**Tableof Contents**

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**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

** **
| **x** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|-------|---------------------------------------------------------------------------------------------------------|

** **

**For the quarterly period ended June 30, 2009**

** **

**OR**

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

** **

**For thetransition period from              to             **

 

**Commission File Number: **333-117633

** **

**SENECA GAMING CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Not Applicable**                                              | ** ** | **7990**                                                  | ** ** | **54-2122988**                        |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (Primary Standard Industrial  Classification Code Number) |       | (I.R.S. Employer  Identification No.) |

 

**310 Fourth Street**

**Niagara Falls, New York (SenecaNation Territory) 14303**

**(716) 299-1100**

(Address, including zip code, and telephonenumber,

including area code, of registrant’sprincipal executive offices)

 

Indicateby check mark whether the registrant has (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x   Noo

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o   No o

 

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

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

 

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

 

At August 14,2009, the registrant had no outstanding shares of common stock. The registrantis wholly owned by the Seneca Nation of Indians.

 

 

 

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**TABLE OFCONTENTS**

 
| **PART I.  FINANCIAL  INFORMATION** |                                                                                                                                              |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.                                       | Financial  Statements                                                                                                                             | 1 |
|                                          | Consolidated Balance Sheets as of June 30, 2009  (Unaudited) and September 30, 2008                                                     | 1 |
|                                          | Consolidated Statements of Operations and Changes in  Capital for the three months and nine months ended June 30, 2009 and  2008 (Unaudited) | 2 |
|                                          | Consolidated Statements of Cash Flows for the nine  months ended June 30, 2009 and 2008 (Unaudited)                                          | 3 |
|                                          | Notes to Condensed Consolidated Financial Statements                                                                                              | 4 |
| Item 2.                                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                       | 16 |
| Item 3.                                       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                       | 38 |
| Item 4T.                                      | Controls and  Procedures                                                                                                                          | 38 |
|                                          |                                                                                                                                              |   |
| **PART II.  OTHER INFORMATION**     |                                                                                                                                              |
| Item 1.                                       | Legal Proceedings                                                                                                                                 | 39 |
| Item 1A.                                      | Risk Factors                                                                                                                                      | 42 |
| Item 2.                                       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                      | 42 |
| Item 3.                                       | Defaults  Upon Senior Securities                                                                                                                  | 42 |
| Item 4.                                       | Submission  of Matters to a Vote of Security Holders                                                                                              | 42 |
| Item 5.                                       | Other Information                                                                                                                                 | 42 |
| Item 6.                                       | Exhibits                                                                                                                                          | 42 |
|                                          | Signatures                                                                                                                                        | 43 |

 

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**PART I. FINANCIAL INFORMATION**

 

**Item I.                     Financial Statements**

 

**SENECA GAMING CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                               | ** ** | **June 30,**                    | ** ** | **September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **2009**                             | ** ** | **2008**               | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| **Assets**                               | ** ** | ** **                           | ** ** | ** **             | ** ** |
| Current assets:                          |       |                                 |       |                   |       |
| Cash and cash equivalents                |       | $                                    | 53,082     |                   | $          | 53,305 |   |
| Short-term investments                   |       | 125                                  |       | 300                    |       |
| Receivables, net                         |       | 2,722                                |       | 2,705                  |       |
| Inventories                              |       | 3,854                                |       | 4,196                  |       |
| Other current assets                     |       | 11,260                               |       | 9,127                  |       |
| Total current assets                     |       | 71,043                               |       | 69,633                 |       |
|                                     |       |                                 |       |                   |       |
| Property and equipment,  net             |       | 674,977                              |       | 799,335                |       |
| Other long-term assets                   |       | 66,015                               |       | 66,750                 |       |
|                                     |       |                                 |       |                   |       |
| Total assets                             |       | $                                    | 812,035    |                   | $          | 935,718 |   |
|                                     |       |                                 |       |                   |       |
| **Liabilities and Capital**              | ** ** | ** **                           | ** ** | ** **             | ** ** |
| Current liabilities:                     |       |                                 |       |                   |       |
| Trade payables                           |       | $                                    | 1,874      |                   | $          | 3,368 |   |
| Construction payables                    |       | 11,153                               |       | 29,619                 |       |
| Distributions payable to  Nation         |       | —                               |       | 24,000                 |       |
| Exclusivity fees payable                 |       | 8,656                                |       | 9,234                  |       |
| Accrued interest payable                 |       | 6,042                                |       | 15,104                 |       |
| Accrued regulatory costs                 |       | 32,618                               |       | 27,888                 |       |
| Accrued gaming liabilities               |       | 14,936                               |       | 15,657                 |       |
| Accrued payroll and  related liabilities |       | 14,638                               |       | 10,138                 |       |
| Other current liabilities                |       | 7,704                                |       | 13,511                 |       |
| Senior secured revolving  loan payable   |       | —                               |       | —                 |       |
| Total current liabilities                |       | 97,621                               |       | 148,519                |       |
|                                     |       |                                 |       |                   |       |
| Long-term debt                           |       | 497,110                              |       | 496,353                |       |
|                                     |       |                                 |       |                   |       |
| Total liabilities                        |       | 594,731                              |       | 644,872                |       |
|                                     |       |                                 |       |                   |       |
| Capital:                                 |       |                                 |       |                   |       |
| Retained earnings                        |       | 217,304                              |       | 290,846                |       |
|                                     |       |                                 |       |                   |       |
| Total liabilities and  capital           |       | $                                    | 812,035    |                   | $          | 935,718 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SENECAGAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONSAND CHANGES IN CAPITAL**

**(Unaudited)**

 
| ** **                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Nine Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                | ** ** | **2009**                                        | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                | ** ** | **(Dollars in Thousands)**            | ** ** |
| ** **                                | ** ** | ** **                                      | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                              | ** ** | ** **                                      | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | ** **                                      | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                    |       | $                                               | 153,162    |                                           | $          | 164,693 |   | $ | 431,505 |   | $ | 469,139 |   |
| Food and beverage                         |       | 14,739                                          |       | 16,295                                         |       | 43,174 |   | 46,677 |   |
| Lodging                                   |       | 5,928                                           |       | 7,277                                          |       | 17,800 |   | 21,501 |   |
| Retail, entertainment and  other          |       | 5,353                                           |       | 6,169                                          |       | 17,619 |   | 18,486 |   |
| Gross Revenue                             |       | 179,182                                         |       | 194,434                                        |       | 510,098 |   | 555,803 |   |
| Less: Promotional  allowances             |       | (30,150                                         | )          | (28,763                                        | )          | (82,309 | ) | (88,914 | ) |
| Net revenues                              |       | 149,032                                         |       | 165,671                                        |       | 427,789 |   | 466,889 |   |
|                                      |       |                                            |       |                                           |       |   |   |   |   |
| **Expenses**                              | ** ** | ** **                                      | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | ** **                                      | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                    |       | 38,884                                          |       | 43,742                                         |       | 112,534 |   | 126,689 |   |
| Food and beverage                         |       | 11,126                                          |       | 12,435                                         |       | 33,030 |   | 37,150 |   |
| Lodging                                   |       | 3,084                                           |       | 3,274                                          |       | 9,243 |   | 9,800 |   |
| Retail, entertainment and  other          |       | 3,307                                           |       | 4,185                                          |       | 10,752 |   | 12,357 |   |
| Advertising, general and  administrative  |       | 45,084                                          |       | 47,934                                         |       | 140,949 |   | 144,766 |   |
| Pre-opening costs                         |       | 110                                             |       | 70                                             |       | 246 |   | 294 |   |
| Depreciation                              |       | 11,668                                          |       | 12,604                                         |       | 36,838 |   | 38,533 |   |
| Impairment of property and  equipment     |       | 109,036                                         |       | —                                         |       | 109,036 |   | — |   |
|                                      |       |                                            |       |                                           |       |   |   |   |   |
| Total operating expenses                  |       | 222,299                                         |       | 124,244                                        |       | 452,628 |   | 369,589 |   |
|                                      |       |                                            |       |                                           |       |   |   |   |   |
| Operating (loss) income                   |       | (73,267                                         | )          | 41,427                                         |       | (24,839 | ) | 97,300 |   |
|                                      |       |                                            |       |                                           |       |   |   |   |   |
| Other non-operating  expense              |       | (25                                             | )          | (250                                           | )          | (188 | ) | (4,150 | ) |
| Interest income                           |       | 118                                             |       | 129                                            |       | 199 |   | 1,251 |   |
| Interest expense                          |       | (9,500                                          | )          | (9,089                                         | )          | (28,777 | ) | (28,833 | ) |
|                                      |       |                                            |       |                                           |       |   |   |   |   |
| Net income (loss)                         |       | $                                               | (82,674    | )                                              | $          | 32,217 |   | $ | (53,605 | ) | $ | 65,568 |   |
|                                      |       |                                            |       |                                           |       |   |   |   |   |
| Beginning capital balance                 |       | $                                               | 312,676    |                                           | $          | 253,690 |   | $ | 290,846 |   | $ | 230,244 |   |
| Cash distributions declared to the Nation |       | (12,698                                         | )          | (5,253                                         | )          | (19,937 | ) | (15,158 | ) |
| Ending capital balance                    |       | $                                               | 217,304    |                                           | $          | 280,654 |   | $ | 217,304 |   | $ | 280,654 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SENECA GAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                | ** ** | **Nine Months Ended**      | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                | ** ** | **June 30,**                    | ** ** |
| ** **                                                                                | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                                                                                | ** ** | **(Dollars in Thousands)** | ** ** |
| **Cash flows relating to  operating activities:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net (loss) income                                                                         |       | $                                    | (53,605    | ) | $ | 65,568 |   |
| Adjustments to reconcile  net (loss) income to net cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation                                                                              |       | 36,838                               |       | 38,533 |   |
| Loss on disposal of assets                                                                |       | 155                                  |       | 26 |   |
| Amortization of deferred  financing costs, debt discount                                  |       | 2,432                                |       | 2,429 |   |
| Other than temporary  decline in investments                                              |       | 175                                  |       | 4,150 |   |
| Provision for bad debts                                                                   |       | 296                                  |       | 227 |   |
| Write-off of acquisition  costs                                                           |       | —                               |       | 1,100 |   |
| Impairment of property and  equipment                                                     |       | 109,036                              |       | — |   |
|                                                                                      |       |                                 |       |   |   |
| Change in operating assets  and liabilities:                                              |       |                                 |       |   |   |
| Current assets                                                                            |       | (2,104                               | )          | 1 |   |
| Long-term assets                                                                          |       | 82                                   |       | (1,235 | ) |
| Current liabilities                                                                       |       | (8,432                               | )          | (4,948 | ) |
|                                                                                      |       |                                 |       |   |   |
| Net cash provided by  operating activities                                                |       | 84,873                               |       | 105,851 |   |
|                                                                                      |       |                                 |       |   |   |
| **Cash flows relating to  investing activities:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Purchases of property and  equipment                                                      |       | (40,137                              | )          | (94,254 | ) |
| Land acquisition costs                                                                    |       | (1,022                               | )          | (5,408 | ) |
| Decrease in restricted  cash                                                              |       | —                               |       | 14,579 |   |
| Sale of investments, net                                                                  |       | —                               |       | 14,600 |   |
|                                                                                      |       |                                 |       |   |   |
| Net cash used in investing  activities                                                    |       | (41,159                              | )          | (70,483 | ) |
|                                                                                      |       |                                 |       |   |   |
| **Cash flows relating to  financing activities:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Proceeds from senior  secured revolving loan agreement                                    |       | 20,000                               |       | — |   |
| Payments on senior secured  revolving loan agreement                                      |       | (20,000                              | )          | — |   |
| Distributions paid to the  Nation                                                         |       | (43,937                              | )          | (51,158 | ) |
|                                                                                      |       |                                 |       |   |   |
| Net cash used in financing  activities                                                    |       | (43,937                              | )          | (51,158 | ) |
|                                                                                      |       |                                 |       |   |   |
| Net decrease in cash                                                                      |       | (223                                 | )          | (15,790 | ) |
|                                                                                      |       |                                 |       |   |   |
| Cash balances:                                                                            |       |                                 |       |   |   |
| Beginning of period                                                                       |       | 53,305                               |       | 78,662 |   |
|                                                                                      |       |                                 |       |   |   |
| End of period                                                                             |       | $                                    | 53,082     |   | $ | 62,872 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**SENECA GAMING CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

