommunications approximately $51,000 and $49,000 for the three months ended July 31, 2008 and 2009, respectively.

Shared Services and Cost Allocations

In connection with the issuance of the original notes, IMG Resort and Casino and the Tribe entered into a service and cost allocation agreement, which provides that the Tribe or its enterprises will continue to provide IMG Resort and Casino and its resort enterprises the following services in accordance with past practice: (i) insurance; (ii) telecommunications; (iii) propane; and (iv) gaming regulation, and that IMG Resort and Casino and its resort enterprises will pay, on behalf of the Tribe, for (a) revenue sharing and regulatory fee obligations required under the 2001 Compact or any new compact, (b) federal regulatory fees required by IGRA, (c) an amount equal to the monthly payments required under the BIA Note (See Note 5) and (d) amounts for certain other miscellaneous liabilities. IMG Resort and Casino reimburses the Tribe for its direct costs as billed by the third party.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Employee Benefits Cost Allocations

In connection with the issuance of the original notes, IMG Resort and Casino and the Tribe entered into an employee benefits cost allocation agreement, which provides that the Tribe will continue to provide IMG Resort and Casino and its resort enterprises with certain employee benefits in accordance with past practice, including group health benefits, worker’s compensation insurance, disability insurance, unemployment benefits and pension benefits. IMG reimburses the Tribe for its employees’ direct costs for coverage as billed by the third party.

The Tribe provides employee benefits to the IMG Resort and Casino, which reimburses the Tribe for all costs and expenses associated with this health and dental insurance. IMG Resort and Casino paid the Tribe $849,000 and $846,401 for the quarters ended July 31, 2008 and 2009, respectively.

NOTE 11 — STORM RECOVERY

In late July 2008, the remnants of Hurricane Dolly brought torrential rain and caused significant flash flood damage at Ski Apache and the Inn of the Mountain Gods Championship Golf Course, damaging buildings, land, and equipment. A majority of assets that were damaged or destroyed were fully or nearly fully depreciated.

IMG Resort and Casino’s insurance carrier agreed to provide approximately $5.0 million of coverage for the damage that occurred as a result of the flooding. Additionally, FEMA had deemed the area a Federal Disaster area and has assured financial assistance of at least the deductible on our insurance policy.

For the period ended July 31, 2009, IMG Resort and Casino has incurred approximately $0.01 million in costs associated with the storm recovery compared to $0.06 million for the three months ended July 31, 2008.

NOTE 12 — OPERATING SEGMENTS

The IMG Resort and Casino has four operating segments and a consolidating segment: Gaming at the IMG, Gaming at the Travel Center, Ski, and all other non-gaming. The Gaming segments include the activities of the two casinos. The Ski segment includes Ski lifts and Ski school at Ski Apache. The Non-Gaming segment includes the hotel, hunts, golf, food and beverage, banquets, conferences, retail shops, convenience store and truck stop fuel sales.

As a result of realigning its operations, the resulting reporting of the segments has changed. The Company has restated prior year’s segment information to be consistent with the current reporting and operating structure in place today. Assets and liabilities have been consolidated under the non-segment group, and as a result, depreciation and interest expenses are not broken out separately by segment, which is consistent with the internal decision makers’ information requirements.

These operating segments represent distinct business activities, which are managed separately from a profit and loss perspective, but jointly from a balance sheet perspective.

SELECTED OPERATING SEGMENT FINANCIAL INFORMATION
(unaudited, in thousands)


	Gaming		Gaming
	IMG		Travel Ctr		Ski			Non Gaming		Non Segment			Consolidated
Quarter ended
July 31, 2008
Net Revenue	$	12,840	$	8,463	$	1		$	12,109	$	(26	)	$	33,387
Operating Income (Loss)		9,903		6,765		(1	)		3,210		(10,899	)		8,978
Depreciation Expense		—		—		—			—		3,077			3,077
Interest Expense		—		—		—			—		(6,560	)		(6,560	)
Interest Income and Other		—		—		—			—		12			12

Quarter ended
July 31, 2009
Net Revenue	$	13,178	$	7,597	$	2		$	10,299	$	(148	)	$	30,928
Operating Income (Loss)		10,505		6,177		3			3,841		(11,858	)		8,668
Depreciation Expense		—		—		—			—		3,046			3,046
Interest Expense		—		—		—			—		(6,497	)		(6,497	)
Interest Income and Other		—		—		—			—		9			9

NOTE 13—CONSOLIDATING INFORMATION

In connection with IMG Resort and Casino’s issuance in November 2003 of the Notes, IMG Resort and Casino’s subsidiaries, Casino Apache, the Inn, the Travel Center and Ski Apache (“wholly-owned Guarantors”) have, jointly and severally, fully and unconditionally guaranteed the Notes. These guarantees were secured only until the completion of the Resort and thereafter unsecured.

Pursuant to Rule 3-10 of Regulation S-X, the following consolidating information is for IMG Resort and Casino and the wholly owned Guarantors of the Notes. This consolidating financial information has been prepared from the books and records maintained by IMG Resort and Casino and the wholly-owned Guarantors. The consolidating financial information may not necessarily be indicative of results of operations or financial position had the wholly-owned Guarantors operated as independent entities. The separate financial statements of the wholly-owned Guarantors are not presented because management has determined they would not be material to investors.

