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The following is an excerpt from a 10-K SEC Filing, filed by INN OF THE MOUNTAIN GODS RESORTS & CASINO on 7/29/2004.
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INN OF THE MOUNTAIN GODS RESORTS & CASINO - 10-K - 20040729 - PART_I

ITEM 1. BUSINESS

OVERVIEW

IMG RESORT AND CASINO

IMG Resort and Casino, established on April 2, 2003, is a wholly owned enterprise of the Tribe with the exclusive power to conduct and regulate gaming activities on the Tribe's reservation. We operate New Mexico's only all-season gaming destination resort on the Tribe's 725 square mile reservation in south-central New Mexico. We are located in the forests of the Sacramento Mountains and our operations include: two full- service casinos offering 39,600 square feet of gaming space including 1,180 slot machines and 38 table games as of April 30, 2004; a new resort hotel and casino on the banks of Lake Mescalero (currently under construction); the second largest ski resort in New Mexico; a championship golf course; big-game hunting and various other outdoor recreational activities. We are located approximately 120 miles north of El Paso, Texas and the Mexican border, approximately 200 miles south of Albuquerque, New Mexico and approximately 10 miles west of the resort town of Ruidoso. Ruidoso and its surrounding area offers tourists a variety of year-round activities, including skiing, golfing, hunting, boating, fishing, camping, swimming, horseback riding and cultural events. The neighboring town of Ruidoso Downs features the Ruidoso Downs Race Track and Casino, offering quarter horse and thoroughbred racing throughout the summer months and is home of the world's richest quarter horse race, the All-American Futurity. White Sands National Monument, which attracts in excess of 500,000 visitors a year, is located approximately 60 miles away from our properties.

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Our casinos and resort hotel are conveniently located off of a heavily traveled four-lane highway, U.S. Highway 70. According to the New Mexico State Highway and Transportation Department, approximately 5.9 million vehicles travel across U.S. Highway 70 each year. We are the only full-service casino operator within our primary market area, encompassing southern New Mexico, including the cities of Ruidoso, Alamogordo, Las Cruces and Roswell and western Texas, including the cities of El Paso, Lubbock and Odessa, and northern Mexico, including Ciudad Juarez.

THE PROJECT

We are currently engaged in a two-phase construction project, which we refer to as the Project. We successfully completed Phase I of the Project, construction of our new Casino Apache Travel Center in May 2003, at a cost of $16.0 million. We are currently constructing Phase II of the Project, the Inn of the Mountain Gods Resort and Casino, or the Resort. We have entered into a fixed price contract for the Phase II construction costs and expect to complete the Resort in April 2005 at a cost of $171.3 million.

Management believes the Project will position us as the "Southwest's Best All-Season Resort" by expanding and modernizing our gaming and hotel facilities to meet customer demand and address the limitations of our existing casino, Casino Apache, and our old hotel, the Inn of the Mountain Gods. Casino Apache currently operates at capacity on weekends, holidays and during promotional events even though it was originally designed as a two-floor convention space and not a high-traffic casino. Casino Apache is also affected by poor ventilation and limited parking and gaming space. Although it was opened in 1975 as a luxury resort hotel, by 2002 the Inn of the Mountain Gods hotel was an aging and dated facility that required significant modernization to serve the needs of our customers. These capacity and design issues have limited our ability to attract additional gaming and resort customers from both within and beyond our primary market area. Nevertheless, our gaming revenues have continued to grow, experiencing a compound annual growth rate of approximately 15.0% from our fiscal year ended April 30, 2000 through April 30, 2004.

PHASE I -- TRAVEL CENTER

In May 2003, we successfully completed Phase I of the Project, construction of the Travel Center, on time and on budget. The Travel Center targets locals and casual day-trip visitors and complements our gaming operations at Casino Apache. The Tribe funded the entire construction cost of the Travel Center with equity contributions to us from cash on hand. The 14-acre Travel Center, which includes a 30,000 square foot main building, is located on U.S. Highway 70, and at April 30, 2004 featured:

o 17,000 square feet of gaming space including 502 slot machines and 13 table games, including blackjack and roulette;

o two video poker bars -- a 12-seat circular bar located in the center of the facility, which features video poker at all 12 seats, and an 11-seat full-service bar, which features video poker at five seats;

o "Smokey-B's Grill," a 2,300 square foot, 135-seat casual dining restaurant;

o a 2,500 square foot convenience store, which carries food, candy, hot and cold beverages and travel and sundry items;

o an 800 square foot tax-free smoke shop, which offers a variety of brand-name carton cigarettes at discounted prices;

o a Conoco-branded fuel station with 12 gasoline and eight diesel pumping stations;

o a 2,000 square foot shower and laundry facility;

o 700 on-site parking spaces, including a separate parking area for semi-trucks, with over 24 over-sized spaces; and

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o shuttle service to Casino Apache.