**1.**                                      Organization and Basis of Presentation

** **

Theconsolidated financial statements include the accounts of Seneca GamingCorporation, or SGC, and its wholly owned subsidiaries, or collectively, theCompany.  In consolidation, allintercompany balances and transactions have been eliminated.  The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles for interim financial information.  Accordingly, they do not include all of theinformation and notes required by generally accepted accounting principles forcomplete financial statements.  In theopinion of SGC’s management, all adjustments, consisting of normal recurringaccruals, considered necessary for a fair presentation have been included.  Operating results for the three and ninemonths ended June 30, 2009 are not necessarily indicative of the resultsthat may be expected for SGC’s fiscal year ending September 30, 2009.  For further information, reference is made tothe consolidated financial statements and notes thereto included in SGC’sAnnual Report on Form 10-K for the fiscal year ended September 30,2008, or 2008 Form 10-K, as well as SGC’s other filings with theSecurities and Exchange Commission, or SEC, pursuant to the Securities ExchangeAct of 1934, as amended.

 

Certain prior yearamounts have been reclassified to conform to current year presentation.

 

SGC,which was formed on August 1, 2002, is wholly owned by the Seneca Nationof Indians, or the Nation.  The Nation isa federally recognized Indian tribe with total territorial land comprising approximately54,000 acres in the Western New York region. SGC was organized by the Nation to operate and manage its Class IIIgaming activities on the Nation’s territories pursuant to the Indian GamingRegulatory Act of 1988, or IGRA.  UnderIGRA, federally recognized Indian tribes are permitted to conduct full-scalecasino gaming operations on tribal land, subject to, among other things, thenegotiation of a compact with the affected state.  Pursuant to IGRA, in August 2002, theNation entered into the Nation-State Gaming Compact with the State of New York,or the Compact, which has been approved by the Federal Bureau of IndianAffairs, Department of the Interior.  TheCompact became effective in December 2002 and expires in December 2016and automatically renews for an additional seven year period unless either theNation or the State of New York objects in writing, in which case the partiesare required to negotiate in good faith to address the objecting party’sconcerns, with only the issue of a party’s good faith subject to third partydispute resolution.  The Compact providesthat its terms will remain in effect during the pendency of suchnegotiations.  The Compact provides theNation the exclusive right to conduct Class III gaming activities at threesites in the western region of the State of New York.

 

TheNation’s Constitution established the Nation’s Council, or the Council, to actas the Nation’s legislative authority. The Council acts on the Nation’s behalf with respect to SGC, and theCouncil established the Seneca Gaming Authority, or SGA, to regulate the gamingactivities of SGC under the Compact.

 

TheCouncil, at the request of the SGC Board of Directors, chartered threesubsidiary corporations of SGC to operate the three sites authorized by theCompact.  In addition, the SGC Board ofDirectors hired the executive management of SGC to oversee, develop and managethe three sites. The subsidiary corporations that operate the three sitesauthorized by the Compact are as follows:

 

·                                          Seneca Niagara Falls Gaming Corporation,or SNFGC;

 

·                                          Seneca Territory Gaming Corporation, orSTGC; and

 

·                                          Seneca Erie Gaming Corporation, or SEGC.

 

SNFGCwas formed on August 1, 2002 to operate the Nation’s Class III gamingactivities on the Nation’s territory in Niagara Falls, New York.  Operations at SNFGC’s casino, or SenecaNiagara Casino, commenced December 31, 2002.  On March 31, 2006, SNFGC officiallycompleted the phased opening of its luxury hotel expansion, which included apermanent  147,000 square foot gamingfacility (adding 35,000 square feet of gaming space to the original 112,000square-foot facility), a 604 room luxury hotel with 118 suites of varioussizes, a full-service spa, 

 

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salon,and fitness center, three fine dining restaurants (two additional) and a 24hour casual restaurant, three new retail stores, and a 25,200 square-footmulti-purpose room and events center. The luxury hotel is adjacent and connected to the Seneca NiagaraCasino.  The entire complex, includingthe luxury hotel and the Seneca Niagara Casino, is referred to as the SenecaNiagara Casino and Hotel.

 

STGCwas formed on September 20, 2003 to operate the Nation’s Class IIIgaming activities in Salamanca, New York on the Nation’s then-existingterritorial land. Operations at STGC’s casino, or Seneca Allegany Casino,commenced May 1, 2004 utilizing an approximate 120,000 square foot temporarystructure.  On March 30, 2007, thephased opening of the permanent gaming facility and resort hotel was completed,which included a permanent 63,500 square foot gaming facility (adding 12,000square feet of additional gaming space to the original temporary gamingfacility), a 212-room resort hotel, two fine dining restaurants, a 24 hourcasual restaurant, a spa and fitness center, and retail and otheramenities.  In March 2008, STGCcompleted a conversion of the former approximate 120,000 square foot temporarycasino structure into an events center and multi-purpose room with a seatingcapacity for 2,200 people, along with additional administrative and supportspace.  The entire complex, including theSeneca Allegany Casino, resort hotel, and events center, is referred to as theSeneca Allegany Casino and Hotel.

 

SEGC was formed on August 9,2003 to operate the Nation’s Class III gaming activities in Erie County,New York.  On October 3, 2005, theNation acquired approximately nine acres of land in the inner-harbor districtof downtown Buffalo, New York.  SEGCcommenced construction of its Seneca Buffalo Creek Casino on those nine acreson December 8, 2005, and on July 3, 2007 commenced Class IIIgaming on such property in a temporary facility, in fulfillment of therequirement set forth in the Nation’s Compact with the State of New York.  Thetemporary facility features approximately 8,600 square feet andincludes 244 slot machines and a snack bar. Variousplaintiffs have filed suit in federal and state court challenging the Nation’sright to conduct Class III gaming on the Nation’s nine acre Buffalo CreekTerritory.  On July 8, 2008, in a federal suit captioned *CitizensAgainst Casino Gambling in Erie County (CACGEC) v. Hogen*, the Court issued its decision and orderfinding that, although the Nation’s Buffalo Creek Territory is “Indiancountry”, the NIGC’s determination that the Nation’s Buffalo Creek Territory isgaming-eligible land pursuant to the IGRA’s settlement of a land claimexception was “arbitrary, capricious, and not in accordance with the law”.  The Court’s decision did not provide forinjunctive relief, and SEGC has continued its operations at the Seneca BuffaloCreek Casino.  Plaintiffs subsequentlyfiled a motion on July 14, 2008 to force the court to enforce itsjudgment.

 

OnJanuary 20, 2009, the NIGC approved an amended Class III GamingOrdinance that had been submitted by the Nation and concluded that, based uponnew Department of Interior regulations, IGRA’s general prohibition against gamingon after-acquired lands did not apply to lands such as the Buffalo CreekTerritory that are held in restricted fee, and that gaming on the Nation’sBuffalo Creek Territory is not precluded by IGRA.  Subsequently, on January 30, 2009, theDistrict Court denied the plaintiffs’ motion to enforce, and further concludedthat the NIGC’s new analysis is presumed valid unless it becomes the subject ofa successful legal challenge.