The following consolidating information is presented as of July 31, 2009 and April 30, 2009 and for the three months ended July 31, 2009 and 2008.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of July 31, 2009
(unaudited)


				Wholly-owned
	IMGRC			Guarantors			Eliminations			Consolidated
Cash and cash equivalents	$	5,125,756		$	4,393,238		$	—		$	9,518,994
Accounts receivable		(14,689	)		400,041			—			385,352
Inventories		222,218			648,462			—			870,680
Prepaid expenses		1,135,082			—			—			1,135,082

Total current assets		6,468,367			5,441,741			—			11,910,108
Fixed assets		—			308,317,223			—			308,317,223
Depreciation		—			(117,624,698	)		—			(117,624,698	)

Net fixed assets		—			190,692,525			—			190,692,525
Non current assets
Other assets		51,000			—			—			51,000
Deferred financing costs		2,990,306			—			—			2,990,306
Advances to subsidiaries		29,229,379			8,689,726			(37,919,105	)		—
Investment in subsidiaries		173,401,522			—			(173,401,522	)		—

Total Assets	$	212,140,574		$	204,823,992		$	(211,320,627	)	$	205,643,939


Accounts payable	$	2,395,903		$	—		$	—		$	2,395,903
Accrued expenses		3,217,589			1,019,959			—			4,237,548
Accrued payroll and benefits		1,749,119			—			—			1,749,119
Accrued interest		17,200,000			—			—			17,200,000
Advance deposits		—			566,923			—			566,923
Current portion of long-term debt		203,192,938			281,864			—			203,474,802

Total current liabilities		227,755,549			1,868,746			—			229,624,295
Non current liabilities:
Advances from subsidiaries		8,689,726			29,229,379			(37,919,105	)		—

Long-term debt, net of current portion		168,107			324,345			—			492,452

Total liabilities		236,613,382			31,422,470			(37,919,105	)		230,116,747

Contributed capital		5,610,939			(6,012,897	)		6,012,897			5,610,939
Retained earnings (deficit)		(30,083,747	)		179,414,419			(179,414,419	)		(30,083,747	)

Total equity (deficit)		(24,472,808	)		173,401,522			(173,401,522	)		(24,472,808	)

Total liabilities and equity (deficit)	$	212,140,574		$	204,823,992		$	(211,320,627	)	$	205,643,939

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended July 31, 2009
(Unaudited)


				Guarantor
	IMGRC			Subsidiaries		Eliminations			Consolidated
Revenues:
Gaming	$	—		$	20,779,971	$	—		$	20,779,971
Hotel		—			3,639,388		—			3,639,388
Food and beverage		—			3,628,663		—			3,628,663
Recreation and other		—			3,052,957		—			3,052,957

Gross revenue		—			31,100,979		—			31,100,979
Less -promotional allowances		27,260			145,945		—			173,205

Net revenue		(27,260	)		30,955,034		—			30,927,774

Operating expenses
Gaming		—			6,750,288		—			6,750,288
Hotel		—			965,671		—			965,671
Food and beverage		—			3,174,236		—			3,174,236
Recreation and other		—			2,304,600		—			2,304,600
Marketing		—			2,292,990		—			2,292,990
General and administrative		—			3,731,220		—			3,731,220
Depreciation and amortization		—			3,046,303		—			3,046,303
Insurance reimbursement (Note 11)		(20,000	)		—		—			(20,000	)
Storm costs		14,605			—		—			14,605

Total operating expenses		(5,395	)		22,265,308		—			22,259,913

Operating income (loss)		(21,865	)		8,689,726		—			8,667,861


Other income (expense)
Interest income		4,270			—		—			4,270
Interest expense		(6,497,499	)		—		—			(6,497,499	)
Income from subsidiaries		8,689,726			—		(8,689,726	)		—
Other income		4,750			—		—			4,750

Total other income (expense)		2,201,247			—		(8,689,726	)		(6,488,479	)


Net income (loss)	$	2,179,382		$	8,689,726	$	(8,689,726	)	$	2,179,382

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended July 31, 2009
(unaudited)


				Guarantor
	IMGRC			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	2,179,382		$	8,689,726		$	(8,689,726	)	$	2,179,382
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		(170,141	)		2,958,426			—			2,788,285
Changes in assets and liabilities:
Accounts receivable		127,884			(132,300	)		—			(4,416	)
Inventories		(37,452	)		(43,664	)		—			(81,116	)
Prepaid expenses		(685,714	)		—			—			(685,714	)
Other long term assets		110,000			—			—			110,000
Accounts payable		273,200			—			—			273,200
Accrued expenses, payroll and benefits		759,517			104,771			—			864,288
Accrued interest		6,000,000			—			—			6,000,000
Deposits and advance payments		—			218,928			—			218,928

Net cash provided by (used in) operating activities		8,556,676			11,795,887			(8,689,726	)		11,662,837


Cash flows from investing activities:
Purchase of property, plant and equipment		—			(711,954	)		—			(711,954	)
Investment in subsidiaries		(8,689,726	)		—			8,689,726			—

Net cash provided by (used by) investing activities		(8,689,726	)		(711,954	)		8,689,726			(711,954	)


Cash flows from financing activities:
Advances to (from) affiliates		9,659,920			(9,659,920	)		—			—
Principal payments on debt		(887,327	)		(67,297	)		—			(954,624	)
Distributions to Mescalero Apache Tribe		(8,034,000	)		—			—			(8,034,000	)

Net cash provided by (used in) financing activities		738,593			(9,727,217	)		—			(8,988,624	)