PHASE II -- INN OF THE MOUNTAIN GODS RESORT AND CASINO

In January 2003, we demolished the existing Inn of the Mountain Gods hotel and began Phase II of the Project, construction of the new Resort on the site of the old hotel. Construction of the Resort has been designed to minimize disruption of our existing Casino Apache operations, which has been and will remain open during the construction period. We expect to complete the Resort in April 2005.

We intend to fund the construction of the Resort from proceeds of the sale of the 12% Senior Notes issued on November 3, 2003, or the notes, cash on hand, equity contributions from the Tribe, operating cash flows and permitted equipment financing. We have approximately $69.9 million of construction and equipment costs remaining to be paid to complete the Resort. As of April 30, 2004, we had approximately $34.5 in a construction disbursement account to pay for the remaining costs of the Resort. We intend to fund the remaining $35.4 million from operating cash flow and permitted indebtedness.

Upon completion of the Resort, Casino Apache will be relocated into the Resort. The Resort is designed to be a premier gaming resort destination hotel and casino, targeting the mature, affluent gaming and entertainment patron, as well as middle market clientele. The casino will offer higher table gaming and slot machine limits and a broader mix of table games than the Travel Center. Key design elements include:

CASINO - Situated on the main level, adjacent to the Grand Hall, the 38,000 square foot casino will be easily accessible from all resort amenities via the connecting public concourse encircling the Resort Entry Plaza. All gaming activities will be located on a single level with good sight lines, varying ceiling heights and machine layouts to create an interesting and comfortable feel. Initially, the casino is expected to operate with 1,000 slot machines (and capacity for 1,500 machines) and 34 table games.

HOTEL - We have designed the 273-room hotel with the size of the rooms and quality of furnishings comparable to first-class, full-service, chains such as Westin, Marriot or Hyatt. The hotel structure will vary between four and eight stories in height, depending upon the location along the hotel corridor, and will allow for easy traveling distance to and from the casino and events center. Our over-sized deluxe guest rooms will be either 480 square feet or 610 square feet and our suites will be 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 will 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 and either Sierra Blanca Mountain or the forest-lined golf course. The hotel will also feature an indoor swimming pool and fitness center including a yoga and aerobics workout area, steam and sauna facilities for both men and women and a family locker area.

The hotel will also feature various food and beverage venues including a 150-seat indoor/outdoor casual and fine dining restaurant; a 250-seat buffet style restaurant; a 100-seat sports bar, a 75-seat night club featuring live entertainment and dancing and a "quiet" lounge featuring an oversized fireplace.

EVENTS CENTER - Guests will access the main entrance of the 37,000 square foot events center from the Grand Hall and connecting corridor. The events center will accommodate a wide variety of activities, including entertainment and sports events, such as concerts, comedy shows and boxing, as well as trade shows and exhibitions.

RESORT ENTRY PLAZA AND GRAND HALL - The "Resort Entry Plaza" will make use of a centralized circular driveway entrance, with easy access to the casino, hotel, events center and parking. Ample parking will be available for our customers and employees in our 1,700 space underground parking structure and 500 spaces of surface parking. The design is intended to route guests to their destination while ensuring that all amenities are highly visible. The design also provides each element of the resort - casino, hotel and events center - with its own separate entrance, but still ties together the entire facility.

The "Grand Hall" is designed as a central atrium space from which guests can access all resort amenities. The space will connect the casino to the southwest, the hotel along the lake to the north, and the events center to the southeast. The Grand Hall will offer panoramic views of Lake Mescalero, the "Lakefront Walk" and Sierra Blanca

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Mountain. Several dining and retail areas will be conveniently located off the Grand Hall as well as the hotel lobby and guest elevators. A curvilinear dual-staircase leads to the fine dining and patio areas below.