 

OnMarch 31, 2009, plaintiffs in the litigation noted in the foregoingparagraph filed suit to challenge the NIGC’s approval of the amended Class IIIGaming Ordinance.   On June 15,2009, the Nation moved to intervene as a defendant in CACGEC III for certainlimited claims.  The plaintiffs areopposing the Nation’s motion and as of August 14, 2009, the Nation’smotion was still pending before the Court.   See “Note 6 — Legal Proceedings,” foradditional information regarding the status of, and litigation related to, ourSeneca Buffalo Creek Casino.

 

If the plaintiffsare successful in any of the Buffalo Creek-related legal proceedings, the SEGCmay be unable to continue Class III gaming at the existing Seneca BuffaloCreek Casino.

 

TheNation’s Council has also chartered, at the request of the SGC Board ofDirectors, an additional subsidiary corporation, Lewiston Golf CourseCorporation, or LGCC, a wholly-owned subsidiary of SNFGC.  LGCC was formed on July 18, 2007 by theNation’s Council, as a new wholly-owned subsidiary of SNFGC to own, develop andoperate SGC’s planned golf course in Lewiston, New York.

 

SenecaMassachusetts Gaming Corporation, a wholly-owned subsidiary of SGC, formed on August 11,2007 to explore development opportunities related to gaming in the Commonwealthof Massachusetts, was dissolved by the Nation’s Council on April 11, 2009,and its assets transferred to SGC.

 

**New Accounting Pronouncements**

** **

InJune 2009, the FASB issued SFAS No. 168, “The FASB AccountingStandards Codification and the Hierarchy of Generally Accepted AccountingPrinciples - a replacement of FASB Statement No. 162” (“SFAS No. 168)”.  SFAS 

 

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No. 168stipulates the FASB Accounting Standards Codification is the source ofauthoritative U.S. GAAP recognized by the FASB to be applied by nongovernmentalentities.  SFAS No. 168 is effectivefor the financial statements issued for interim and annual reporting periodsending after September 15, 2009. The Company does not expect that the adoption of this standard will havea material impact on its consolidated financial statements.

 

InMay 2009, the FASB issued SFAS No. 165, *“Subsequent Events”*(“SFAS 165”).SFAS 165 establishes general standards for accounting for and disclosureof events that occur after the balance sheet date but before financialstatements are available to be issued (“subsequent events”).  More specifically, SFAS 165 sets forththe period after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition in the financial statements, identifies the circumstances underwhich an entity should recognize events or transactions occurring after thebalance sheet date in its financial statements and the disclosures that shouldbe made about events or transactions that occur after the balance sheetdate.  SFAS 165 provides largely thesame guidance on subsequent events which previously existed only in auditingliterature.  The Company does notanticipate that the adoption of this statement will have a material impact onits consolidated financial statements. The Company adopted SFAS 165 on April 5, 2009.  We have evaluated subsequent events through August 14,2009, the date this quarterly report on Form 10-Q was filed with the U.S.Securities and Exchange Commission.  Wemade no significant changes to our condensed consolidated financial statementsas a result of our subsequent events evaluation.  See Note 7 for subsequent event disclosure.

 

OnApril 5, 2009, the Company adopted the provisions of FSP SFAS No. 107-1,“*Interim Disclosures about Fair Value of FinancialInstruments*” (“FSP SFAS 107-1”), which amends SFAS No. 107, “*Disclosures about Fair Value of Financial Instruments*,” andAPB Opinion No. 28, “*Interim FinancialReporting*.” FSP SFAS No. 107-1 requires disclosures about fairvalue of financial instruments in financial statements for interim reportingperiods and in annual financial statements of publicly-traded companies.  This FSP also requires entities to disclosethe method(s) and significant assumptions used to estimate the fair valueof financial instruments in financial statements on an interim and annual basisand to highlight any changes from prior periods.  The adoption of FSP SFAS 107-1 did not have amaterial impact on the Company’s consolidated financial position or results ofoperations.  Disclosures required by SFAS107 are included in Note 4.

 

**2.****                                    ****Short-Term Investments**

 

Short-term investmentsare classified as available for sale as defined in SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*.  Investments are stated at fair value.  TheCompany evaluates investments for conditions that may indicate that another-than-temporary decline in market value has occurred. In conducting thisreview, numerous factors are considered which, individually or in combination,may indicate that a decline is other-than-temporary. Based on this evaluation,an other-than-temporary loss on one specific investment of $25,000 and $0.3million was recorded in the three months ended June 30, 2009 and 2008,respectively, and an other-than-temporary loss on one specific investment of$0.2 million and $4.2 million was recorded in the nine months ended June 30,2009 and 2008, respectively, as a component of other non-operating expense. Thecost basis of this investment has been reduced by the amount of theother-than-temporary loss recorded.

 

**3.**                                      **Propertyand Equipment**

 

Inaccordance with the Financial Accounting Standard Board’s Statement ofFinancial Accounting Standards No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets* (SFAS 144), thecarrying value of the Company’s assets are reviewed when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. If it is determined that an impairment loss has occurred based oncurrent and future levels of income and expected future cash flows as well asother factors, then an impairment loss is recognized as a deduction indetermining operating income.

 

OnAugust 27, 2008, the construction activities at Seneca Allegany Casino andHotel and Seneca Buffalo Creek Casino and Hotel were suspended for variousreasons including:  the economicrecession; inability to obtain construction financing at reasonable interestrates; and operating and other demands on our available cash, such as ourpayments to the Nation.  As of June 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, it is unlikelyconstruction will resume in the foreseeable future.  Furthermore, certain master planning effortsrelated to the future expansion of the Niagara Falls property have beensuspended for the foreseeable future for the same reasons.  As a result of these circumstances and inaccordance with SFAS 144, an impairment charge of $109.0 million was recognizedat June 30, 2009 based upon an estimate of the net realizable value basedon an estimate of undiscounted cash flows that projected no futurebenefit.  The reported fair value of zerois considered to be level three within the fair value hierarchy as established 

 

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bySFAS No. 157 “Fair Value Measurements”. Level three is defined as inputs for which significant valuationassumptions are unobservable in a market and therefore value is based on thebest available data, some of which is internally developed and considers riskpremiums that a market participant would require.  The impairment charge relates to theconstruction and design activities of the following entities:

 
| ** ** | ** ** | **Three Months Ended  June 30,** |       |
|------------|------------|-------------------------------------------------|------------|
| ** ** | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
| ** ** | ** ** | **(In Millions of Dollars)**     | ** ** |
|       |       |                                            |       |   |   |
| SNFGC      |       | $                                               | 3,500      |   | $ | — |   |
| STGC       |       | 18,182                                          |       | — |   |
| SEGC       |       | 87,354                                          |       | — |   |
|       |       | $                                               | 109,036    |   | $ | — |   |

 

**4.**                                      Principal Debt Arrangements

** **

Long-termdebt, as described below, consists of the following:

 
| ** **                                                                                       | ** ** | **As of**                                    | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                       | ** ** | **June 30, 2009**                       | ** ** | **September 30,  2008** | ** ** |
| ** **                                                                                       | ** ** | **(In Thousands of Dollars)** | ** ** |
| 2004 71/4% senior notes due 2012                                                                 |       | $                                            | 300,000    |   | $ | 300,000 |   |
| 2005 71/4% senior notes due 2012 net of unamortized discount of $2,890 and  $3,647, respectively |       | 197,110                                      |       | 196,353 |   |
| Long-term debt                                                                                   |       | $                                            | 497,110    |   | $ | 496,353 |   |

 

**7**1/4% Senior Notes due 2012

** **

On May 5, 2004, SGCissued $300.0 million in 71/4% senior notes due 2012, or the 2004 seniornotes.  On May 23, 2005, SGC issued an additional $200.0 million in 71/4% seniornotes due 2012, Series B, or the 2005 senior notes, and together with the2004 senior notes, the Senior Notes.

 

The 2005 senior noteswere issued at a discount of $7.0 million. The discount is being amortized on a straight-line basis over the termof the 2005 senior notes, which amounted to $0.3 million for the three monthsended June 30, 2009 and 2008, and $0.8 million for the nine months ended June 30,2009 and 2008.

 

The Senior Notes areguaranteed by SNFGC, STGC, SEGC and LGCC. The 2005 senior notes are treated asa single class with the 2004 senior notes and are identical to the 2004 seniornotes, except for certain tax attributes and prior to November 1, 2005 theamount of interest accrued thereon.   Interest on the Senior Notes ispayable semi-annually on May 1 and November 1.  The Senior Notesare unsecured and rank equally.  As of June 30, 2009 and September 30,2008, aggregate accrued and unpaid interest on the Senior Notes was$6.0 million and $15.1 million, respectively.  The Senior Notes, which mature on May 1,2012, are redeemable at SGC’s option in whole or in part at any time after May 1,2008 at the redemption prices set forth in the Senior Notes Indenture, aresubject to redemption requirements imposed by gaming laws and regulations andare required to be repurchased by SGC at the option of holders upon certainchange of control events.

 

TheSenior Notes Indenture contains certain negative and affirmative covenants. Thenegative covenants include limitations on restricted payments and theincurrence of indebtedness, while the affirmative covenants include reportingobligations and compliance with laws.  Asof June 30, 2009, SGC was in compliance with all covenants in theIndenture.  Reference is made to “Note 6— Legal Proceedings — Seneca Gaming Authority Proposed Notices of Violationissued to the Seneca Gaming Corporation and Employees dated July 13, 2009”regarding certain alleged violations of the Class III Gaming Ordinance, Compactand Charter.