Net increase in cash and cash equivalents		605,543			1,356,716			—			1,962,259
Cash and cash equivalents, beginning of period		4,520,213			3,036,522			—			7,556,735

Cash and cash equivalents, end of period	$	5,125,756		$	4,393,238		$	—		$	9,518,994

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of April 30, 2009


				Guarantor
	IMGRC			Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	4,520,213		$	3,036,522		$	—		$	7,556,735
Accounts receivable		113,195			267,741			—			380,936
Inventories		184,766			604,798			—			789,564
Prepaid expenses		449,368			—			—			449,368

Total current assets		5,267,542			3,909,061			—			9,176,603
Fixed assets		—			307,605,269						307,605,269
Accumulated depreciation		—			(114,666,272	)		—			(114,666,272	)

Net fixed assets		—			192,938,997			—			192,938,997
Non-current assets
Other assets		161,000			—						161,000
Deferred financing costs		2,820,165			—			—			2,820,165
Advances to subsidiaries		50,198,590			19,999,016			(70,197,606	)		—
Investment in subsidiaries		164,711,796			—			(164,711,796	)		—

Total Assets	$	223,159,093		$	216,847,074		$	(234,909,402	)	$	205,096,765


Accounts payable	$	2,122,703		$	—		$	—		$	2,122,703
Accrued expenses		2,828,891			915,188			—			3,744,079
Accrued payroll and benefits		1,378,300			—			—			1,378,300
Accrued interest		11,200,000			—			—			11,200,000
Advance deposits		—			347,995			—			347,995
Current portion of long-term debt		203,655,133			275,958			—			203,931,091

Total current liabilities		221,185,027			1,539,141			—			222,724,168
Non-current liabilities
Advances from subsidiaries		19,999,016			50,198,590			(70,197,606	)		—
Long-term debt, net of current portion		593,239			397,547			—			990,786

Total liabilities		241,777,282			52,135,278			(70,197,606	)		223,714,954
Contributed Capital		13,644,939			(6,012,897	)		6,012,897			13,644,939
Retained Earnings (accumulated deficit)		(32,263,128	)		170,724,693			(170,724,693	)		(32,263,128	)

Total (deficit) equity		(18,618,189	)		164,711,796			(164,711,796	)		(18,618,189	)

Total liabilities and equity (deficit)	$	223,159,093		$	216,847,074		$	(234,909,402	)	$	205,096,765

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended July 31, 2008


				Guarantor
	IMGRC			Subsidiaries		Eliminations			Consolidated
Revenues:
Gaming	$	—		$	21,439,995	$	—		$	21,439,995
Hotel		—			4,104,367		—			4,104,367
Food and beverage		—			3,866,700		—			3,866,700
Recreation and other		—			4,232,600		—			4,232,600

Gross revenue		—			33,643,662		—			33,643,662

Less -promotional allowances		15,402			241,382		—			256,784

Net revenue		(15,402	)		33,402,280		—			33,386,878

Operating Expenses										—
Gaming		—			7,346,919		—			7,346,919
Hotel expenses		—			1,421,946		—			1,421,946
Food and beverage		—			3,885,545		—			3,885,545
Recreation and other		—			3,589,158		—			3,589,158
Marketing		—			1,764,509		—			1,764,509
General and administrative		2,370,546			1,945,121		—			4,315,667
Depreciation and amortization		—			3,076,918		—			3,076,918
Storm recovery		16,108			46,119		—			62,227
Insurance reimbursement on storm loss		(1,100,000	)		—		—			(1,100,000	)
Gain (loss) on disposal of assets		—			46,118		—			46,118

Total operating expenses		1,286,654			23,122,353		—			24,409,007


Operating income (loss)		(1,302,056	)		10,279,927		—			8,977,871


Other income (expense)										—
Interest income		12,271			—		—			12,271
Interest expense		(6,559,504	)		—		—			(6,559,504	)
Income from subsidiaries		10,279,927			—		(10,279,927	)		—

Total other income (expense)		3,732,694			—		(10,279,927	)		(6,547,233	)

Net income (loss)	$	2,430,638		$	10,279,927	$	(10,279,927	)	$	2,430,638

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months ended July 31, 2008
(unaudited)


				Guarantor
	IMGRC			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	2,430,638		$	10,279,927		$	(10,279,927	)	$	2,430,638
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		406,311			3,091,859			—			3,498,170
Insurance reimbursement (paid directly to contractor)		(1,100,000	)		—			—			(1,100,000	)
Loss on disposal of fixed assets		—			46,118			—			46,118
Changes in assets and liabilities:
Accounts receivable		(1,037	)		(26,858	)		—			(27,895	)
Tribal accounts receivable		(191,750	)		—			—			(191,750	)
Inventories		16,337			62,766			—			79,103
Prepaid expenses		(307,862	)		173,350			—			(134,512	)
Other long term assets		—			(213,502	)		—			(213,502	)
Accounts payable		510,172			—			—			510,172
Accrued expenses, payroll and benefits		(28,929	)		232,761			—			203,832
Accrued interest payable		(6,000,000	)		—			—			(6,000,000	)
Deposits and advance payments		—			645,875			—			645,875

Net cash (used in) provided by operating activities		(4,266,120	)		14,292,296			(10,279,927	)		(253,751	)


Cash flows from investing activities:
Purchase of property, plant and equipment		—			(494,032	)		—			(494,032	)
Investment in subsidiaries		(10,279,927	)		—			10,279,927			—