DESIGN AND CONSTRUCTION TEAM

The following is a brief description of the design and construction professionals we have selected to assist in the development of the Resort:

CENTEX/WORTHGROUP, LLC - We have retained Centex/WorthGroup, LLC to design and construct the Resort. Centex/WorthGroup is a joint venture comprised of WorthGroup Architects, L.P., who designed the Resort, as well as the Bellagio, Hard Rock Hotel & Casino and Mandalay Bay, in Las Vegas, and Centex Construction Company, Inc., who will construct the Resort. Centex has extensive experience in the resort and hospitality sector, with clients including Harrah's Casino in Las Vegas, Atlantis Paradise Island Resort and Casino in the Bahamas and Disney's All Star Resort in Lake Buena Vista, Florida. The Tribe has a successful working history with Centex/WorthGroup, who successfully designed, built and opened the Travel Center on time and within budget in May 2003. In addition, the Tribe previously selected Centex to build its new K-12 school in Mescalero, which also opened on schedule and within budget in May 2002, and has won three national awards in the construction and design/build fields.

RIDER HUNT LEVETT & BAILEY - We have retained Rider Hunt Levett & Bailey to provide project management services, budgeting services and ongoing schedule management for construction of the Resort. Rider Hunt has extensive experience in managing the design and construction of casinos including Chukchansi Gold Resort & Casino, Pechanga Entertainment Center, Excalibur Las Vegas Resort Hotel and Casino, Hard Rock Hotel and Casino and Silver Legacy Resort Casino.

PROFESSIONAL ASSOCIATES CONSTRUCTION SERVICES - Professional Associates Construction Services, Inc. of Orange, California has been retained as an independent construction consultant on behalf of the holders of the notes. The conditions under the cash collateral and disbursements agreement generally provide that funds will be disbursed only if Professional Associates certify to the disbursement agent that there is sufficient available funds to complete the Resort in accordance with the budget. Professional Associates has acted as construction consultant in connection with the construction of Chukchansi Gold Resort & Casino, Pechanga Entertainment Center, Barona Casino and Station Casino's Green Valley Ranch Resort.

CONSTRUCTION CONTRACT

We have entered into a fixed price design and build contract, which we refer to as the Fixed Price Contract, for approximately $135.2 million with Centex/WorthGroup, LLC for the cost associated with the design and construction of the Resort. Centex/WorthGroup is responsible for achieving substantial completion of the Resort by February 28, 2005, with final completion within 60 days thereafter. As of April 30, 2004, we had paid approximately $96.2 million to Centex/WorthGroup under the Fixed Price Contract, leaving approximately $39.0 million remaining under the agreement. Neither we nor the Tribe can provide you with any assurance that the Resort will be completed within budgeted costs.

OUR BUSINESS ACTIVITIES

IMG Resort and Casino was formed by the Tribe on April 2, 2003 to be the holding company for all of the Tribe's gaming and resort enterprises. Prior to the formation of IMG Resort and Casino, the Tribe had been operating all of its gaming and resort activities through four separate tribal enterprises: Casino Apache, which owned and operated the Tribe's original casino, Casino Apache, since the commencement of its operations in 1992; Ski Apache, which owned and operated the Tribe's ski resort, since the commencement of its operations in 1964; Inn of the Mountain Gods, which owned and operated the Tribe's resort hotel, the Inn of the Mountain Gods, since the commencement of its operations in 1975; and the Travel Center, which owned and operated the Tribe's second gaming facility, Casino Apache Travel Center, since the commencement of its operations in April 2003. On April 2, 2003, each of the Tribe's gaming and resort enterprises - the Travel Center, Casino Apache, Ski Apache and Inn of the Mountain Gods - were contributed to IMG Resort and Casino by the Tribe and are wholly-owned subsidiaries of IMG Resort and Casino.

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GAMING

We currently operate two gaming facilities, the Travel Center and Casino Apache. The Travel Center, opened on May 21, 2003, is located directly on U.S. Highway 70 and is highly visible to drivers in both directions. Casino Apache, opened in 1992, is located two miles off of U.S. Highway 70, adjacent to the future site of the Resort. As of April 30, 2004, Casino Apache featured 22,600 square feet of gaming space, 678 slot machines and 25 table games, including craps, blackjack, roulette, three-card poker and "Let it Ride;" a 100-seat buffet restaurant; a gift shop and approximately 400 customer parking spaces.

Our gaming operations have experienced continued growth since fiscal 2000. Gaming revenues have increased from $35.4 million for the twelve months ended April 30, 2000 to $60.3 million for the twelve months ended April 30, 2004, a compound annual growth rate of 15.0%. In May 2003, we opened the Travel Center with approximately 500 slot machines, comprised of approximately 200 slot machines moved from Casino Apache and approximately 300 new slot machines. Upon completion of the Resort, the current space at Casino Apache will be converted into child care center for guests and employees, which we will refer to as "Camp Mescalero."

