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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-113140

INN OF THE MOUNTAIN GODS RESORT AND CASINO

(Exact name of registrant as specified in its charter)

Not Applicable (State or other jurisdiction of incorporation or organization)		75-3158926 (I.R.S. Employer Identification Number)
287 Carrizo Canyon Road Mescalero, New Mexico (Address of principal executive offices)		88340 (Zip Code)

575-464-7777
(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):

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
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2009
INDEX

		Pages
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2009 (unaudited)			3
Consolidated Income Statements for the Three Month Periods Ended December 31, 2008 (unaudited) and 2009 (unaudited)			4
Consolidated Statements of Cash Flows for the Three Month Periods Ended December 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			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			33
Item 4T. Controls and Procedures			33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 3. Defaults Upon Senior Securities.			33
Item 4. Submission of Matters to a Vote of Security Holders			33
Item 5. Other Information			34
Item 6. Exhibits			36
Signatures			37
EX-31.1
EX-32.1
EX-31.1
EX-31.2
EX-32.1
EX-10.1
EX-31.1
EX-31.2
EX-32.1

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)

		As of September 30,				As of December 31,
		2009				2009
Current assets
Cash and cash equivalents		$	5,629,436			$	6,648,067
Accounts receivable, net of allowance for doubtful accounts			617,433				1,149,023
Inventories, net			862,251				903,590
Prepaid expenses and other assets			1,321,812				1,342,754
Total current assets			8,430,932				10,043,434
Non-current assets
Property, plant and equipment, net			189,066,385				187,394,995
Other assets			51,000				51,000
Deferred financing cost			2,078,017				1,632,727
Total assets		$	199,626,334			$	199,122,156
Liabilities and deficit
Current liabilities
Accounts payable		$	1,422,304			$	1,837,623
Accrued expenses			5,469,293				3,900,366
Accrued payroll and benefits			1,941,522				1,481,612
Accrued interest			22,386,667				29,621,603
Advance deposits			413,046				240,101
Current portion of long-term debt			202,924,922				201,995,343
Total current liabilities			234,557,754				239,076,648
Non-current liabilities
Long-term debt, net of current portion			395,634				338,445
Total liabilities			234,953,388				239,415,093
Deficit
Contributed capital			(5,389,062	)			(7,389,062	)
Accumulated deficit			(29,937,992	)			(32,903,875	)
Total deficit			(35,327,054	)			(40,292,937	)
Total liabilities and deficit		$	199,626,334			$	199,122,156

The accompanying notes are an integral part of these statements.

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(unaudited)

		Three months ended				Three months ended
		December 31, 2008				December 31, 2009
Revenues:
Gaming		$	16,546,046			$	16,168,109
Hotel			2,600,075				2,175,376
Food and beverage			3,201,745				2,934,841
Recreation and other			4,002,634				4,398,312
Gross revenue			26,350,500				25,676,638
Less-promotional allowances			172,511				238,881
Net revenue			26,177,989				25,437,757
Operating expenses
Gaming			6,619,171				5,373,560
Hotel			1,131,983				781,436
Food and beverage			3,556,592				3,223,781
Recreation and other			2,627,022				2,548,161
Marketing			1,796,111				2,344,236
General and administrative			5,183,042				4,554,801
Depreciation and amortization			3,023,656				3,042,632
Insurance reimbursement (Note 11)			(3,677,047	)			(1,185,023	)
Storm costs (Note 11)			232,022				—
Gain on disposal of assets			(2,563	)			—
Total operating expenses			20,489,989				20,683,584
Operating income			5,688,000				4,754,173
Other expense
Interest expense, net			(6,533,294	)			(7,737,702	)
Other income			303				17,646
Total other expense			(6,532,991	)			(7,720,056	)
Net loss		$	(844,991	)		$	(2,965,883	)