Net cash used by investing activities		(10,279,927	)		(494,032	)		10,279,927			(494,032	)


Cash flows from financing activities:
Advances to (from) affiliates		13,526,182			(13,526,182	)		—			—
Principal payments on debt		(796,880	)		(61,737	)		—			(858,617	)
Distributions to Mescalero Apache Tribe		(2,001,001	)		—			—			(2,001,001	)

Net cash provided by (used in) financing activities		10,728,301			(13,587,919	)		—			(2,859,618	)


Net (decrease) increase in cash and cash equivalents		(3,817,746	)		210,345			—			(3,607,401	)
Cash and cash equivalents, beginning of period		11,083,394			3,891,699			—			14,975,093

Cash and cash equivalents, end of period	$	7,265,648		$	4,102,044		$	—		$	11,367,692

FORWARD—LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding our expected financial condition, results of operations, business, strategies and financing plans under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q are forward-looking statements. In addition, in those and other portions of this Form 10-Q, the words “anticipate,” “expect,” “plan,” “intend,” “will,” “designed,” “estimate,” “adjust” and similar expressions, as they relate to us or our management, indicate forward-looking statements. These forward-looking statements may prove to be incorrect. Important factors that could cause actual results to differ materially from these forward-looking statements disclosed in this Form 10-Q include, without limitation, risks relating to the following: (a) our levels of leverage and ability to meet our debt service obligations; (b) our financial performance; (c) restrictive covenants in our debt instruments; (d) realizing the benefits of our business plan and business strategies; (e) changes in gaming laws or regulations, including potential legalization of gaming in certain jurisdictions; (f) the impact of competition in our markets; (g) our ability to attract increasing numbers of customers; and (h) general local, domestic and global economic conditions

You are urged to consider these factors carefully in evaluating the forward-looking statements contained in this Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by our cautionary statements. The forward-looking statements included in this Form 10-Q are made only as of the date of this Form 10-Q. We do not intend, and undertake no obligation, to update these forward-looking statements.

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” or the “Company” refers to Inn of the Mountain Gods Resort and Casino, a business enterprise of the Tribe, (c) “Resort” refers to the Inn of the Mountain Gods Resort and Casino, (d) “Casino Apache” refers to Casino Apache, a business enterprise of the Tribe, (e) the “Inn” refers to Inn of the Mountain Gods, a business enterprise of the Tribe, (f) the “Travel Center” refers to Casino Apache Travel Center, a business enterprise of the Tribe and (g) “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.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has incurred significant losses and did not generate sufficient cash to make the May 15, 2009 interest payment on its 12% senior notes due 2010. This non-payment of interest constitutes an event of default under the indenture governing the senior notes. As of April 30, 2009, the Company had negative working capital of approximately $218 million and a total deficit of approximately $30.1 million. The event of default, along with the Company’s history of recurring losses, negative working capital and limited access to capital, has raised substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We did not make the scheduled $12.0 million interest payment on our senior notes due 2010 scheduled to be made on May 15, 2009. Our failure to make the interest payment on or before June 15, 2009 constitutes an event of default under the indenture governing the senior notes and the trustee or holders of at least 25% of the outstanding principal amount of the notes could declare all of the notes immediately due and payable. Pursuant to the indenture, we are obligated to pay interest on overdue installments of interest payable on the senior notes at a rate equal to 13% per annum (1% per annum in excess of the then applicable annual interest rate on the senior notes). The Tribe has engaged financial advisors to assist the Company with the evaluation and implementation of financial and strategic alternatives. If our senior notes are declared immediately due and payable, it would constitute a default under the terms of our furniture and equipment loan and the lenders thereunder could declare the outstanding loan to be immediately due and payable and may enforce their rights to the collateral securing the loan, which would have a material adverse effect on our business. We are currently in discussions with certain of our debtholders regarding

these issues, although we have received temporary forbearance agreements from those lenders with respect to our failure to make the interest payment.

Historically, IMG Resort and Casino has not generated sufficient cash flow from operations to satisfy our capital requirements and relied upon debt financing arrangements to satisfy such requirements. The current cash flows and capital resources may be insufficient to meet both short and long term debt obligations and commitments, and IMG Resort and Casino may be forced to reduce or delay activities and capital expenditures if IMG Resort and Casino is unable to refinance its debt. In the event that IMG Resort and Casino is unable to refinance or restructure its debt, IMG Resort and Casino will be left without sufficient liquidity and IMG Resort and Casino will not be able to meet the debt service requirements and repayment obligations.

We are undergoing a comprehensive review of our operations to determine ways to improve revenues, reduce operating and non-operating expenses and limit our uses of cash. We expect to realize the benefits of certain of these measures immediately, while the benefit of others will not be realized until future periods. However, we can give no assurance that the expected benefits will be realized in the amount or at the times we anticipate, or at all.

We believe that our ability to fund our operations, make planned capital expenditures, and make scheduled payments depends on our future operating performance and success in seeking to increase operating efficiencies and reduce operating expenses, which are subject to economic, financial, business and other conditions, some of which are beyond our control.

Additionally, our ability to incur additional indebtedness is limited under the terms of the indenture governing the Notes. If our expected operating performance or success in increasing operating efficiencies and reducing operating expenses does not meet management expectations, we may need to arrange for additional sources of funding in the form of permitted borrowings under our indenture or contributions from the Tribe, which sources of funding cannot be assured.