RESORT AMENITIES

Since opening the original 118-room hotel as a five-star resort facility in 1975, we have built a strong reputation as a leading destination resort in our region. Our cool mountain climate and resort amenities typically attract capacity crowds from May through September. Our resort amenities include our championship golf course, rated the 35th "Best Golf Resort" in the country in 2002 by Golf Week(TM), a golf pro shop, big game hunts, shooting ranges, horseback riding, boating, fishing and a casual dining restaurant and bar. During construction, we have been and will continue to operate substantially all of our resort amenities. In addition, we have instituted a partnership with more than a dozen local hotels to provide our regular lodging patrons with accommodations throughout this period.

SKIING

We have owned and operated Ski Apache since 1964. Ski Apache has 750-acres of ski area and is the second largest snow ski area (based upon acres of ski area) in the State of New Mexico. Our ski resort is located on U.S. Forest and Tribal land on the 12,003-foot Sierra Blanca Mountain, on the southern tip of the Rocky Mountains, approximately 20 miles from the site of the Resort. Approximately 200,000 skiers, primarily from New Mexico, Texas, Arizona and Mexico, visited Ski Apache during each of our last three ski seasons, which typically run from Thanksgiving to Easter. At April 30, 2004, Ski Apache featured:

o 11 lifts providing the largest lift capacity in New Mexico (over 16,500 people per hour), which include a four-passenger gondola (the only one in New Mexico), two quad chair lifts, five triple chairs, one double chair lift and two surface lifts;

o a base elevation of 9,600 feet and a vertical drop of 1,900 feet;

o 55 ski trails, of which 20 percent are beginner, 35 percent are intermediate and 45 percent are advanced, as well as Apache Bowl, an expert open bowl ski area;

o a Professional Ski Instructors of America ski and snowboarding school; and

o a sport shop with ski rental, offering top quality ski and snowboarding equipment.

Although Ski Apache typically averages over 15 feet of snowfall each year, Ski Apache features a multi-million dollar snowmaking system, which covers 1,000 feet of vertical drop, trails for all ability levels and the use of 8 of its 11 lifts.

BUSINESS STRATEGY

We are the only full-service casino operator offering both slot machines and table games within our primary market area, which encompasses southern New Mexico, including the cities of Ruidoso, Alamogordo, Las Cruces and Roswell, western Texas, including the cities of El Paso, Lubbock and Odessa and northern Mexico, including

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Ciudad Juarez. Our primary feeder markets include cities over 200 miles away. We have identified this market based on information we have obtained from our approximately 90,000 member customer loyalty program, the Apache Spirit Club. We believe that our facilities will continue to be attractive to these customers because of our location. Within our primary market area we are the closest gaming facility to offer both slot machines and table games and we are the closest resort destination offering all-season amenities, including skiing and championship golf.

Upon completion of the Project, we believe we will be able to increase penetration within our existing primary market and expand our market to include a greater number of customers from New Mexico, Mexico, Texas, Oklahoma, Colorado, Arizona, and California. In connection with the Project, we also intend to implement a comprehensive business and marketing strategy to enhance operations at our facilities. Key measures include:

o CROSS MARKET OUR RESORT FACILITIES - Cross market all of our resort facilities to increase market penetration and expand our market by highlighting our diverse range of attractive all-season activities;

o INTEGRATE MANAGEMENT - Further expand our management team and consolidate our management structure across our resort enterprises, which were formerly operated as separate businesses, to drive greater operating efficiencies and economies of scale for our resort enterprises as a whole;

o BROADEN CUSTOMER BASE - Offer different gaming and slot machine limits, mixes of table games, and non-gaming amenities across our casino and new resort to broaden our customer base;

o IMPLEMENT PREMIUM PRICING - Capitalize on our new resort facilities, including luxury accommodations, to implement premium pricing to target a more affluent customer base;

o SHOULDER AND OFF-PEAK MARKETING - Create targeted promotions to achieve higher utilization during shoulder and off-peak periods; and

o EXPAND CUSTOMER LOYALTY PROGRAM - Continue to expand the Apache Spirit Club across all of our resort facilities, to recognize gaming and non-gaming spending habits and create individually targeted promotions for our customers. We have increased memberships in the Apache Spirit Club by approximately 61.0% from March 2003 through April 2004.

The Project is part of our business strategy to develop an integrated resort, increase our market reach and realize operating benefits from business synergies. We may not be able to fully implement this strategy if we experience changes in general or local economic conditions, increased competition, other changes in our industry, or our plan to promote our customers' utilization of our various resort amenities, including our gaming, hotel, entertainment and other amenities does not achieve its intended results.