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
		December 31, 2008				December 31, 2009
Cash flows from operating activities:
Net loss		$	(844,991	)		$	(2,965,883	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			3,083,484				3,488,950
Changes in assets and liabilities:
Accounts receivable			341,857				(531,590	)
Tribal accounts receivable			143,910				—
Inventories			131,083				(41,339	)
Prepaid expenses			160,905				(20,942	)
Insurance reimbursement			(2,777,047	)			—
Other long-term assets			(4,160	)			—
Accounts payable			803,927				415,319
Accrued expenses, payroll and benefits			2,093,634				(2,028,837	)
Accrued interest payable			(6,000,000	)			7,234,936
Deposits and advanced payments			(126,331	)			(172,945	)
Net cash (used in) provided by operating activities			(2,993,729	)			5,377,669
Cash flows from investing activities:
Purchase of property, plant and equipment			(5,741,923	)			(1,372,271	)
Net cash used in investing activities			(5,741,923	)			(1,372,271	)
Cash flows from financing activities:
Principal payments on long-term debt			(909,988	)			(986,767	)
Distributions to Mescalero Apache Tribe			(2,001,000	)			(2,000,000	)
Net cash used in financing activities			(2,910,988	)			(2,986,767	)
Net (decrease) increase in cash and cash equivalents			(11,646,640	)			1,018,631
Cash and cash equivalents, beginning of period			16,912,249				5,629,436
Cash and cash equivalents, end of period		$	5,265,609			$	6,648,067
Supplemental cash flow information:
Cash paid for interest		$	12,138,528			$	59,737
Non-cash investing and financing activities
Property, plant and equipment acquired through reduction in storm recovery receivable		$	3,253,273			$	1,185,023

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

Change in Fiscal Year

On September 3, 2009, Board of Directors (the “Board”) 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.

This report contains unaudited three months consolidated statements of operations for the period ended December 30, 2009 and 2008; an unaudited consolidated statement of cash flows for the three months ended December 31, 2009 and 2008, and includes unaudited consolidated balance sheet information as of September 30, 2009 and December 31, 2009.

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, 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, which owns the Tribe’s ski resort, Ski Apache Resort (“Ski Apache”); 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 and November 15, 2009, interest payments on its 12% senior Notes due 2010 (the “Notes”). This non-payment of interest constitutes an event of default under the Indenture governing the Notes.

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

The Company is currently in discussions with certain of its debtholders regarding these issues. As of December 31, 2009, the Company had negative working capital of approximately $229.0 million and a total deficit of approximately $40.3 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.

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.

Reclassifications

Certain reclassifications have been made in the prior year’s consolidated 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.

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

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.

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 $2.1 million as of September 30, 2009 and $1.6 million as of December 31, 2009.

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 (“FASB”) issued Statement of Accounting Standards FASB ASC 360-10, Property, Plant and Equipment, (prior authoritative literature: SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets) (“FASB ASC 360-10 (SFAS No. 144)”) which established the approach to be used in the determination of impairment. Under the provisions of FASB ASC 360-10 (SFAS No. 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.

During the three months ended December 31, 2008, IMG Resort and Casino recorded a gain on disposal of assets of $2,563 related to storm damage. During the three months ended December 31, 2009, IMG Resort and Casino recorded other expenses of $0 related to storm damage. (See Note 11)

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

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 $84.0 million at December 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 $45.88 to $40.00 during the three months ended December 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 three months ended December 31, 2009 IMG distributed $2.0 million to the Tribe which is being held in a reserve account. The accumulated reserve is $13.0 million as of December 31, 2009.

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 $150,000 and $71,000 at September 30, 2009 and December 30, 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 is recognized by IMG Resort and Casino as a reduction from gross revenue. The total vouchers recognized by IMG Resort and Casino were approximately $172,511 and $238,881 for the three months ended December 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 promotion dollars, 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 $884,821 at September 30, 2009 and $805,545 at December 31, 2009.

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

Emerging Issues Task Force (“EITF”) FASB ASC 605-50, Revenue Recognition, Customer payments and Incentives (prior authoritative literature: FASB EITF Issue No. 00-14, Accounting for Certain Sales Incentives (“FASB ASC 605-50 (FAS Issue No. 00-14)”), 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 FASB ASC 605-50 (FAS Issue No. 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 FASB ASC 605-50 (FAS Issue No. 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.