Overview

We are an unincorporated business enterprise of the Tribe. The Tribe formed IMG Resort and Casino to operate its resort enterprises, comprised of, the Inn, Casino Apache Travel Center and Ski Apache, each of which is an unincorporated Tribal business enterprise wholly-owned by IMG Resort and Casino. The combined activities of these enterprises comprise our operations. Our four primary areas of operation are:

Gaming. Our gaming activities are authorized by the Indian Gaming Regulatory Act of 1988, or IGRA, our gaming compact with the State of New Mexico and a Tribal gaming ordinance. As of July 31, 2009, we had 55,000-square feet of combined gaming space featuring 1,302 slot machines and 37 table games between our facilities at the Resort, opened in March 2005, and Casino Apache Travel Center (the “Travel Center Casino”), opened in May 2003.

Food and Beverage. The Resort features: Wendell’s, a 116-seat casual and fine dining restaurant; Gathering of Nations Buffet, a 260-seat buffet style restaurant; a 72-seat sports bar; an 80-seat night club featuring live entertainment, dancing and DJ music; Wendell’s Lounge, a “piano” lounge featuring an oversized fireplace; and the Apache Summit BBQ, an 88-seat casual restaurant in the golf clubhouse. Casino Apache Travel Center features Smokey B’s, a 130-seat casual dining restaurant and one sports bar. Ski Apache operates one main restaurant and five satellite food and beverage outlets.

Hotel. On March 15, 2005, we opened the Resort which features 273 luxury hotel rooms. The hotel varies between four and eight stories in height, depending upon the location along the hotel corridor, and allows for easy traveling distance to and from the casino and events center. Our over-sized deluxe guest rooms are either 480 square feet or 610 square feet and our suites are 1,200 square feet (with the ability to connect to a 480 square foot deluxe guest room, providing a total of 1,680 square feet in that configuration). In-room amenities include high-speed Internet access, coffee makers, ironing boards and irons, mini-bars, toiletries, free and pay-per-view movies and other standard and premium channels. All rooms feature a balcony view of Lake Mescalero, Sierra Blanca Mountain or the forest-lined golf course. The hotel also features an indoor swimming pool and fitness center, steam and sauna facilities for both men and women and a family locker area.

Recreation and Other. Our all-season recreational operations include, Ski Apache with 11 ski lifts covering 55 trails over 750 acres and is the second largest in New Mexico, an 18-hole championship golf course, seasonal big-game hunts, a shooting range, horseback riding, boating and fishing. Our ski resort is typically open from Thanksgiving until Easter, while our golf course generally operates from April through November. Our retail outlets include a gift shop, golf and pro shop, ski shop, a 2,500-square foot convenience store, a fuel station with 12 gasoline and eight diesel pumping stations and laundry and shower facilities.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the recorded amount of assets and liabilities at the date of the financial statements and revenues and expenses during the period. Significant accounting policies employed by us, including the use of estimates and assumptions, are presented in the notes to our consolidated financial statements included elsewhere in this Form 10-Q. Our management bases its estimates on its historical experience, together with other relevant factors, in order to form the basis for making judgments that will affect the carrying value of assets and liabilities. On an ongoing basis, management evaluates its estimates and makes changes to carrying values as deemed necessary and appropriate. Actual results could differ from those estimates.

Revenue Recognition. In accordance with gaming industry practice, we recognize gaming revenues as the net win from gaming activities, which is the difference between gaming wins and losses. Gaming revenues are net of accruals for anticipated payouts of progressive slot jackpots and table games. These anticipated jackpot payments are reflected as current liabilities on our balance sheets. Net slot win represents all amounts played in the slot machines reduced by the winnings paid out. Table games net win represents the difference between table game wins and losses. The table games historical win percentage is reasonably predictable over time, but may vary considerably during shorter periods. Revenues from food, beverage, rooms, recreation, retail and other are recognized at the time the related service or sale is completed. Player reward redemptions for food and beverage, hotel rooms and other items are included in gross revenue at full retail value.

Promotional Allowances. IMG Resort and Casino periodically rewards rooms and other promotions, including Apache Spirit Club points and gift certificates, to its customers. The retail value of these player rebates are recognized by IMG Resort and Casino as a reduction from gross revenue.

The Casino’s Apache Spirit Club allows customers to earn “points” based on the volume of their gaming activity. These points are redeemable for certain services or merchandise. Points are accrued based upon their historical redemption rate multiplied by the cash value or the cost of providing the applicable rewards services.

Emerging Issues Task Force (“EITF”) Issue No. 00-14, Accounting for Certain Sales Incentives, requires that discounts which result in a reduction in or refund of the selling price of a product or service in a single exchange transaction be recorded as a reduction of revenues. We adopted EITF 00-14 on April 30, 2001. Our accounting policy related to free or discounted food and beverage and other services already complies with EITF 00-14, and those free or discounted services are generally deducted from gross revenues as “promotional allowances.” In January 2001, the EITF reached a consensus on certain issues related to Issue No. 00-22, Accounting for “Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Reproduces, or Services to be delivered in the future. Effective January 1, 2001, we, through our wholly-owned subsidiaries adopted EITF 00-22, which requires that cash or equivalent amounts provided or returned to customers as part of a transaction not be shown as an expense, but instead as an offset to the related revenue.