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GAMING IN NEW MEXICO

OBJECT OMITTED

COMPETITION

Our primary market area encompasses southern New Mexico, including the cities of Ruidoso, Alamogordo, Las Cruces and Roswell, western Texas, including the cities of El Paso, Lubbock and Odessa and northern Mexico, including Ciudad Juarez. According to the U.S. Census Bureau and Desarrollo Economico de Ciudad Juarez/INEGI there are approximately 3.1 million people in our primary market area and 1.8 million adults.

Currently, we are the only full-service casino operator within our primary market area. We currently face competition in our primary market area from two racinos, Ruidoso Downs, 10 miles away in Ruidoso and Sunland Park Racetrack and Casino, 125 miles away in Sunland Park, New Mexico. Ruidoso Downs offers quarter horse and thoroughbred racing from May through September, as well as a 20,000 square foot casino featuring 300 slot machines and a buffet restaurant. Sunland Park offers quarter horse and thoroughbred racing from mid-November to early-April, a 36,000 square foot casino facility, 700 slot machines and five restaurants. Both of these facilities lack table games and lodging facilities. In addition, we compete with 11 other New Mexico Indian casinos and one racino located in and around Albuquerque and Santa Fe, New Mexico, which is outside of our primary market area.

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We also compete with other forms of legal gaming in New Mexico, Texas and Northern Mexico, including horse racing, Class II gaming, pari-mutuel wagering, the New Mexico State Lottery, the Texas State Lottery, as well as non-gaming leisure activities. Upon completion of the Project, we intend to expand our existing geographic market and increase the percentage of our overnight and larger spending customers who tend to live greater distances from us. We will begin to compete more directly for regional overnight and national customers with casinos and resorts located in other parts of the country.

MESCALERO APACHE TRIBE

TRIBAL ADMINISTRATION

The Tribe is a federally recognized Indian tribe located on a 750 square mile reservation in south-central New Mexico and has approximately 4,100 members. The Indian Reorganization Act of 1934 and subsequent federal legislation govern the relationship between the Tribe and the United States government. The Tribe operates under a constitution approved by the United States Secretary of the Interior on March 25, 1936, revised on January 12, 1965, and amended on May 31, 1985.

In accordance with its Constitution, the Tribe is governed by and enacts laws through ordinances and resolutions of the Mescalero Apache Tribal Council, or the Tribal Council, which is comprised of a President, Vice President and eight Council Members, each of whom is elected by a majority vote of the eligible adult enrolled members of the Tribe. The President is a non-voting member of the Tribal Council and the Vice President only votes if necessary to break a tie. Each member of the Tribal Council serves a two-year term, with the terms of the voting members staggered so that each year four of those eight positions are up for election. The Tribal Council has the power, by ordinance, to establish the principles and policies governing the operation and control of all enterprises of the Tribe. The Tribal President has the power to contract for the Tribe upon authorization from the Tribal Council.

The Tribal Executive Committee, or the Executive Committee, has responsibility for oversight of all business activities on behalf of the Tribal Council. The Executive Committee is comprised of the President and Vice President as well as a Secretary and Treasurer, both of whom are appointed by the President.

TRIBAL COURT SYSTEM

The Constitution and Tribal Code provides for the establishment of the tribal court known as the Mescalero Apache Tribal Court, or Tribal Court. The jurisdiction of the Tribal Court extends to all matters, criminal and civil, except where prohibited by the Constitution, laws or treaties of the United States of America, and except as this jurisdiction may be otherwise limited from time to time by ordinance of the Tribal Council. The criminal offenses over which the Tribal Court has jurisdiction may be embodied in a Code of Laws, adopted by ordinance of the Tribal Council, and subject to review by the Secretary of the Interior. The duties and procedures of the Tribal Court are determined by ordinance of the Tribal Council.

The Tribal Court consists of a chief judge and two associate judges, appointed by the President of the Tribe, with the concurrence of not less than a three-fourths majority vote of the whole membership of the Tribal Council. The Tribal Council also sits as a court of appeals whenever necessary and may hear appeals at any regular or special meeting. The tenure and salary of tribal judges is established by resolution of the Tribal Council.

A judge of the Tribal Court must be an Indian as defined in the Tribal Code, not less than thirty-five years or more than seventy years of age; and cannot have been convicted of a felony, or, within one year, of a misdemeanor. The Tribal Code defines an "Indian" as someone who possesses at least one-quarter Indian blood, and is a member of any federally recognized tribe, nation, or band of Indians, or is an Eskimo, Aleut, or other Alaskan.