 

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**SeniorSecured Revolving Loan Agreement**

 

Effective June 19, 2008, SGC entered into a $50.0million Senior Secured Revolving Loan Agreement, which matured on June 19,2009, subject to extension by SGC at its election (at any time after the sixmonths anniversary of the closing date and prior to June 19, 2009) for anadditional period of six months provided that no default or event of defaultexisted at the time of election.  On June 11,2009, SGC exercised this election. Amounts borrowed under the Senior Secured Revolving Loan Agreement bearinterest at either one, three or six-month LIBOR plus one and one quarterpercent (1.25%), or the prime rate (as reported in *The Wall Street Journal*) plus one quarter percent (0.25%).  Any outstanding principal balance shall bepaid by, or on, the maturity date.

 

SGC’sobligations under the Senior Secured Revolving Loan Agreement are secured bysubstantially all gaming and related assets (including substantially all gamingrevenues) not constituting real property or improvements.  SGC’sobligations are guaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations are securedby substantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements.

 

TheSenior Secured Revolving Loan Agreement contains certain financial covenantsrequiring minimum consolidated EBITDA of $160 million (on a rolling 12 monthbasis) and compliance with certain leverage and coverage ratios. The SeniorSecured Revolving Loan Agreement also contains additional customary covenants,including covenants restricting the incurrence of additional indebtedness, thecreation of additional liens and the disposition of assets.  Reference is made to “Note 6 — Legal Proceedings - SenecaGaming Authority Proposed Notices of Violation issued to the Seneca GamingCorporation and Employees dated, July 13, 2009.” As of June 30,2009, SGC was in compliance with all covenants in the Senior Secured RevolvingLoan Agreement. Reference is made to “Note 6 — Legal Proceedings - Seneca Gaming Corporationand Employees dated July 13, 2009” regarding certain alleged violations of theClass III Gaming Ordinance, Compact and Charter.

 

As of June 30, 2009, at SGC’s request, the lenderunder the Senior Secured Revolving Loan Agreement had issued letters of credittotaling $19.6 million, $13.2 million of which may be drawn upon to fund thepurchase of certain parcels within the 50 acre “footprint” described in theCompact with New York State and designated for ownership by the Nation, withthe remaining $6.4 million issued in connection with worker’s compensationpolicies and certain other contracts, as required.  On October 29, 2008, SGC borrowed $20.0 millionunder the Senior Secured Revolving Loan Agreement.  During the third quarter of fiscal year 2009,SGC paid $20.0 million on the Senior Secured Revolving Loan Agreement, leavingno outstanding balance at June 30, 2009.

 

**Fair Value of Debt**

 

The fair value of debt is estimated based on thecurrent rates offered to SGC for debt of the same remaining maturities.  As of June 30, 2009 and September 30,2008, the carrying amount of long-term debt is approximately $497,110,000 and$496,353,000, respectively.  As of June 30,2009 and September 30, 2008, the fair value of long-term debt isapproximately $430,000,000 and $420,000,000, respectively.

 

**5.****                                     ****Related-Party Transactions**

 

**Distributions**

 

Distributionsto the Nation, as described below, consist of the following:

 
| ** **                            | ** ** | **Nine Months Ended  June 30,** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **2009**                                       | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(In Millions of Dollars)**    | ** ** |
| Cash distributions                    |       | $                                              | 33.2       |   | $ | 36.3 |   |
| Distribution Agreement  distributions |       | 10.7                                           |       | 14.9 |   |
|                                  |       | $                                              | 43.9       |   | $ | 51.2 |   |

 

*CashDistributions*

 

·                  SGC paid cash distributions to the Nation in the amount of $4 millionper month from October 2008 through February 2009, and $3 million permonth from March 2009 through June 2009, totaling $32 million.  In addition, in November 2008, SGC paidan additional $1.2 million distribution to the Nation.

 

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·                  In July 2008, SGC declared cash distributions to the Nation totaling$20 million, of which $10 million was payable in each of fiscal year 2009 and2010.  These amounts were to be payablein ten equal monthly payments of $1 million beginning October 1, 2008 and2009, respectively.  During the ninemonths ended June 30, 2009, SGC paid cash distributions of $5 million tothe Nation pursuant to the foregoing distribution declarations.  In February 2009, the Nation passed aresolution rescinding its July 2008 distribution request, and SGCrescinded its related distribution declaration. Distributions paid in accordance with SGC’s July 2008 resolutionwere then applied toward future distributions. In March and April 2009, SGC applied $3 million and $2million, respectively, previously distributed to the Nation pursuant to theSGC’s July 2008 declaration toward the regular monthly distributions thatwould otherwise have been made during those months.

 

·                  SGC paid cash distributions to the Nation in the amount of $4 millionper month from October 2007 through June 2008, totaling $36million.  In addition, SGC paid anadditional $0.3 million in distributions to the Nation during the nine monthsended June 30, 2008.

 

*Distribution Agreement Obligations*

 

·                  During the nine months ended June 30, 2009 and 2008, SGCdistributed $10.7 million and $14.9 million, respectively, to the Nation underthe Distribution Agreement, dated April 27, 2007, relating to the SenecaNation of Indians Capital Improvements Authority’s special obligation bonds(See Note 6).

 

**SGC has recorded approximately $59.2 million in landand related acquisition costs as ‘Other long-term assets’ in the accompanyingconsolidated balance sheets as of June 30, 2009, which are expected to betransferred to the Nation in the future at cost.**

** **

**Operating Lease Agreements**

** **

*Head Leases:*

 

TheNation has entered into operating lease agreements (each a Head Lease) witheach of SNFGC, STGC and SEGC.  Due to therelated party nature of these Head Leases, which can be effectively modified bythe Nation, SGC records monthly Head Lease expense equal to the requiredpayment amount for the respective month. Payment increases under the Head Leases are restricted under the termsof the Indenture governing the Senior Notes and the Distribution Agreementreferenced in Note 6.  The Head Leasescontain no renewal options or escalation clauses.

 

Expensesresulting from the above Head Lease agreements were as follows for the threeand nine months ended June 30, 2009 and 2008:

 
| ** ** | ** ** | **Three Months Ended  June 30,** | ** ** | **Nine Months Ended  June 30,** | ** ** |
|------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **2009**                                        | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** ** | ** ** | **(Dollars in Millions)**             | ** ** |
| SNFGC      | ** ** | $                                               | 9.0        |                                           | $          | 6.1 |   | $ | 27.1 |   | $ | 18.3 |   |
| STGC       | ** ** | 6.0                                             |       | 5.1                                            |       | 18.0 |   | 15.2 |   |
| SEGC       | ** ** | 4.0                                             |       | 4.3                                            |       | 11.9 |   | 13.0 |   |
|       |       | $                                               | 19.0       |                                           | $          | 15.5 |   | $ | 57.0 |   | $ | 46.5 |   |

 

SNFGC,STGC and SEGC record the Head Lease costs as a component of advertising,general and administrative costs in the accompanying consolidated statements ofincome.

 

Seneca Niagara Falls Gaming Corporation

 

The SNFGCHead Lease (dated October 25, 2002) which expires on December 31,2023 and covers use of the land and certain improvements existing at thecommencement of such Head Lease, principally including structures formerlyknown as the Niagara Falls Convention Center and Lackey Plaza.  Effective October 1, 2007, the monthlypayments were $1,365,909 per month, as approved by the board of directors ofSGC and SNFGC.  Pursuant to the terms ofthe Amended and Restated SNFGC Head Lease entered into on March 27, 2008,and effective October 1, 2007, payments were further increased, at therequest of the Nation, to $2,033,333 per month, with such increase effective asof October 1, 2007.  On August 1,2008, at the request of the Nation, SGC approved an increase in the 

 

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SNFGCHead Lease to $3,083,333 per month, effective October 1, 2008, and to$3,666,667 per month, effective October 1, 2009.  On March 19, 2009 SNFGC entered into anamendment to the foregoing Head Lease agreement with the Nation, which reducedpayments to $3,007,208 per month effective October 1, 2008 and eliminatedthe increase that would have taken effect as of October 1, 2009.

 

Seneca Territory Gaming Corporation

 

TheSTGC Head Lease (effective as of May 1, 2004) which expires on December 31,2023 and covers use of the land which is currently being used in operating theSeneca Allegany Casino and Hotel. Effective October 1, 2007, the monthly payments were $1,365,909, asapproved by the board of directors of STGC. Pursuant to an amendment to the STGC Head Lease entered into on March 27,2008, and effective as of October 1, 2007, the payments were increased, atthe request of the Nation, to $1,691,667 per month.  On August 1, 2008, at the request of theNation, SGC approved increases in the payments under the STGC Head Lease to$2,166,666 per month effective October 1, 2008, and to $2,666,667 permonth effective October 1, 2009.  OnMarch 19, 2009 STGC entered into an amendment to the foregoing Head Leaseagreement with the Nation, which reduced payments to $2 million per montheffective October 1, 2008 and eliminated the increase that would havetaken effect as of October 1, 2009.

 

SenecaErie Gaming Corporation

 

TheSEGC Head Lease (effective as of April 1, 2006) which expires on December 31,2023 and covers use of the land which is currently being used in operating theSeneca Buffalo Creek Casino.  Effective October 1,2007, the monthly payments were $1,287,500, as approved by the board ofdirectors of SEGC.  Pursuant to anamendment to the SEGC Head Lease entered into on March 27, 2008, andeffective as of October 1, 2007, the payments were increased, at the requestof the Nation, to $1,441,667 per month. On August 1, 2008, at the requestof the Nation, SGC approved an increase in the payments under the SEGC HeadLease to $1,500,000 per month effective October 1, 2008 andthereafter.  On March 19, 2009 SEGCentered into an amendment to the foregoing Head Lease agreement with theNation, which reduced payments to $1,326,125 per month effective October 1,2008.