Classification of Departmental Costs. Gaming direct costs are comprised of all costs of the Resorts’ gaming operation, including labor costs for casino-based supply costs, certain (including costs in operating our players’ clubs) and other direct operating costs of the casinos. Food and beverage direct costs are comprised of all costs of the Resorts’ food and beverage operations, including labor costs for personnel employed by the Resorts’ restaurants and food and beverage, supply costs for all food and beverages served in the casinos or sold in the Resorts’ restaurants and other food outlets and other expenses including other direct operating expenses related to these activities. General and administrative direct costs are comprised of administrative expenses at our headquarters,

including the salaries of corporate officers, accounting, finance, legal and other professional expense and occupancy costs and other indirect costs not included in the direct costs of our operating departments.

Deferred Financing and Refinancing Costs. Debt issuance costs incurred in connection with the issuance of the Resort Project financing were capitalized and are being amortized to interest expense using the straight-line method over the stated maturity of the debt, which approximates the effective interest method. Unamortized deferred financing costs totaled $2.8 million as of April 30, 2009 and $3.0 million as of July 31, 2009, of which $576,451 was capitalized in association with the refinancing transaction described above during the quarter ended July 31, 2009 but are not being amortized.

Impairment of Long Lived Assets. Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. In August 2001, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which established the approach to be used in the determination of impairment.

Results of Operations

Quarter Ended July 31, 2009 Compared to Quarter Ended July 31, 2008.

Net Revenues. Net revenues decreased $2.5 million, or 7%, to $30.9 million for the quarter ended July 31, 2009 from $33.4 million for the quarter ended July 31, 2008 due to a decrease in all areas of our business caused by a decline in the economy and discretionary spending of our guests. Gaming net revenues decreased $0.6 million, down 3% from the comparable prior period; food and beverage revenues decreased $0.3 million, or 6%, from the comparable prior period; hotel revenues decreased $0.5 million from a year ago. Recreation and other revenue for the 2009 period decreased $1.2 million, or 28%, from July 31, 2008. Promotional allowances decreased $0.1 million, or 33%, for the quarter ended July 31, 2009 compared to the quarter ended July 31, 2008.

Gaming. Net gaming revenues decreased $0.6 million, or 3%, to $20.8 million for the quarter ended July 31, 2009 from $21.4 million for the quarter ended July 31, 2008. Slot revenues decreased to $19.1 million for the quarter ended July 31, 2009 from $19.7 million for the quarter ended July 31, 2008, a decrease of $0.6 million. Gross slot win per unit, per day was $159 for the quarter ended July 31, 2009 compared to $146 for the quarter ended July 31, 2008; the weighted average number of machines declined to 1,302 for the quarter ended July 31, 2009 from 1,462 for the quarter ended July 31, 2008. Table games revenue remained flat at $3.0 million for the quarters ended July 31, 2009 and 2008. Daily Net Win per Table for the quarter ended July 31, 2009 was $764 as compared to $660 for the same period a year ago, a 16% increase.

Hotel. Hotel revenue for the quarter ended July 31, 2009 decreased $0.5 million to $3.6 million from $4.1 million from the quarter ended July 31, 2008. Occupancy rates averaged 86%, a decrease of 1%, for the quarter ended July 31, 2009, the average daily rate decreased to $181, for the quarter ended July 31, 2009; as compared to $184 for the same period a year ago. Revenue per available room was $157 for the quarter ended July 31, 2009, a 2% decrease.

Food and Beverage. Food and beverage revenues decreased $0.3 million, or 6%, to $3.6 million for the quarter ended July 31, 2009 from $3.9 million for the quarter ended July 31, 2008 due to a decrease in covers.

Recreation and Other. Recreation and other revenues decreased $1.2 million, or 28% to $3.1 million for the quarter ended July 31, 2009 compared to $4.2 million for the quarter ended July 31, 2008 due to a decrease in fuel sales price.

Promotional Allowances. Promotional allowances were $0.2 million for the quarter ended July 31, 2009 compared to $0.3 million for the quarter ended July 31, 2008, a decrease of $0.1 million or 33%.

Total Operating Expenses. Total operating expenses decreased $2.2 million to $22.2 million for the quarter ended July 31, 2009 from $24.4 million for the quarter ended July 31, 2008 due to decreases in various divisions throughout the organization.

Gaming. Gaming expenses decreased $0.6 million, or 8%, for the quarter ended July 31, 2009 to $6.8 million from $7.3 million for the quarter ended July 31, 2008 due to a decrease in salaries, wages, benefits, and supplies.

Hotel. Hotel expenses decreased $0.4 million to $1.0 million for the quarter ended July 31, 2009 from $1.4 million for the quarter ended July 31, 2008, due a decrease in salaries, wages and benefits. Hotel is running at a 73% profit for the quarter ended July 31, 2009 up 12% from the comparable prior 2008 period.

Food and Beverage. Food and beverage expenses decreased $0.7 million, or 18%, to $3.2 million for the quarter ended July 31, 2009 from $3.9 million for the quarter ended July 31, 2008.

Recreation and Other. Recreation and other costs decreased $1.3 million, or 36% to $2.3 million for the quarter ended July 31, 2009 from $3.6 million for the quarter ended July 31, 2008 due to a decrease in cost of goods sold in the areas of gas and diesel and merchandise.

Marketing. Marketing costs increased $0.5 million to $2.3 million for the quarter ended July 31, 2009 from $1.8 million for the quarter ended July 31, 2008 due to an increase in direct marketing costs associated with gaming and hotel offers.