The Tribe has adopted its own rules of procedure and evidence, which are found in the Tribal Code. In determining cases, a tribal court judge relies on the applicable laws in the following order of precedence: (a) Tribal Constitution, Tribal Code, ordinances, traditions and customs and (b) federal laws not in conflict with tribal laws and customs.

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MESCALERO APACHE TRIBAL GAMING COMMISSION

On August 20, 1999, the Tribe formed the Mescalero Apache Tribal Gaming Commission as a governmental subdivision of the Tribe. The Mescalero Apache Tribal Gaming Commission consists of 4 members, including a Chairman, Vice Chairman and Secretary-Treasurer and Commissioner. The Mescalero Apache Tribal Gaming Commission is vested with the authority to regulate all licenses and gaming activity conducted on tribal lands, including licensing persons, vendors, financial sources and contractors employed by the casino, ensuring compliance with internal control standards established by the National Indian Gaming Commission, or the NIGC, an independent agency within the U.S. Department of the Interior and establishing technical specifications for gaming devices. The Mescalero Apache Tribal Gaming Commission is responsible for carrying out the Tribe's regulatory responsibilities under federal, state and tribal law and the 2001 Compact.

GOVERNMENT REGULATION

GENERAL

We are subject to federal, state and tribal laws governing commercial relationships with Indians, Indian gaming and the management and financing of casinos owned by an Indian tribe. In addition, we are regulated by federal and state laws applicable to the gaming industry generally and to the distribution of gaming equipment. The following description of the regulatory environment in which Indian gaming takes place and in which we operate our casinos is only a summary and not a complete recitation of all applicable law. Moreover, this particular regulatory environment is more susceptible to changes in public policy considerations than others. We cannot predict how certain provisions will be interpreted from time to time or whether they will remain intact. Changes in these laws could have a material adverse impact on our business and results of operations and our ability to meet our debt service obligations.

TRIBAL LAW AND LEGAL SYSTEMS

APPLICABILITY OF FEDERAL LAW. Federally recognized Indian tribes are independent governments, subordinate to the United States, with sovereign powers, except as those powers may have been limited by treaty or by the U.S. Congress. The power of Indian tribes to enact their own laws to regulate gaming derives from the exercise of tribal sovereignty and is subject to federal law. Indian tribes maintain their own governmental systems and often their own judicial systems. Indian tribes have the right to tax persons and businesses operating on Indian lands, and also have the right to require licenses and to impose other forms of regulations and regulatory fees on persons and businesses operating on their lands.

WAIVER OF SOVEREIGN IMMUNITY; JURISDICTION; EXHAUSTION OF TRIBAL REMEDIES. Indian tribes enjoy sovereign immunity from unconsented suit similar to that of the states and the United States. To sue an Indian tribe (or an enterprise, agency or instrumentality of an Indian tribe, such as us), the tribe must have effectively waived its sovereign immunity with respect to the matter in dispute. Further, in most commercial disputes with Indian tribes, the jurisdiction of the federal courts, which are courts of limited jurisdiction, may be difficult or impossible to obtain. A commercial dispute is unlikely to present a federal question, and courts have ruled that an Indian tribe as a party is not a citizen of any state for purposes of establishing diversity jurisdiction in the federal courts. The remedies available against an Indian tribe also depend, at least in part, on the rules of comity requiring initial exhaustion of remedies of tribal tribunals and, as to some judicial remedies, the tribe's consent to jurisdictional provisions contained in the disputed agreements. Under U.S. Supreme Court case law, where a tribal court exists, the remedies in that forum first may have to be exhausted before any dispute arising on or involving the affected tribe's reservation and to which the tribe, a tribal enterprise such as us or a tribal member is a party, can be properly heard by federal or state courts which would otherwise have jurisdiction. Generally, where a dispute as to the existence of jurisdiction in the tribal forum exists, the tribal court first may need to rule as to the limits of its own jurisdiction, subject to certain limited exceptions enumerated by the U.S. Supreme Court.

THE INDIAN GAMING REGULATORY ACT OF 1988

REGULATORY AUTHORITY. The operation of casinos and of all gaming on Indian land is subject to IGRA. IGRA is administered by the NIGC which exercises primary federal regulatory responsibility over Indian gaming. The NIGC has exclusive authority to issue regulations governing tribal gaming activities, approve tribal ordinances for regulating Class II and Class III gaming (as described below), approve management agreements for gaming facilities, and conduct investigations and generally monitor tribal gaming. The Bureau of Indian Affairs, or the BIA,

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which is a bureau of the Department of the Interior, retains certain responsibilities under IGRA (such as the approval of per capita distribution plans to tribal members and the approval of transfers of lands into trust status for gaming). The BIA also has responsibility to review and approve land leases and other agreements relating to Indian lands. Criminal enforcement is a shared responsibility of the U.S. Department of Justice, the state in which the Tribe is located and the Tribe, in accordance with federal law.