 

In connection with the March 19, 2009 HeadLease amendments described above, for purposes of compliance with its Indenturegoverning the Senior Notes and the Distribution Agreement, SGC obtained anddelivered to Wells Fargo, N.A. (as trustee under the Indenture governing theSenior Notes) written fair market value rent opinions from an independentfinancial advisor with regard to the SNFGC and STGC Head Lease amendments (asrequired by the Indenture).  The SEGCHead Lease amendment reflects a 3% per annum (for two years) increase in rentas permitted by the Indenture.  TheCorporation also delivered to Wells Fargo, N.A. (as trustee under the indenturegoverning the Nation’s municipal bonds and a party to the DistributionAgreement) an additional certification required pursuant to the DistributionAgreement.  Further or additionalincreases in rent payable under the Head Lease agreements are restricted underthe terms of the Corporation’s Indenture governing its Senior Notes and theDistribution Agreement, and are subject to compliance with all applicablecontractual commitments of the Corporation and the Nation, such that no increase may contravene, or constitutea default under any agreement, indenture, instrument or other commitmentlegally binding upon the Nation, SNFGC, STGC or SEGC, respectively, or to whichthe premises (described in the Head Leases) are subject.

 

*Class IIPoker Leases:*

 

SNFGCand STGC lease space within the Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively, for operation of poker rooms by SenecaGaming & Entertainment, a Class II business enterprise of the Nation.  For the three months ended June 30, 2009and 2008, SGC recorded $0.2 million of poker room rental income and fees, andfor the nine months ended June 30, 2009 and 2008, SGC recorded $0.6million of rental income and fees.  At June 30,2009, SGC has recorded $0.3 million as a receivable from the Nation relating topoker room rentals and fees as a component of receivables, net in theaccompanying consolidated balance sheets.

 

*OtherLease:*

 

STGCleases office space in a building owned in part by the brother of a member ofSGC’s Board of Directors**. **For the three months ended June 30,2009 and 2008, such operating lease expense totaled $63,000,and for the ninemonths ended June 30, 2009 and 2008, such operating lease expense totaled$189,000 and $191,000, respectively.

 

**OtherRelated Party Transactions**

 

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*ConstructionServices:*

 

SNFGC,STGC and SEGC have each entered into construction management agreements withSeneca Construction Management Corporation, or SCMC, for certain renovationsand capital improvements at Seneca Niagara Casino and Hotel, Seneca AlleganyCasino and Hotel, and Seneca Buffalo Creek Casino, respectively.  SCMC is wholly owned by the Nation.  For the three months ended June 30, 2009and 2008, SNFGC, STGC and SEGC have collectively made payments to SCMC forconstruction management and related fees of $0.2 million and $1.5 million,respectively, and for the nine months ended June 30, 2009 and 2008, SNFGC,STGC and SEGC have collectively made payments to SCMC for constructionmanagement and related fees of $1.8 million and $3.0 million,respectively.  Such fees reflect theamounts earned by SCMC for the performance of construction management services.Additional amounts paid to SCMC are passed-through and used to paysubcontractors, reimbursements for out-of-pocket expenses and similar costs.

 

*Regulatory Services:*

 

SGC is charged by the Nation for its costs incurred related to theoperation of SGA gaming regulatory services. These include:  a) costs incurredsolely and directly in connection with regulatory services and oversight ofSGC’s gaming operations and which are therefore 100% allocable to SGC; and b)an administration fee, assessed by the Nation for costs indirectly incurred inconjunction with the operation and regulation of the Corporation, which isfixed as a percentage of direct costs, currently set at 29.56%, as determinedby the Nation in its performance of administration of the SGA and its oversightof the Company.  Such costs wereapproximately $2.5 million for the three months ended June 30, 2009 and2008, and $7.6 million and $8.3 million for the nine months ended June 30,2009 and 2008, respectively.

 

SGC is also charged by the Nation for its costs incurred related toservices provided by the New York State Racing and Wagering Board, New YorkState Police, Seneca Nation of Indians Marshals, Buffalo Police****and Cattaraugus County Sheriff Department solely anddirectly in connection with SGC’s operations, which costs were approximately$2.6 million and $3.1 million for the three months ended June 30, 2009 and2008, respectively, and $8.4 million and $8.1 million for the nine months endedJune 30, 2009 and 2008, respectively.

 

At June 30, 2009 and September 30, 2008, approximately $32.6million and $27.9 million, respectively, were recorded as “accrued regulatorycosts” in the accompanying consolidated balance sheets, for the payment of suchNew York State related regulatory costs.

 

*Other:*

 

SNFGC,STGC, and SEGC, through the Corporation’s competitive bidding process, havepurchased goods and services from DRJ Enterprises, which is owned by thebrother-in-law of Barry E. Snyder, Sr., who served as Chairman of SGC’sBoard of Directors until March 13, 2009 and as a member of the Board ofDirectors until March 19, 2009. Payments to DRJ Enterprises totaled $7,000 and $238,000 for the threemonths ended June 30, 2009 and 2008, respectively, and $65,000 and$555,000 for the nine months ended June 30, 2009 and 2008, respectively.

 

**6.**                                      Commitments and Contingencies

** **

**Distribution Agreement Obligations**

 

On April 27,2007, SGC entered into a Distribution Agreement among the Nation, the SenecaNation of Indians Capital Improvements Authority, or the Authority, SGC andWells Fargo Bank, as Trustee, in connection with the Authority’s issuance intwo series (one tax exempt and the other taxable) of an aggregate principalamount of $159,495,000 special obligation bonds, or the 2007 NationBonds.  The Distribution Agreement obligates SGC, subject to anycontractual restrictions applicable to SGC (including, but not limited to,those contained in the Senior Notes Indenture), to make monthly distributionsto the Nation at the times and in the amounts necessary to enable the Authorityto pay the debt service on the 2007 Nation Bonds as required under theAuthority’s indenture.  At the direction of the Nation and the Authority,SGC pays such distributions directly to the Trustee.  The Authority’s debtservice commenced on June 1, 2007.  For the period from June 1,2007 through November 1, 2007, the Authority’s debt service averagedapproximately $0.9 million per month. For the period from December 1, 2007through June 1, 2008, the Authority’s debt service averaged approximately$1.7 million per month.  In June 2008,it was determined that the amortization (debt service) schedule upon which theforegoing $1.7 million monthly payments was made, was incorrect.  A corrected amortization schedule wasprovided and, after giving effect to a resulting credit for 

 

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amountsoverpaid, for the period from January 1, 2008 through December 1,2023, the Authority’s debt service averages approximately $1.2 million permonth. The foregoing debt service averages are based on scheduled payments ofinterest and principal under the Authority’s indenture and bonds and do notaddress the effects of any earlier call for redemption, by acceleration orotherwise.  The Distribution Agreement provides that neither the Trusteenor the Authority’s bondholders will have any recourse under the DistributionAgreement to any revenues, assets or property of SGC or its subsidiaries shouldSGC fail to comply with its distribution obligations.  For the nine months ended June 30, 2009and 2008, SGC distributed to the Nation $10.7 million and $14.9 million,respectively, for the Authority’s debt service on the special obligation bonds.

 

**The Seneca Nation Compact**

** **

As part of its Compact, the Nation agrees to contribute to the State ofNew York a portion of the proceeds from the operation and conduct of eachcategory of Gaming Device for which exclusivity exists, based on the win ofsuch machines (cash dropped into machines, after payouts but before expenses)and totaled on a cumulative quarterly basis to be adjusted annually at the endof the relevant calendar year.  However,beginning in February 2005, the Company began advancing to the Nation on amonthly basis the exclusivity fee due for the prior month.  The exclusivity fee to the State of New Yorkfor years 1—4 (through December 31, 2006), was 18.0%, payable on an annualbasis. Thereafter, the exclusivity fee is 22% for years 5—7 (through December 31,2009), payable on a semi-annual basis and 25.0% for years 8—14 (through December 31,2016), payable on a quarterly basis.

 

Forthe three months ended June 30, 2009 and 2008, total exclusivity fees were$27.6 million and $30.4 million, respectively. The $27.6 million exclusivity fee incurred during the three months endedJune 30, 2009 consisted of $17.6 million attributable to the operation ofSNFGC, $7.6 million attributable to the operation of STGC and $2.4 millionattributable to the operation of SEGC. The $30.4 million exclusivity fee incurred during the three months endedJune 30, 2008 consisted of $20.2 million attributable to the operation ofSNFGC, $8.2 million attributable to the operation of STGC and $2.0 millionattributable to the operation of SEGC.

 

Forthe nine months ended June 30, 2009 and 2008, total exclusivity fees were$78.2 million and $85.3 million, respectively. The $78.2 million exclusivity fee incurred during the nine months ended June 30,2009 consisted of $50.9 million attributable to the operation of SNFGC, $20.8million attributable to the operation of STGC and $6.5 million attributable tothe operation of SEGC.  The $85.3 millionexclusivity fee incurred during the nine months ended June 30, 2008consisted of $57.7 million attributable to the operation of SNFGC, $22.5million attributable to the operation of STGC and $5.1 million attributable tothe operation of SEGC.

 

**Expansion and Development**

** **

As described in Note 1, the Compact provides the Nation the exclusiveright to conduct Class III gaming activities at three sites in the westernregion of the State of New York, subject to certain limited exceptions.  The Company opened its third Class III casinoon July 3, 2007 in a temporary facility in Buffalo, New York.