General and Administrative. General and administrative expenses decreased $0.6 million, or 14%, to $3.7 million for the quarter ended July 31, 2009 from $4.3 million for the quarter ended July 31, 2008 due to a decrease in salaries and wages.

Depreciation. Depreciation decreased $0.1 million to $3.0 million for the quarter ended July 31, 2009 from $3.1 million for the quarter ended July 31, 2008 due to fully depreciated equipment.

Storm Costs. Storm costs were $0.01 million for the quarter ended July 31, 2009 and $0.06 for the quarter ended July 31, 2008.

Income from Operations. Income from operations decreased $0.3 million, or 3%, to $8.7 million for the quarter ended July 31, 2009 from $9.0 million for the quarter ended July 31, 2008 due to a decrease in both revenue and operating expenses.

Other Income (Expenses). Other non-operating expenses remained flat at $6.5 million for the quarter ended July 31, 2009 and 2008. Other income (expenses) is comprised primarily of interest income and interest expense along with other expenses.

Liquidity and Capital Resources

As of July 31, 2009 and April 30, 2009, we had cash and cash equivalents of $9.5 million and $7.6 million, respectively. Our principal source of liquidity for the three months ended July 31, 2009 was cash provided by operating activities of $11.7 million primarily due to not making the $12.0 million required interest payment.

Cash used in investing activities for the three months ended July 31, 2009 was $0.7 million which consisted of capital expenditures in the form of purchases of snowmaking equipment and gaming equipment.

Cash used in financing activities for the three months ended July 31, 2009 was $9.0 million, which primarily consisted of $8.0 million in distributions to the Tribe and $1.0 million in principal payments on our capital equipment loan.

Our ability to fund our operations, make planned capital expenditures, and make scheduled payments depends on our ability to refinance our long-term debt, as well as our future operating performance and success in seeking to

increase operating efficiencies and reduce operating expenses, which are subject to economic, financial, business and other conditions, some of which are beyond our control.

We currently have outstanding $200.0 million aggregate principal amount of 12% Senior Notes due 2010 (the “Senior Notes”). We did not make the scheduled $12.0 million interest payment on our senior notes due 2010 scheduled to be made on May 15, 2009.

Additionally, our ability to incur additional indebtedness is limited under the terms of the indenture governing the Senior Notes. If our expected operating performance or success in increasing operating efficiencies and reducing operating expenses does not meet management expectations, we may need to arrange for additional sources of funding in the form of permitted borrowings under our indenture or contributions from the Tribe, which sources of funding cannot be assured.

Description of Indebtedness

The Senior Notes

On November 3, 2003, we issued $200.0 million senior notes, with fixed interest payable at a rate of 12% per annum. Interest on the notes is payable semi-annually on May 15 and November 15. The notes mature on November 15, 2010. As of July 31, 2009 accrued interest payable on the Senior Notes was $17.2 million.

The Senior Notes rank senior in right of payment to all of our future indebtedness or other obligations that are, by their terms, expressly subordinated in right of payment to the notes. In addition, the Senior Notes rank equal in right of payment to all of our existing and future senior unsecured indebtedness and other obligations that are not, by their terms, expressly subordinated in right of payment to the notes. Each of our wholly-owned subsidiaries are guarantors of the Senior Notes.

Incurrence of Additional Indebtedness

In general, we are restricted in connection with the issuance of the Senior Notes and the related Indenture, that we would not incur any indebtedness if and to the extent the indebtedness would appear as a liability upon our balance sheet prepared in accordance with GAAP; provided however, we may incur indebtedness if certain financial ratios meet certain criteria. Furthermore, we agreed that we would not incur any indebtedness that is contractually subordinated in right of payment to our other indebtedness unless such indebtedness is also contractually subordinated in right of payment to the Senior Notes. Our ability to create liens (other than certain permitted liens) upon any of our property or assets, or any proceeds, income or profits therefrom, or assign or convey any right to receive income therefrom are restricted unless payments due under the Indenture and the Senior Notes are secured on an equal and ratable basis with (or, in the case of subordinated indebtedness, senior thereto, with the same relative priority that the Senior Notes shall have with respect to such subordinated indebtedness) the obligation so secured until such time as such obligations are no longer secured by a lien. Accordingly, our ability to incur additional debt financing is severely limited.

General Indebtedness

The Tribe, for the benefit of the Inn of the Mountain Gods, a wholly-owned subsidiary of IMG Resort and Casino, executed a promissory note dated September 1, 1982, which we refer to as the BIA Note in favor of the Department of Interior, Bureau of Indian Affairs in the amount of approximately $3.5 million. The BIA Note accrues interest at the rate of 8.5% per annum payable annually from the date of the BIA Note until paid in full on September 1, 2011. As of July 31, 2009, there is approximately $0.6 million outstanding on the BIA Note.

Credit Facility

On June 15, 2004, we entered into a $15.0 million fixed credit facility with an equipment finance company. The fixed rate loan is fully amortizable over five years. Proceeds from the interest rate loan were used to fund furniture, fixtures and equipment for the Resort. As of July 31, 2009, approximately $3.4 million remains outstanding.

As discussed above, we did not make the scheduled $12.0 million interest payment on our senior notes due 2010 scheduled to be made on May 15, 2009. If our senior notes are declared immediately due and payable, it would constitute a default under the terms of our furniture and equipment loan and the lenders thereunder could declare the outstanding loan to be immediately due and payable and may enforce their rights to the collateral securing the loan, which would have a material adverse effect on our business. Although the furniture and equipment loans are not technically in default, the Company entered into forbearance agreements with its lenders whereby the lenders agreed to forebear existing rights and remedies in the event of default.