The NIGC is empowered to impose civil penalties for violations of IGRA. IGRA also provides for federal criminal penalties for illegal gaming on Indian land and for theft from Indian gaming facilities. The NIGC has adopted rules implementing certain provisions of IGRA. These rules govern, among other things, the submission and approval of tribal gaming ordinances or resolutions and require an Indian tribe to have the sole proprietary interest in and responsibility for the conduct of any gaming on its lands. Tribes are required to issue gaming licenses only under articulated standards, conduct or commission financial audits of their gaming enterprises, perform or commission background investigations for primary management officials and key employees and maintain facilities in a manner that adequately protects the environment and the public health and safety. These rules also set out review and reporting procedures for tribal licensing of gaming operation employees.

CLASSES OF GAMING. IGRA classifies games that may be conducted on Indian lands into three categories. Class I gaming includes social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as part of, or in connection with, tribal ceremonies or celebrations. Class II gaming includes bingo, pulltabs, lotto, punch boards, non-banked card games, tip jars, instant bingo and other games similar to bingo, if those games are played at the same location as bingo is played. Class III gaming includes all other forms of gaming, such as slot machines, video casino games, banked table games and other commercial gaming, such as sports betting and pari-mutuel wagering.

Class I gaming on Indian lands is within the exclusive jurisdiction of the Indian tribes and is not subject to IGRA. Class II gaming is permitted on Indian lands if:

o the state in which the Indian lands lie permits that gaming for any purpose by any person, organization or entity;

o the gaming is not otherwise specifically prohibited on Indian lands by federal law;

o the gaming is conducted in accordance with a tribal ordinance or resolution which has been approved by the NIGC;

o an Indian tribe has sole proprietary interest and responsibility for the conduct of the gaming;

o the primary management officials and key employees are tribally licensed; and

o several other requirements are met.

Class III gaming is permitted on Indian lands if the conditions applicable to Class II gaming are met and, in addition, the gaming is conducted in conformity with the terms of a tribal-state compact, which is a written agreement between the tribal government and the government of the state within whose boundaries the tribe's lands lie. IGRA requires Indian tribes to enter into tribal-state compacts in order to conduct Class III gaming.

TRIBAL-STATE COMPACTS. Tribal-state compacts may include provisions for the allocation of criminal and civil jurisdiction between the state and the Indian tribe necessary for the enforcement of these laws and regulations, taxation by the Indian tribe of the Class III gaming activity in amounts comparable to those amounts assessed by the state for comparable activities, remedies for breach, standards for the operation of the Class III gaming activity and maintenance of the gaming facility, including licensing and any other subjects that are directly related to the operation of gaming activities. While the terms of tribal-state compacts vary from state to state, compacts within one state tend to be substantially similar. Tribal-state compacts usually specify the types of permitted games, establish technical standards for video gaming machines, set maximum and minimum machine payout percentages, entitle the state to inspect casinos, require background investigations and licensing of casino employees and may require the tribe to pay a portion of the state's expenses for establishing and maintaining regulatory agencies. Some tribal-state compacts are for set terms, while others are for indefinite duration.

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TRIBAL ORDINANCES. Under IGRA, except to the extent otherwise provided in a tribal-state compact as described below, Indian tribal governments have primary regulatory authority over Class III gaming on land within a tribe's jurisdiction. Therefore, a tribe's gaming operations, and persons engaged in gaming activities, are guided by and subject to the provisions of that tribe's ordinances and regulations regarding gaming.

IGRA requires that the NIGC review tribal gaming ordinances and authorizes the NIGC to approve these ordinances only if they meet requirements relating to:

o the ownership, security, personnel background, recordkeeping and auditing of a tribe's gaming enterprises;

o the use of the revenues from that gaming; and

o the protection of the environment and the public health and safety.

POSSIBLE CHANGES IN FEDERAL LAW

Several bills have been introduced in Congress that would amend IGRA. While there have been a number of technical amendments to the law, to date there have been no material changes to IGRA. Any amendment of IGRA could change the governmental structure and requirements within which we could conduct gaming, and may have an adverse effect on our business and results of operations or impose additional regulatory or operational burdens.