 

On August 27, 2008, the construction activities at Seneca AlleganyCasino and Hotel and Seneca Buffalo Creek Casino, each described below, weresuspended for reasons including:  theeconomic recession; inability to obtain construction financing at reasonableinterest rates; and operating and other demands on our available cash, such asour payments to the Nation.  As of June 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, it is unlikelyconstruction will resume in the foreseeable future.  Furthermore, certain planning efforts relatedto the future expansion of the Seneca Niagara Falls property have been suspendedfor the same reasons.  As a result ofthese circumstances and in accordance with SFAS 144, an impairment charge of$109.0 million was recognized at June 30, 2009.  Nonetheless, SGC will continue to explorealternative future expansion and development options.

 

*Seneca Niagara Falls Casino and Hotel. *In 2006, we began master planning activities for theremaining approximately 24 acres of undeveloped land contained in the NiagaraFalls footprint.  As discussed above,these master planning activities have been suspended due to the continuation ofweak economic conditions, adverse credit market conditions and an uncertaineconomic outlook.  As of June 30,2009, the Company had incurred $3.5 million related to these master planningactivities, for which an impairment charge was recognized in order to write offthese costs as they do not currently represent any future value or providefuture benefit to the Company.

 

*Seneca Allegany Casino and Hotel. *On March 30, 2007, STGC officially opened its 212room resort hotel, including two fine dining restaurants, a 24-hour casualrestaurant and certain other amenities, at the Seneca Allegany 

 

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Casino and Hotel.  This expansionfollowed the December 28, 2006 official opening of the permanent gamingfloor. The approximate cost of constructing and equipping the hotel andexpansion project was $169.0 million.  InMarch 2008, STGC completed the conversion of the former temporary casinoat the Seneca Allegany Casino and Hotel into a 120,000 square foot eventscenter, and additional administration space, at a cost of approximately $29.3million.  The next phase of construction,which commenced in April 2008 and was suspended as noted above, providesfor an additional 200 room hotel, 31,000 square feet of additional gaming spaceand related amenities, and landscaping and exterior façade enhancements to theproperty as a whole.  As of June 30,2009, the Company had incurred $18.2 million related to this phase ofconstruction, for which an impairment charge was recognized in order to writeoff these costs as they do not currently represent any future value or providefuture benefit to the Company.

 

*Seneca Buffalo Creek Casino. *On July 3, 2007, the Company opened a temporary Class IIIgaming facility at the Seneca Buffalo Creek Territory site (6,000 square feetincluding 135 slot machines and a snack bar) at a cost of approximately $6.8million.  In March 2008, the Companycompleted a 109 slot machine expansion (for a total of 244 slot machines) ofthe temporary Seneca Buffalo Creek Casino.  The permanent Seneca BuffaloCreek Casino and Hotel, construction of which is currently suspended, wasanticipated to open in Summer 2010 and was expected to initially feature 90,000square feet of gaming space with approximately 2,000 slot machines, 45 tablegames and a 22-story all suite hotel with approximately 206 rooms.  Planned amenities included a pool, spa andsalon, four restaurants, meeting rooms, a retail outlet and a 2,200-spaceparking garage.  As of June 30,2009, the Company had incurred $87.4 million on the construction of thepermanent casino and hotel, for which an impairment charge was recognized inorder to write off these costs as they do not currently represent any futurevalue or provide future benefit to the Company.

 

*Seneca Hickory Stick Golf Club. *In July 2007, the Company commenced constructionof the Seneca Hickory Stick Golf Club, an 18-hole Robert Trent Jones IIdesigned golf course. The golf course is located in Lewiston, New York and isapproximately eight miles from the Seneca Niagara Casino and Hotel.  Completion of golf course construction iscurrently scheduled for late Summer 2009. To allow for contractor delays causedby various factors and proper grow-in of the course, it is anticipated that theofficial opening of the course will occur in Spring 2010. The decision as towhen to open the golf course for play will depend upon how well the coursematures throughout the 2009 growing season. As of June 30, 2009, theCompany has incurred $19.1 million for the purchase of land and construction,with a total cost to construct the golf course, clubhouse and related amenitiesestimated to be approximately $25.5 million.

 

**Legal Proceedings**

 

*Citizens Against Casino Gambling in Erie County v. Hogen(1:2009-cv-00291 (WDNY)) — CACGEC III*

 

OnMarch 31, 2009 , Citizens Against Casino Gambling in Erie County  (CACGEC) filed a third action in the UnitedStates District Court, Western District of New York against the Chairman of theNational Indian Gaming Commission, or NIGC, the United States Department ofInterior, the NIGC, the Secretary of the Interior and the President of theUnited States.  The action seeksdeclaratory and injunctive relief under the Administrative Procedure Act, theDeclaratory Judgments Act, and the Indian Regulatory Gaming Act and isprincipally directed at the decision by the NIGC Chairman, on January 20,2009, to approve the Seneca Nation’s amendments to its Class III GamingOrdinance regarding the Nation’s Buffalo Creek Territory.  The NIGC Chairman concluded that IGRA’sgeneral prohibition against gaming on lands acquired after its enactment in1988 does not apply to lands, such as the Buffalo Creek Territory, that areheld in restricted fee.  The plaintiffsclaim that, in approving the Nation’s Class III Gaming ordinance on January 20,2009, the NIGC Chairman ignored the intention of Congress.  The plaintiffs also make several claims thatgo beyond their prior lawsuits.  Mostnotably, they challenge the constitutionality of the land purchase provisionscontained in the Seneca Nation Settlement Act of 1990 (“SNSA”), and attempt tochallenge in a more extensive fashion than they had previously the validity ofthe Nation-State Gaming Compact.

 

OnJune 15, 2009, the Nation moved to intervene as a defendant in CACGECIII.  The Nation’s proposed interventionand participation as a defendant are expressly restricted to the three claimsfor relief specified in the plaintiffs’ complaint, namely:  (1) whether, as restricted fee landsover which the Nation exerts governmental authority, the Buffalo CreekTerritory qualifies as “Indian lands” under IGRA; (2) whether the Buffalo CreekTerritory is subject to the general prohibition found in section 2719 of IGRAagainst gaming on trust lands acquired after IGRA’s effective date even thoughthe Territory consists of restricted fee, rather than trust, lands; and (3) whether,if the Buffalo Creek Territory is subject to Section 2719’s generalprohibition, Class III gaming may nevertheless proceed on it because theBuffalo Creek Territory was acquired in settlement of a land claim.

 

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Theplaintiffs are opposing the Nation’s motion and as of August 14, 2009, theNation’s motion was still pending before the Court.

 

Ifthe plaintiffs ultimately succeed in this action, or in their pending appealsin the CACGEC I and CACGEC II proceedings, the SGC may be unable to conduct anyClass III gaming at its existing properties.

 

***SenecaGaming Authority Proposed Notices of Violation issued to the Seneca GamingCorporation and Employees dated July 13, 2009.***

 

**Summary**

 

On July 14,2009, SGC received a proposed Notice of Violation dated July 13, 2009, orthe 2009 NOV, from the Seneca Gaming Authority, or the SGA, alleging fifteenviolations of certain sections of the Class III Gaming Ordinance and theSeneca Nation of Indians-State of New York Compact, (“Compact”), as well as ourCharter.  In addition to SGC, elevenemployees received similar notices arising out of the same set of facts,alleging from five to twelve violations of the provisions noted above.  Each of the alleged violations isattributable to SGC’s accounting treatment of an alleged table games inventory(i.e., gaming chips) discrepancy of $25,971 that arose due to a single humanerror during an ordinary course table games move on April 3, 2009.  The notices from the SGA indicate that eachof the alleged violations carries with it a potential fine of $500 per day perviolation imposed from the date of the initial alleged infraction, April 3,2009, or approximately $1,000,000 for the SGC and approximately $8,000,000 inthe aggregate for the eleven individuals as of August 14, 2009.

 

As more fullydescribed below, the alleged accounting discrepancy was properly documented inSGC’s accounting records and had a net effect of zero at the close of thereporting period and at no time was the applicable inventory unaccounted for orat risk of misappropriation or loss. Subsequent to receipt of the proposed NOVs, a review byPricewaterhouseCoopers, serving as our internal auditors, supports SGC’sconclusion that:  (1) SGC’s internalcontrols immediately identified the alleged discrepancy; (2) the allegeddiscrepancy was documented and resolved through proper procedures and protocols(including notification of the SGA); (3) an appropriate audit trail wascreated for all adjustments that were made; (4) assets were appropriatelysafeguarded, and (5) duties were appropriately segregated.  SGC is currently awaiting a response from theSGA with regard to whether final proposed NOVs will be issued, after which timeeach recipient will have 30 days to appeal. In the event final proposed NOVs are issued by the SGA, for the reasonsnoted above, and numerous additional substantive and procedural issues relatingto the merits of the proposed violations, the scope of the recipients, and theamounts of the proposed fines, SGC intends to vigorously defend itself, andintends to fully support the defense of its employees in this matter.  Notwithstanding SGC’s position that no violationsoccurred, given the potential significance of the actions taken by the SGA todate, we include below a more detailed description of this matter.

 

**SupplementalDescription of Facts**

 

On April 3,2009 an error occurred during the relocation of certain game tables at ourSeneca Niagara Casino & Hotel in which the table games manager forsuch tables failed to remove inventory (i.e., gaming chips) from the tablesinvolved in the relocation and transport the inventory to the cage prior tomoving the tables.  Rather, the inventoryon the tables remained and in certain instances was subsequently assigned tonew table numbers when the tables were relocated.  As a result, the closing inventory of anygiven numbered table on the shift prior to the move did not match the openinginventory of the re-numbered tables subsequent to the move.  In order to open the tables in our electronicaccounting system, ACSC, the inventory for each table had to be adjusted suchthat the closing inventory for the prior shift and the opening inventory on theopening shift of relocation were the same. This adjustment resulted in adiscrepancy of $25,791 in the recorded electronic inventory vis-a-vis thephysical inventory on the tables at the time of the relocation**. **However, at no timewere the gaming chips not under our control, nor were such assets at risk ofmisappropriation or loss.  The effect ofthe discrepancy was an understatement of revenue on April 2, 2009 and acorrecting and exactly corresponding overstatement on April 3, 2009,resulting in a net effect of zero at the close of the reporting period.  Upon further review, and upon discussion withthe SGA, the inventory of each table was again adjusted such that each table’sopening inventory matched the physical inventory on the tables at that time,and consequently did not match the closing inventory of the table prior to therelocation.  This adjustment alsoresulted in a discrepancy of $25,791. These known, identified variances were appropriately documented in, andsupported by, the accounting records.