Credit Rating

On August 14, 2009, Moody’s Investor Service lowered IMG Resort and Casino probability of default rating to ‘Ca/LD’ from ‘Ca’. The ‘Ca/LD’ probability of default rating recognizes a payment default under the $200 million 12% Senior Notes due November 2010. The last rating action by Moody’s Investor Service was on March 20, 2009, at which time they lowered IMG Resort and Casino’s rating from ‘Caa2’ to ‘Ca’.

On May 18, 2009, Standard and Poor’s Ratings Services lowered its issuer credit rating for IMG Resort and Casino to ‘D’ from ‘CCC’, as well as lowered the issue-level rating on IMG Resort and Casino’s $200 million 12% senior unsecured notes due Nov. 15, 2010 to ‘D’ from ‘CCC’. The rationale behind the decrease in the ratings was due to IMG Resort and Casino not making its $12 million interest payment on its senior note scheduled for May 15, 2009, as described below.

Off-Balance Sheet Arrangements

As of July 31, 2009, we have no off-balance sheet arrangements that affect our financial condition, liquidity and results of operation. We have certain contractual obligations including long-term debt, operating leases and employment contracts.

Regulation and Taxes

We are subject to extensive regulation by the Mescalero Apache Tribal Gaming Commission, the National Indian Gaming Commission, the NIGC, and, to a lesser extent, the New Mexico Gaming Control Board. Changes in applicable laws or regulations could have a significant impact on our operations. We are unincorporated Tribal business enterprises, directly or indirectly owned by the Tribe, a federally recognized Indian tribe, and are located on reservation land held in trust by the United States of America; therefore, we were not subject to federal or state income taxes for the periods ended July 31, 2009 or 2008, nor is it anticipated we will be subject to such taxes for the foreseeable future. Various efforts have been made in the U.S. Congress over the past several years to enact legislation that would subject the income of tribal business entities, such as us, to federal income tax. Although no such legislation has been enacted, similar legislation could be passed in the future. A change in our non-taxable status could have a material adverse effect on our cash flows from operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. As of July 31, 2009, we had no variable rate debt outstanding.

As of July 31, 2009, we held no derivative instruments.

Item 4T. Controls and Procedures.

Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(c) of the Securities Exchange Act of 1934) as of the end of the period covered by this Report, have concluded that as of the date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

See “Notes to Consolidated Financial Statements (unaudited) — Note 9- Commitments and Contingencies- Legal Matters”

Item 1A. Risk Factors.

There were no material changes during the three months ended July 31, 2009 to our risk factors disclosed in our Annual Report on Form 10-K for the year ended April 30, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5. Other Information.

Ben Martinez, age 38, was appointed to the position of Chief Financial Officer for the IMG Resort and Casino August 25, 2009. Mr. Martinez worked in banking with JP Morgan / Chase from June 1994 to September 2000. During his tenure with JP Morgan / Chase he completed the Officer Development Program focusing on financial analysis and credit underwriting. Upon completion of the bank’s formal program, Mr. Martinez worked with the institutional trust division as an investment analyst prior to progressing to a portfolio manager in the investment management area. In September 2000, Mr. Martinez went to work with BOK Financial as a Vice President and Sr. Portfolio Manager working with the company’s investment management team managing roughly $1 billion in trust assets. In June 2003 Mr. Martinez started an investment advisory venture providing a range of financial advisory services. In January 2006, he accepted a position with a mergers and acquisitions boutique in Dallas, Texas. In this capacity he performed a wide range of business valuation and consultation services and finished his tenure in a deal making capacity. In October 2008, Mr. Martinez accepted the position of Administrator with the Mescalero Apache Tribe. In this role, he oversaw the tribe’s governmental and 638 federal programs. Additionally, he worked closely with tribal, state, and federal governmental officials as they related to a variety of tribal issues and programs. In 1994, Mr. Martinez graduated from New Mexico State University with a bachelor of business administration with a concentration in Finance.

Mr. Martinez’ employment contract is still being negotiated.

On September 3, 2009, Board of Directors of IMG Resort and Casino resolved by unanimous consent to change the Company’s fiscal year, formerly ending April 30, to a fiscal year end, effective September 30, 2009. This change in fiscal year end makes the Company’s year-end coincide with the Mescalero Apache Tribe’s Fiscal Year End. A transition report covering the five month period from May 1, 2009 to September 30, 2009 will be filed on Form-10QT.

Since September 1, 2009, IMG Resort and Casino have made distributions to the Tribe of $7.7 million. These funds are being held in a bank account and have not been expended.

There is currently a proposal being considered for a joint Tribal Council and Management Board model.

Item 6. Exhibits.


Exhibit No.		Description

31.1		Certification of Principal Executive Officer and Interim-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer and Interim-Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.


	INN OF THE MOUNTAIN GODS RESORT AND CASINO

Date: September 14, 2009	By	/s/ Liz Foster Anderson

		Name:	Liz Foster Anderson
		Its:	Chief Operating Officer (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial Officer)

INDEX TO EXHIBITS


Exhibit No.		Description

31.1		Certification of Principal Executive Officer and Interim-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer and Interim-Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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INN OF THE MOUNTAIN GODS RESORTS & CASINO 10-Q