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

		The three months ended December 31,
		2008				2009
Rooms		$	18,558			$	16,823
Food and beverage			143,651				208,148
		$	162,209			$	224,971

Marketing

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

Tribal Taxes

IMG Resort and Casino is subject to Mescalero Apache Tribal taxes which employs an alternative minimum tax system. Other than a portion of the operations at Ski Apache, IMGRC’s operations are not subject to 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. Under the tribe’s alternative minimum tax system, IMGRC is assessed the greater of a fixed rate of $200,000 or the amount collected from sales taxes on a per month basis. In prior periods the taxes collected were included in net revenue and tax payments included in expenses as opposed to being recorded as a liability and subsequent release of the liability. Currently, taxes are being collected and recorded as a liability on IMGRC’s balance sheet and are no longer included in net revenue. Excess tax amounts due under the alternative minimum tax system are expensed in the month they are due. The tax payment is made at the beginning of the month in which the taxes are being collected. For the three months ended December 31, 2009, IMGRC collected $444,986 in taxes, paid the $600,000 alternative minimum tax due, and recorded $155,014 in alternative minimum tax expense.

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

The following chart highlights IMGRC’s tribal tax activity for the three months ended December 31, 2009.

		Three Months Ended
		December 31, 2009
Alternative minimum tax due		$	600,000
Total taxes collected			(444,986	)
Alternative minimum tax expensed		$	155,014

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 head quarters, 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.

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

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 FASB ASC 825-10 (SFAS 159) early must also adopt all of FASB ASC 825-10’s (SFAS 157) 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.

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

In April 2008, the FASB issued Staff Position FASB ASC 350, Intangible- Goodwill and Other, (Prior authoritative literature: FASB SFAS 142-3: Determination of the Useful Life of Intangible Assets, issued April 2008) (“FASB ASC 350 (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 FASB ASC 350 (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 FASB ASC 350 (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 FASB ASC 350 (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”). FASB ASC 825-10 (FSP No. 107-1) extends the disclosure requirements of FASB ASC 825-10 (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 FASB ASC 825-10’s (SFAS No. 107) requirement to disclose the methods and significant assumptions used to estimate fair value. FASB ASC 825-10 (FSP No.107-1) if 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.

The FASB issued FASB FAS 855-10, Generally Accepted Accounting Principles (prior authoritative literature: FASB SFAS No. 165, Subsequent Events, issued May 2009) (“FASB ASC 105-10 (SFAS No. 165)”). FASB 105-10 (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. FASB 105-10 (SFAS No. 165) is effective for interim and annual fiscal periods ending after June 15, 2009. The Company is required to adopt FASB 105-10 (SFAS No. 165) in the first three months of fiscal 2010 and does not expect that adoption of FASB 105-10 (SFAS No. 165) will have a material impact on its consolidated financial statements.

The FASB issued FASB ASC 105-10, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (prior authoritative literature: FASB SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, issued June 2009) (“FASB ASC 106-10-65 (SFAS No. 168)”), 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. FASB ASC 106-10 (SFAS No. 168) is effective for fiscal years and interim periods ending after September 15, 2009. The adoption of FASB ASC 105-10 (SFAS 168) did not have a material impact on our consolidated financial statements.

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 $44,538 at September 30, 2009 and $96,982 at December 31, 2009.

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

NOTE 3—INVENTORIES

Inventories consist of the following as of:

		September 30, 2009				December 31, 2009
Food and beverage		$	237,361			$	244,026
Golf and pro shop			65,853				50,654
Gift shops, fuel and other			559,037				608,910
Inventories, net of reserves		$	862,251			$	903,590

NOTE 4—PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment is summarized as follows:

		September 30, 2009				December 31, 2009
Land		$	1,000,473			$	1,000,473
Buildings			210,005,387				216,396,686
Lifts and Snowmaking equipment			8,493,368				5,686,867
Non-gaming equipment, furniture and other			52,480,709				52,580,605
Gaming equipment			22,470,190				22,550,738
Leasehold and land improvements, lake and golf course			11,075,633				11,075,633
Subtotal			305,525,760				309,291,002
Less accumulated depreciation and amortization			(119,375,209	)			(122,419,554	)
Property, plant and equipment, net			186,150,551				186,871,448
Construction in progress			2,915,834				523,547
Net Property, plant and equipment		$	189,066,385			$	187,394,995

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 (the “Indenture”) 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 payments on the Company’s Notes on May 15, 2009 and November 15, 2009. Under the terms of the Indenture, the Company had a 30 day grace period with respect to each interest payment but did not make these payments. Failure to make the interest payments on or before June 15, 2009 and December 15, 2009 constituted separate events 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.