 

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As a result of theevents on April 3, 2009, the 2009 NOV alleges that we and the namedemployees violated certain provisions of the Class III Gaming Ordinanceand the Compact as well as one provision of our charter. Specifically, the NOValleges violations of provisions pertaining to:

 

(i) the maintenanceof books and records (a) sufficient to establish the amount of gross andnet income, deductions and expenses and other information required in anyfinancial statement, report or other accounting prepared, (b) toaccurately and fairly reflect each day’s transactions, including but notlimited to the receipt of funds, expenses, prize claims, so as to permitpreparation of monthly and annual financial statements in conformity withGenerally Accepted Accounting Principles, or GAAP, (c) pertaining to the Class IIIgaming operation, including, but not limited to accounting records and (d) ofall transactions pertaining to the company’s revenues and expenses, assets,liabilities and equity in conformance with GAAP;

 

(ii) the knowingsubmission of false or misleading information to the regulatory authorities inresponse to any provision of applicable law;

 

(iii) themaintenance of a system of internal controls designed to ensure that the assetsof the company are safeguarded, that the accountability for assets ismaintained in accordance with GAAP, that only authorized personnel have accessto assets and that the functions, duties and responsibilities are appropriatelysegregated and performed in accordance with sound practices by competent,qualified personnel and the training of the company’s personnel in allaccounting and internal control practices and procedures relevant to eachemployee’s function;

 

(iv) certaintechnical and procedural requirements pertaining to the storage of inventorywhen a table is not in use, the generation and storage of “fills” and “credits”in such a way that the data is not susceptible to change or removal afterpreparation and the maintenance of drop boxes corresponding to each gamingtable; and

 

(v) theestablishment and installation by the company’s board of directors of anaccounting system (a) in conformity with accounting principles generallyaccepted in the gaming industry and (b) necessary and advisable, in thereasonable discretion of the board of directors, in order to manage the assetsof the company and the gaming assets of the Nation, which accounting systemshall ensure the availability of information as may be necessary to comply withthe Compact and with applicable Nation and federal regulatory requirements.

 

The NOV alleges fifteenviolations in total. As a result of the alleged violations, SGA proposed finesof $500.00 per day, per violation, from the date of the infraction, April 3,2009, for each of our company and for four of the eleven employees named in the2009 NOV. The remaining seven employees are cited for five to twelve of thefifteen alleged violations.  Further, the2009 NOV outlines six corrective measures to be taken, including establishingand implementing controls to prevent the manipulation of inventory accounting,segregating duties and limiting access to certain records, developing protocolfor table game projects, implementing procedures and controls to ensureseparation of duties within the income audit department and training allemployees on policies for conducting table games projects.

 

We and the eleven namedemployees responded to the proposed NOVs in writing within the five daysprescribed by the SGA’s Notice of Violation and Enforcement Procedures.  In our response, we state that despite theisolated instance of human error, we maintain adequate internal controls andprocedures and, in fact, such controls and procedures were effective inenabling us to address and rectify the error to the best of our ability.Accordingly, we dispute each of the fifteen violations cited in the NOV in ourresponse.

 

We maintain in ourresponse letter that once the error occurred, our internal control processes,which include appropriate segregation of duties, were followed diligently andeffectively.  Immediately upon detecting thatthe table closers for five of the tables were incorrect, our pit floorsupervisors sent error notification slips/discrepancy reports to theappropriate parties, including the SGA, pursuant to our Internal Controls andProcedures.  Also when the pit clerkcould not open certain tables in ACSC due to the differing closing and openinginventories, discussions to correct the issue ensued among our Tables GameManager, Cage Manager, the Casino Controller, the Casino Accountant and ourIncome Audit Department.  Further, as discussedabove, we self-reported to the SGA immediately upon discovering the error andmet with the SGA following****of theincident.

 

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Although we are confident that no violations occurred, and in thecorresponding determination to the same effect by PricewaterhouseCoopers, wecan provide no assurance that the SGA will agree with us.  According to the SGA Notice of Violation andEnforcement Procedures, we may receive a proposed final assessment within 10days of the issuance of the initial NOVs. Although such date has passed, according to the SGA Notice of Violationand Enforcement Procedures, “[f]ailure to serve the proposed final assessmenttimely shall not affect its validity”**.**  In accordance with the SGA Notice ofViolation and Enforcement Procedures, if a proposed final assessment is issuedby the SGA instead of a withdrawal or dismissal of the 2009 NOVs, the Companyand each of the individuals who receive a final proposed NOV will have thirtydays to file an appeal.  The appeal willbe heard by the SGA Commission.  It isunclear what appeal rights we may have, if any, from an adverse decision fromthe SGA Commission.  We have been incontinuous contact with the SGA since the issuance of the NOV and plan tovigorously defend the allegations set forth therein.

 

**7.****                                 ****Subsequent Events**

 

**Unsecured Construction Loan from Seneca Nation**

 

On August 8, 2009, the Nation offeredSEGC a $9 million unsecured loan.  Theproceeds will be used for purposes of expanding the Buffalo Creek Casinotemporary facility to include up to 250 additional slot machines. The loancarries an interest rate of 5% per annum with principal and interest payablemonthly over a 12 month period commencing on the 15th day of the calendar month following theopening of the expansion, currently estimated to occur in February 2010.  The note is prepayable at any time withoutpenalty.  The SEGC Board of Directors, onAugust 14, 2009, found such terms acceptable but SEGC has not yet executeda note for the loan.  SEGC is currentlyin the initial design stage for this expansion, and therefore, the finalbudget, construction timeline and the number of machines for the expandedfacility are being finalized.

 

**Appointment of Acting Treasurer and Acting Audit Committee Chairman**

** **

OnAugust 14, 2009, the SenecaGaming Corporation’s Board of Directors appointed Director Kevin W. Seneca asActing Treasurer of the Corporation and Acting Chairman of the Audit Committee.

 

**Item 2.**                                                           Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

** **

You should read thefollowing discussion and analysis in conjunction with the section titled“Financial Statements” and the accompanying “Notes to Consolidated FinancialStatements” included elsewhere in this Quarterly Report on Form 10-Q.  References below to years are to fiscal yearsof SGC unless otherwise noted.  SGC’sfiscal year is from October 1 through September 30.

 

**Forward-Looking Statements**

 

When used in thisQuarterly Report on Form 10-Q, in other filings with the SEC, in our pressreleases or in our other public communications, the words “believe,”“estimate,” “anticipate,” “expect,” “contemplate,” “may,” “will” and similarexpressions are intended to identify forward-looking statements.  Statements looking forward in time areincluded in this Quarterly Report on Form 10-Q pursuant to the “safeharbor” provision of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risksand uncertainties, which could cause actual results to differ materially,including, but not limited to, the risk factors contained or referenced hereinand in our other reports filed with the SEC pursuant to the Securities ExchangeAct of 1934, as amended, including our 2008 Form 10-K.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of theirrespective dates.  We undertake noobligation to update these forward-looking statements to reflect events orcircumstances occurring after their respective dates.

 

**Overview**

** **

SGC is wholly owned bythe Nation and chartered to develop, manage and direct all of the Nation’s Class IIIgaming operations on the Nation’s territories in Western New York. SGC waschartered by the Nation in August 2002. In August 2002, the Nation entered into the Compact with New YorkState that provides the Nation with the right to establish and operate three Class IIIgaming facilities in Western New York. We currently operate three Class III gaming facilities in WesternNew York—Seneca  Niagara Casino andHotel, which is located in the City of Niagara Falls, New York (NiagaraTerritory) and operated by SNFGC, approximately 20 miles north of Buffalo, NewYork; Seneca Allegany Casino and Hotel, which is located in the City ofSalamanca, New York (Allegany Territory) and operated by STGC, approximately 75miles northeast of Erie, Pennsylvania; and Seneca 

 

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Buffalo Creek Casino,which is located in the inner harbor district of Buffalo, New York (BuffaloCreek Territory) and operated by SEGC. Seneca Niagara Casino and Hotel openedon December 31, 2002 (initially, as the Seneca Niagara Casino).  Seneca Allegany Casino and Hotel opened on May 1,2004 (initially, as the Seneca Allegany Casino).  Seneca Buffalo Creek Casino commencedoperations on July 3, 2007 in a temporary facility.  Our three casinos are located on land held inrestricted fee by the Nation, which, together with the rights under theCompact, allows us to conduct Class III gaming operations at theselocations in New York State and to operate the only casino gaming facilities inWestern New York State to offer both Class III slot machines and tablegames.