EMPLOYEE AND LABOR RELATIONS

As of April 30, 2004, we had 990 full-time team members, excluding approximately 400 additional full-time team members which will be hired during the ski season at Ski Apache, which typically runs from Thanksgiving to Easter. We expect to hire approximately 350 additional full-time team members in connection with the opening of the Resort. We have developed and implemented training programs for our hotel and resort team members and believe that we will be able to hire and train a sufficient number of employees for the operation of the casino upon completion of the Project. Our team members are not covered by any collective bargaining agreements. We believe our labor relations with our team members are good.

WEBSITE AVAILABILITY OF OUR REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

We maintain a website with the address www.innofthemountaingods.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this annual report on Form 10-K. We intend to make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file that material with, or furnish such material to, the Securities and Exchange Commission.

ITEM 2. PROPERTIES

We do not currently, and will not, own the land on which our gaming and resort enterprises are located, including the IMG Resort and Casino, Casino Apache, the Travel Center and a portion of Ski Apache. The U.S. government holds all of the land in trust for the benefit of the Tribe. The use of tribal land is provided to us rent-free. In addition, we have a special use permit from the United States Department of Agriculture, Forest Service for the operation of the remaining portion of Ski Apache. The special use permit expires on December 31, 2014.

ITEM 3. LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

SETTLEMENT OF COMPACT DISPUTE

In 1997, the Tribe entered into the 1997 Compact with the State of New Mexico, which permits Class III gaming on the Tribe's reservation pursuant to IGRA. In the State of New Mexico, the execution of an Indian gaming compact is conditioned upon execution of a revenue sharing agreement providing for limited exclusivity of gaming activities to the tribal entity in exchange for an agreement to make quarterly revenue sharing payments to the State.

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At the time the 1997 Compact was entered into by the Tribe, this revenue sharing agreement provided for a revenue sharing fee equal to 16% of the Tribe's "net win" from gaming. We have accrued as a liability on our financial statements the full 16% revenue sharing and other regulatory fees claimed by the State of New Mexico pursuant to the 1997 Compact, which at April 30, 2004 amounted to $47.5 million prior to the compact settlement.

The Tribe, along with other tribes and pueblos who entered into the 1997 Compact disputed the legality of the State of New Mexico's imposition of revenue sharing fees and regulatory fees pursuant to the 1997 Compact. In 1998, The Tribe initiated an arbitration to assert that the regulatory and revenue sharing payments were void and illegal under IGRA. On February 14, 2000, the State of New Mexico filed Petition No. 26,194, in the Supreme Court of New Mexico seeking an order prohibiting the arbitrators in the arbitration from examining whether or not the regulatory and revenue sharing payments were valid. On June 13, 2000 the State of New Mexico filed an action, CIV 00-851BB/LFG, against the Tribe seeking that Court's determination that the revenue sharing payments are legal under IGRA. The Tribe made no payments under the 1997 Compact.

In 2001, all of the New Mexico gaming tribes and pueblos (other than the Tribe and the Pueblo of Pojoaque) settled the dispute regarding the 1997 Compact and entered into a new gaming compact with the State of New Mexico, the 2001 Compact. On April 20, 2004, the Tribe and the State of New Mexico entered into a settlement agreement which resolved their disputes regarding the 1997 Compact. Under the settlement agreement, the State of New Mexico and the Tribe agreed that the Tribe would pay the State of New Mexico $25.0 million and that they would enter into the 2001 Compact. On April 20, 2004, we paid an initial payment of $2.0 million pursuant to the terms of the settlement agreement.

The settlement agreement with the State of New Mexico provides that the $25.0 million payment settles all revenue sharing and regulatory fees payable under the 1997 Compact as well as all revenue sharing fees payable under the 2001 Compact through March 2005. 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. Pursuant to the terms of the settlement agreement, we will begin accruing revenue sharing payments to the State of New Mexico at the rate of 8% of "net win" pursuant to the 2001 Compact in March 2005, with our first revenue sharing payment under the 2001 Compact due in July 2005. In addition, pursuant to the terms of the settlement agreement, we will begin accruing regulatory fees, at the rate of $100,000 per year, from the date the approval of the 2001 Compact is published in the Federal Register with our first payment for regulatory fees under the 2001 Compact due on the first day of the first full calendar quarter thereafter. On June 1, 2004, the Tribe and the State of New Mexico entered into the 2001 Compact. On July 22, 2004, the Department of Interior approved the 2001 Compact. We will make the remaining $23.0 million payment required under the settlement agreement within ten business days after the Department of Interior publishes notice in the Federal Register of the affirmative approval of the 2001 Compact.

OTHER MATTERS

In addition to the matter described above, we are involved in litigation incurred in the normal course of business; however, we are not currently a party to any material pending claim or legal action.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

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