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

Pursuant to the Indenture, we are obligated to pay penalty interest on overdue principal at the rate equal to 1% per annum in excess of the applicable interest rate on the Notes (12%), and to pay interest on overdue installments of interest payable on the Notes at the same rate. As of December 31, 2009 the interest accrued as a result was $1,335,000.

The Tribe has engaged a financial advisor, and is in 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. Due to the events of default, the Notes have been classified as current in the accompanying consolidated balance sheet.

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. As of September 30, 2009 and December 31, 2009, $2.5 million and $1.6 million, respectively, remained outstanding on this facility.

Long-term debt at September 30, 2009 and December 31, 2009 is summarized as follows:

		September 30, 2009				December 31, 2009
Senior Notes, bearing interest at a fixed rate 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			560,554				490,628
Capital Equipment Loans with Key Equipment, Five (5) year term, 7.65% interest			2,519,922				1,631,995
Xerox (3) year term,			240,080				211,165
Total			203,320,556				202,333,788
Less current portion			(202,924,922	)			(201,995,343	)
Long-term portion		$	395,634			$	338,445

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

2010		$	201,995,343
2011			338,445
		$	202,333,788

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 (the “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 (the “State”) entered into a Tribal-State Compact (the “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.

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

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 month and an annual regulatory fee of $100,000 paid in quarterly installments of $25,000 on the first day of each calendar month. As of September 30, 2009 and December 31, 2009, the amount payable to the State was $1,546,113 and $1,162,156, respectively, for regulatory fees.

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 (see Note 10), 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 the 4% matching contribution as a cost saving measure. The total amount of match made by IMG Resort and Casino was $214,300 for the three months ended December 31, 2008 and $0 for the three months ended December 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 December 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 $864,230 and $694,197 for the three months ended December 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.

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

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 December 31, 2008 and December 30, 2009 were $29,317 and $14,191 respectively.

Employment Agreements

The Board for IMG has discontinued the practice of employment agreements for the Company.

Consulting Agreement and Management Agreement

On January 6, 2010, Inn of the Mountain Gods Resort and Casino (the “Registrant”), a tribal enterprise wholly-owned by the Mescalero Apache Tribe (the “Tribe”), a federally-recognized Indian tribe, along with the Registrant’s tribally-chartered subsidiaries, Casino Apache Travel Center and Ski Apache (collectively, the “Tribal Parties”), entered into a management agreement (the “Management Agreement”) with WG-IMG, LLC (the “Manager”), a Nevada limited liability company. The majority owner of the Manager, William W. Warner, and the Tribe each signed a joinder to the Management Agreement. The Management Agreement became effective following approval by the National Indian Gaming Commission (“NIGC”) in a letter dated January 19, 2010.

The Management Agreement grants the Manager the exclusive right and obligation to manage, operate and maintain the casino and other businesses of the Registrant and its subsidiaries and to train the Tribe in the operation and maintenance thereof during the term of the Management Agreement. The Manager has a duty to physically maintain the facilities, operate the facilities consistent with “4-star/4-diamond” hospitality standards, pay bills and expenses, advertise and provide security. The Manager may enter into contracts on behalf of the Registrant or its subsidiaries provided that it receives approval in advance for contracts with a value, or potential exposure, in excess of $50,000 from the management board of the Registrant, as selected by the Tribe (the “Management Board”). The Manager is entitled to receive a management fee for its services under the Management Agreement. This management fee is calculated based on the EBITDA of the businesses of the Registrant, but shall be no less than $60,000 per month.

The term of the Management Agreement is five years from the date the NIGC approved the Management Agreement. The Tribal Parties may terminate the Management Agreement if, among other things, the Manager breaches the Management Agreement, including a change of ownership of the Manager. After two years, the Registrant may terminate the Management Agreement by paying the Manager an amount equal to the discounted value of the future fees the Manager was entitled to receive under the Management Agreement. The Manager may terminate the Management Agreement if, among other things, a Tribal Party fails to pay any amount due to the Manager, if a Tribal Party breaches the Management Agreement, or if the Manager does not receive its minimal monthly fee for three consecutive months. The Manager also has the right to terminate the Management Agreement within 60 days of a legally required suspension of gaming operations.

The foregoing description of the Management Agreement is not complete and is subject to and qualified in its entirety by reference to the Management Agreement, a copy of which is attached as Exhibit 33.1 and is incorporated herein by reference.

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

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 $32,191 and $49,992 for the three months ended December 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.

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 $864,230 and $694,197 for the three months ended December 31, 2008 and 2009, respectively.

NOTE 11—INSURANCE RECOVERIES

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 three months ended December 31, 2009, IMG Resort and Casino has incurred approximately $0 in costs associated with the storm recovery compared to $232,022 for the three months ended December 31, 2008, which includes payroll, supplies and immediate repairs.

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

On September 4, 2008, IMG Resort and Casino’s insurance carrier agreed to provide at least $1.1 million of coverage for the damage that occurred as a result of the flooding. Additionally, FEMA deemed the area a Federal Disaster area and has assured financial assistance of at least the deductible on our insurance policy, which is $100,000. Any further proceeds will be used to replace damaged equipment, building and land and will be capitalized to property and equipment.

On the morning of November 7, 2008, Ski Apache experienced a fire. The fire was confined to a single metal building used largely for maintenance and repair parts for ski operations related equipment. The IMGRC carries an insurance policy with a $100,000 deductible on all property losses. The actual insured value of the maintenance building is $1,012,492. The contents have an insured value of $62,312. The replacement costs for the damaged building, its contents, other large equipment, and vehicles affected should be adequately insured to cover the replacement costs and/or actual cash value after the deductible is met.

During the quarter ended December 31, 2009 IMG Resort and Casino received $1,185,023 in insurance reimbursement for the damage that occurred at Ski Apache, which was dispensed to a third party for expenses related to the damage.

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. Due to the change in fiscal year, 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.

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

SELECTED OPERATING SEGMENT FINANCIAL INFORMATION
(unaudited, in thousands)

		Gaming				Gaming
		IMG				Travel Ctr				Ski				Non Gaming				Non Segment				Consolidated
Three months ended December 31, 2008
Net Revenue		$	9,829			$	6,705			$	397			$	7,638			$	1,609			$	26,178
Operating Income (Loss)			6,756				5,168				65				961				(7,262	)			5,688
Depreciation Expense			—				—				—				—				3,024				3,024
Interest Expense			—				—				—				—				(6,533	)			(6,533	)
Interest Income and Other			—				—				—				—				8				8
Three months ended December 31, 2009
Net Revenue		$	9,865			$	6,240			$	397			$	6,927			$	2,009			$	25,438
Operating Income (Loss)			7,691				5,062				36				1,126				(9,161	)			4,754
Depreciation Expense			—				—				—				—				3,043				3,043
Interest Expense			—				—				—				—				(7,738	)			(7,738	)
Interest Income and Other			—				—				—				—				18				18

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 September 30, 2009 and December 31, 2009 and for the three months ended December 31, 2008 and 2009.

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

						Wholly-owned
		IMGRC				Guarantors				Eliminations				Consolidated
Cash and cash equivalents		$	1,890,254			$	4,757,813			$	—			$	6,648,067
Accounts receivable			705,349				443,674				—				1,149,023
Inventories			222,724				680,866				—				903,590
Prepaid expenses			1,342,754				—				—				1,342,754
Total current assets			4,161,081				5,882,353				—				10,043,434
Property, plant and equipment, net			—				187,394,995				—				187,394,995
Other assets			51,000				—				—				51,000
Deferred financing costs			1,632,727				—				—				1,632,727
Advances to subsidiaries			11,869,171				3,588,793				(15,457,964	)			—
Investment in subsidiaries			182,645,696				—				(182,645,696	)			—
Total Assets		$	200,359,675			$	196,866,141			$	(198,103,660	)		$	199,122,156
Accounts payable		$	1,837,623			$	—			$	—			$	1,837,623
Accrued expenses			2,279,821				1,620,545				—				3,900,366
Accrued payroll and benefits			1,481,612				—				—				1,481,612
Accrued interest			29,621,603				—				—				29,621,603
Advance deposits			—				240,101				—				240,101
Current portion of long-term debt			201,753,752				241,591				—				201,995,343
Total current liabilities			236,974,411				2,102,237				—				239,076,648
Non current liabilities:
Advances from subsidiaries			3,588,793				11,869,171				(15,457,964	)			—
Long-term debt, net of current portion			89,408				249,037				—				338,445
Total liabilities			240,652,612				14,220,445				(15,457,964	)			239,415,093
Contributed capital			(7,389,062	)			(6,012,897	)			6,012,897				(7,389,062	)
Retained earnings (deficit)			(32,903,875	)			188,658,593				(188,658,593	)			(32,903,875	)
Total equity (deficit)			(40,292,937	)			182,645,696				(182,645,696	)			(40,292,937	)
Total liabilities and equity (deficit)		$	200,359,675			$	196,866,141			$	(198,103,660	)		$	199,122,156

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

						Guarantor
		IMGRC				Subsidiaries				Eliminations				Consolidated
Revenues:
Gaming		$	—			$	16,168,109			$	—			$	16,168,109
Hotel			—				2,175,376				—				2,175,376
Food and beverage			—				2,934,841				—				2,934,841
Recreation and other			—				4,398,312				—				4,398,312
Gross revenue			—				25,676,638				—				25,676,638
Less-promotional allowances			19,643				219,238				—				238,881
Net revenue			(19,643	)			25,457,400				—				25,437,757
Operating expenses
Gaming			—				5,373,560				—				5,373,560
Hotel			—				781,436				—				781,436
Food and beverage			—				3,223,781				—				3,223,781
Recreation and other			—				2,548,161				—				2,548,161
Marketing			—				2,344,236				—				2,344,236
General and administrative			—				4,554,801				—				4,554,801
Depreciation and amortization			—				3,042,632				—				3,042,632
Insurance reimbursement (Note 11)			(1,185,023	)			—				—				(1,185,023	)
Total operating expenses			(1,185,023	)			21,868,607				—				20,683,584
Operating income			1,165,380				3,588,793				—				4,754,173
Other income (expense)
Interest expense			(7,737,702	)			—				—				(7,737,702	)
Income from subsidiaries			3,588,793				—				(3,588,793	)			—
Other income			17,646				—				—				17,646
Total other expense			(4,131,263	)			—				(3,588,793	)			(7,720,056	)
Net income (loss)		$	(2,965,883	)		$	3,588,793			$	(3,588,793	)		$	(2,965,883	)

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

						Guarantor
		IMGRC				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net income (loss)		$	(2,965,883	)		$	3,588,793			$	(3,588,793	)		$	(2,965,883	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization			445,290				3,043,660				—				3,488,950
Changes in assets and liabilities:
Accounts receivable			(717,654	)			186,064				—				(531,590	)
Inventories			1,097				(42,436	)			—				(41,339	)
Prepaid expenses			(20,942	)			—				—				(20,942	)
Accounts payable			415,319				—				—				415,319
Accrued expenses, payroll and benefits			(1,766,473	)			(262,364	)			—				(2,028,837	)
Accrued interest			7,234,936				—				—				7,234,936
Deposits and advance payments			—				(172,945	)			—				(172,945	)
Net cash provided by (used in) operating activities			2,625,690				6,340,772				(3,588,793	)			5,377,669
Cash flows from investing activities:
Purchase of property, plant and equipment			—				(1,372,271	)			—				(1,372,271	)
Investment in subsidiaries			(3,588,793	)			—				3,588,793				—
Net cash provided by (used by) investing activities			(3,588,793	)			(1,372,271	)			3,588,793				(1,372,271	)
Cash flows from financing activities:
Advances to (from) affiliates			3,797,949				(3,797,949	)			—				—
Principal payments on debt			(916,842	)			(69,925	)			—				(986,767	)
Distributions to Mescalero Apache Tribe			(2,000,000	)			—				—				(2,000,000	)
Net cash provided by (used in) financing activities			881,107				(3,867,874	)			—				(2,986,767	)
Net increase in cash and cash equivalents			(81,996	)			1,100,627				—				1,018,631
Cash and cash equivalents, beginning of period			1,972,250				3,657,186				—				5,629,436
Cash and cash equivalents, end of period		$	1,890,254			$	4,757,813			$	—			$	6,648,067

INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of September 30, 2009
(unaudited)

						Wholly-owned
		IMGRC				Guarantors				Eliminations				Consolidated
Cash and cash equivalents		$	1,972,250			$	3,657,186			$	—			$	5,629,436
Accounts receivable			(12,305	)			629,738				—				617,433
Inventories			223,821				638,430				—				862,251
Prepaid expenses			1,321,812				—				—				1,321,812
Total current assets			3,505,578				4,925,354				—				8,430,932
Property, plant and equipment, net			—				189,066,385				—				189,066,385
Other assets			51,000				—				—				51,000
Deferred financing costs			2,078,017				—				—				2,078,017
Advances to subsidiaries			26,423,434				14,345,107				(40,768,541	)			—
Investment in subsidiaries			179,056,903				—				(179,056,903	)			—
Total Assets		$	211,114,932			$	208,336,846			$	(219,825,444	)		$	199,626,334
Accounts payable		$	1,422,304			$	—			$	—			$	1,422,304
Accrued expenses			3,586,384				1,882,909				—				5,469,293
Accrued payroll and benefits			1,941,522				—				—				1,941,522
Accrued interest			22,386,667				—				—				22,386,667
Advance deposits			—				413,046				—				413,046
Current portion of long-term debt			202,630,139				294,783				—				202,924,922
Total current liabilities			231,967,016				2,590,738				—				234,557,754
Non current liabilities:
Advances from subsidiaries			14,345,107				26,423,434				(40,768,541	)			—
Long-term debt, net of current portion			129,863				265,771				—				395,634
Total liabilities			246,441,986				29,279,943				(40,768,541	)			234,953,388
Contributed capital			(5,389,062	)			(6,012,897	)			6,012,897				(5,389,062	)
Retained earnings (deficit)			(29,937,992	)			185,069,800				(185,069,800	)			(29,937,992	)
Total equity (deficit)			(35,327,054	)			179,056,903				(179,056,903	)			(35,327,054	)
Total liabilities and equity (deficit)		$	211,114,932			$	208,336,846			$	(219,825,444	)		$	199,626,334

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

						Guarantor
		IMGRC				Subsidiaries				Eliminations				Consolidated
Revenues:
Gaming		$	—			$	16,546,046			$	—			$	16,546,046
Hotel			—				2,600,075				—				2,600,075
Food and beverage			—				3,201,745				—				3,201,745
Recreation and other			—				4,002,634				—				4,002,634
Gross revenue			—				26,350,500				—				26,350,500
Less-promotional allowances			12,543				159,968				—				172,511
Net revenue			(12,543	)			26,190,532				—				26,177,989
Operating Expenses
Gaming			—				6,619,171				—				6,619,171
Hotel			—				1,131,983				—				1,131,983
Food and beverage			—				3,556,592				—				3,556,592
Recreation and other			—				2,627,022				—				2,627,022
Marketing			—				1,796,111				—				1,796,111
General and administrative			900,056				4,282,986				—				5,183,042
Depreciation and amortization			—				3,023,656				—				3,023,656
Insurance reimbursement on storm loss (Note 11)			—				(3,677,047	)			—				(3,677,047	)
Storm costs (Note 11)			—				232,022				—				232,022
Loss on disposal of assets			—				(2,563	)			—				(2,563	)
Total operating expenses			900,056				19,589,933				—				20,489,989
Operating income (loss)			(912,599	)			6,600,599				—				5,688,000
Other income (expense)
Interest expense, net			(6,533,294	)			—				—				(6,533,294	)
Income from subsidiaries			6,600,599				—				(6,600,599	)			—
Other income			303				—				—				303
Total other income (expense)			67,608				—				(6,600,599	)			(6,532,991	)
Net income (loss)		$	(844,991	)		$	6,600,599			$	(6,600,599	)		$	(844,991	)

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

						Guarantor
		IMGRC				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net income (loss)		$	(844,991	)		$	6,600,599			$	(6,600,599	)		$	(844,991	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			406,311				2,677,173				—				3,083,484
Changes in assets and liabilities:
Accounts receivable			2,567				339,290				—				341,857
Tribal accounts receivable			143,910				—				—				143,910
Inventories			3,928				127,155				—				131,083
Prepaid expenses			160,905				—				—				160,905
Insurance reimbursement			(2,777,047	)			—				—				(2,777,047	)
Other long term assets			(43,110	)			38,950				—				(4,160	)
Accounts payable			803,927				—				—				803,927
Accrued expenses, payroll and benefits			2,537,988				(444,354	)			—				2,093,634
Accrued interest payable			(6,000,000	)			—				—				(6,000,000	)
Deposits and advance payments			—				(126,331	)			—				(126,331	)
Net cash provided by (used in) operating activities			(5,605,612	)			9,212,482				(6,600,599	)			(2,993,729	)
Cash flows from investing activities:
Purchase of property, plant and equipment			—				(5,741,923	)			—				(5,741,923	)
Investment in subsidiaries			(6,600,599	)			—				6,600,599				—
Net cash used by investing activities			(6,600,599	)			(5,741,923	)			6,600,599				(5,741,923	)
Cash flows from financing activities:
Advances to (from) affiliates			12,218,320				(12,218,320	)			—				—
Principal payments on debt			(9,577,136	)			8,667,148				—				(909,988	)
Distributions to Mescalero Apache Tribe			(2,001,000	)			—				—				(2,001,000	)
Net cash provided by (used in) financing activities			640,184				(3,551,171	)			—				(2,910,988	)
Net increase (decrease) in cash and cash equivalents			(11,566,027	)			(80,612	)			—				(11,646,640	)
Cash and cash equivalents, beginning of period			12,782,806				4,129,443				—				16,912,249
Cash and cash equivalents, end of period		$	1,216,779			$	4,048,831			$	—			$	5,265,609

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.

On September 3, 2009, the Board of IMG Resort and Casino resolved by unanimous consent to change the Company’s fiscal year, formerly ending April 30, to a fiscal year ending September 30. This change in fiscal year makes the Company’s year-end coincide with the Tribe’s fiscal year end. This quarterly report covers the three month period ended December 31, 2009.

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 and November 15, 2009 interest payments on its 12% senior Notes due 2010. These non-payments of interest constituted events of default under the Indenture governing the senior Notes. As of September 30, 2009, the Company had negative working capital of $226 million and a total deficit of approximately $35.3 million. As of December 31, 2009, the Company had negative working capital of approximately $229.0 million and a total deficit of approximately $40.3 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 payments on our senior Notes due 2010 scheduled to be made on May 15, 2009 and November 15, 2009. Our failure to make the interest payments on or before June 15, 2009 and December 15, 2009 constituted separate events 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 principal

at the rate equal to 1% per annum in excess of the applicable interest rate on the Notes (12%), and to pay interest on overdue installments of interest payable on the Notes at the same rate. The Tribe has engaged financial advisors, and is in 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 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.

     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.

     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 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 December 31, 2009, we had 55,000-square feet of combined gaming space featuring 1,280 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”) FASB ASC 605-50, Revenue Recognition, Customer payments and Incentives (prior authoritative literature: FASB EIFT Issue No. 00-14 Emerging Issues Task Force Issue No. 00-14: Accounting for Certain Sales Incentives )(“FASB ASC 605-50 (FAS Issue No. 00-14)”), 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 three months, 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 $2.1 million as of September 30, 2009 and $1.6 million as of December 31, 2009.

     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 FASB ASC 360-10-35, Property, Plant and Equipment, (prior authoritative literature SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), which established the approach to be used in the determination of impairment.

     Under the provisions of FASB ASC 360-10-35, Property, Plant and Equipment, (prior authoritative literature SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), 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.

Results of Operations