 

**ExecutiveSummary**

 

***Our Current Operations.*****    We currently operate three Class IIIgaming facilities:  Seneca Niagara Casinoand Hotel, in the City of Niagara Falls, New York (Niagara Territory),featuring over 147,000 square feet of gaming space, 4,095 slot machines, 104table games and 604 hotel rooms; Seneca Allegany Casino and Hotel, in the Cityof Salamanca, New York (Allegany Territory), featuring over 63,500 square feetof gaming space, 2,310 slot machines, 41 table games and 212 hotel rooms; andthe Seneca Buffalo Creek Casino (slots only temporary facility), in the City ofBuffalo, New York (Buffalo Creek Territory), featuring 244 slot machines.  See “Executive Summary — Seneca Buffalo CreekCasino,” “Part II. Item 1. — Legal Proceedings,” and “2008 Form 10-KItem 3. — Legal Proceedings” for information regarding the status of, andlitigation related to, our Seneca Buffalo Creek Casino.  Our operations also include dining,entertainment, retail and spa and salon services.  For the three months ended June 30, 2009and 2008, and the nine months ended June 30, 2009 and 2008, approximately92% of our net revenue was derived from our gaming activities.

 

***Seneca Niagara Casino and Hotel****. *   Upon opening on December 31, 2002,Seneca Niagara Casino primarily relied on drive-in and bus patrons from theBuffalo, Niagara Falls, and Rochester areas in New York and secondarily fromErie, Pennsylvania, Ohio and other parts of New York.

 

In March 2006, SNFGC officially completed thephased opening of its luxury hotel expansion, which included a permanent147,000 square foot gaming facility (providing 35,000 square feet more gamingspace than the original 112,000 square feet), a 604 room luxury hotel with 118suites of various sizes, a full-service spa, salon, and fitness center, threefine dining restaurants (two additional) and a 24 hour casual restaurant, threenew retail stores, and a 25,200 square foot multi-purpose room and eventscenter.  The expansion of Seneca NiagaraCasino and Hotel, including the addition of our luxury hotel and otheramenities, has enabled us to attract higher-end patrons, increase length ofstay, and extend our geographic market penetration and appeal to a more diversedemographic base.

 

In 2006, we beganmaster planning activities for the remaining approximately 24 acres ofundeveloped land contained in the Niagara Falls footprint.  As of June 30, 2009, these masterplanning activities have been suspended due to the continuation of weakeconomic conditions, adverse credit market conditions and an uncertain economicoutlook.  As a result of thesecircumstances and in accordance with SFAS 144, an impairment charge wasrecognized related to these activities as of June 30, 2009.

 

***Seneca Allegany Casino and Hotel****.*   Since opening on May 1, 2004, Seneca Allegany Casino and Hotel hasattracted patrons from the southern portion of Western New York, Erie andPittsburgh, Pennsylvania and Ohio.  As ofJune 30, 2009, approximately 70% of the casino’s patron base is fromoutside of the State of New York.

 

In March 2007, weopened a 212-room resort hotel, including two fine dining restaurants, a24-hour casual restaurant and certain other amenities after officially openingthe new permanent gaming floor in December 2006.  In March 2008, we completed theconversion of the former approximate 120,000 square foot temporary casinostructure into an events center with a seating capacity for 2,200 people, alongwith additional administrative office space and amenities.  We believe the new resort hotel, permanentcasino and events center provide a first-class gaming experience for ourpatrons, helping to increase patrons’ length of stay and to maintain thecompetitive position of the facility in light of our closest and most immediatecompetition in Pennsylvania, Presque Isle Downs, a relatively new gamingfacility that opened in late February 2007 in Erie, Pennsylvaniaapproximately 80 miles from the Seneca Allegany Casino and Hotel.  Presque Isle Downs has approximately 2,000slot machines and offers dining and entertainment options that include asteakhouse, a buffet and four lounges, but it does not offer table games orlodging.

 

Construction onour next phase of development at Seneca Allegany Casino and Hotel, which wasplanned to include an additional 200 room hotel tower, and up to 30,000 squarefeet of additional gaming space and related amenities, for a total estimatedcost of up to $130 million, was suspended for reasons including:  the continuing economic recession; inabilityto obtain construction financing at reasonable interest rates; and operatingand other demands on 

 

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our availablecash, such as our payments and distributions to the Nation.  As of June 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, it is unlikely construction will resume in theforeseeable future.  As a result of thesecircumstances and in accordance with SFAS 144, an impairment charge was recognizedfor costs incurred related to this project as of June 30, 2009.

 

***SenecaBuffalo Creek Casino****.    *On October 3, 2005, the Nationacquired approximately nine acres of land in the inner-harbor district ofBuffalo, New York.  On July 3, 2007,we began operating a temporary Class III gaming facility (approximately6,000 square feet) featuring 135 slot machines and a snack bar.  During the quarter ended March 31, 2008,the temporary facility was expanded to include an additional 109 slot machines.The current temporary facility is approximately 8,600 square feet, and features244 slot machines and a snack bar.

 

On October 3, 2007,we formally announced our plans for a permanent casino and hotel complex on theBuffalo Creek Territory having an estimated cost of $333 million, featuringapproximately 90,000 square feet of gaming space; 2,000 slot machines; 45 tablegames; a 22-story all suite hotel; four restaurants; a full-service spa andsalon; retail and other amenities; and a 2,200-space parking garage.

 

We suspended constructionon the permanent Seneca Buffalo Creek Casino and Hotel in August 2008 forreasons including:  the continuingeconomic recession; inability to obtain construction financing at reasonableinterest rates; and operating and other demands on our available cash, such asour payments to the Nation.  As of June 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, it is unlikelyconstruction will resume in the foreseeable future.  As a result of these circumstances and inaccordance with SFAS 144, an impairment charge was recognized for costsincurred related to this project as of June 30, 2009.

 

On August 8, 2009,the Nation offered SEGC a $9 million unsecured loan.  The proceeds will be used for purposes ofexpanding the Buffalo Creek Casino temporary facility to include up to 250additional slot machines.  The loancarries an interest rate of 5% per annum with principal and interest payableover a 12 month period commencing on the 15th day of the calendar month following theopening of the expansion, currently estimated to occur in February 2010.  The note is prepayable at any time withoutpenalty.  The SEGC Board of Directors, onAugust 14, 2009, found such terms acceptable but SEGC has not yet executed a notefor the loan.  SEGC is currently in theinitial design stage for this expansion, and therefore, the final budget,construction timeline and the number of machines for the expanded facility arebeing finalized.

 

Furthermore, our ability to continue to operate theSeneca Buffalo Creek Casino temporary facility will depend on various factors,including existing legal challenges and the availability of financing onacceptable terms.  Reference is made toour 2008 Form 10-K and to our Quarterly Report on Form 10-Q for thequarter ended March 31, 2009, for a description of the legal proceedingsrelating to the Seneca Buffalo Creek Casino. See also “Part II. Item 1 - Legal Proceedings” for additionaldevelopments

 

***Seneca Hickory Stick Golf Club —Lewiston, New York****.  *In March 2006, we acquired 257 acresof land with the intent to design and build a championship level golf course inLewiston, New York, approximately eight miles from Seneca Niagara Casino andHotel.  We selected the Robert Trent Jones II firm to design the golfcourse.  Construction of the golf course commenced in July 2007, withcompletion of construction scheduled for Summer 2009.  To allow for contractor delays caused byvarious factors and proper grow-in of the course, it is anticipated that theofficial opening of the course will occur in Spring 2010.  The decision as to when to open the golfcourse for play will depend upon how well the course matures throughout the2009 growing season.  As of June 30,2009, the Company has incurred $19.1 million in connection with the golfcourse.  The total cost to construct thegolf course, clubhouse and related amenities is estimated to be approximately$25.5 million.

 

***Key Performance Indicators.*****   Our operating results are dependent on the volume of patrons at ourcasinos, our ability to attract them for repeat visits and our ability toincrease patron revenue per trip.

 

***Marketing.****    *We use an integrated marketing strategy to attract andretain our patrons and to brand the Seneca name.  We coordinate our marketing events tomaximize the quality and length of stay of patron visits and to minimizecompetition among our gaming facilities. The luxury hotel and related amenities at the Seneca Niagara Casino andHotel and the resort hotel and related amenities at Seneca Allegany Casino andHotel further enhance our marketing initiatives in the region, including areasof New York outside of the Niagara Falls and Salamanca areas, in Pennsylvania,Ohio, and Toronto, Canada and in areas outside the region including Michigan,Massachusetts, and Connecticut.

 

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***Seasonality.***    We have generally observed seasonal increases in gaming activity duringthe spring and summer months and decreases in gaming activity during wintermonths associated with inclement weather.

 

***Overall Outlook****.*    SGC believes that it is the premier gaming operator in Western New YorkState and in the areas of Northern Pennsylvania and Ohio located within itsprimary and secondary markets. Since the December 31, 2002 opening of theSeneca Niagara Casino, SGC has invested significantly in the development,expansion and maintenance of its gaming facilities, including the completion ofthe hotel and gaming expansion projects at Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, and the opening of the temporary casino onthe Seneca Buffalo Creek Territory. These investments have enabled SGC to maintain its position as thepremier gaming operator in the region described above.  To further that objective, and to provide forexpanded opportunities in the convention and tourism markets, SGC will continueto explore opportunities with respect to the Niagara Falls, Allegany andBuffalo gaming and related facilities. A principal goal is for the facilitiesto complement each other, offering diverse hotel, entertainment and gamingexperiences for our guests.

 

Although thecurrent economic recession and increased regional competition continue topresent operational challenges, we believe our operating results continue toreflect our ongoing ability to weather such conditions, and on the Nation’sefforts to work with SGC to mitigate the impact of these adversedevelopments.  We also continue tobelieve, notwithstanding these challenges, the Class III gamingexclusivity provided by the Compact will continue to present us with acompetitive advantage to serve the Western New York hotel, entertainment and gamingmarkets.  As highlighted below in “RecentDevelopments,” we continue to engage in joint financing planning initiativeswith the Nation to assess our financial condition and liquidity needs, and tohelp ensure that appropriate strategic plans are being developed andimplemented to meet our liquidity and maintenance capital expenditurerequirements and the ongoing challenges presented by the current economicenvironment.  Management intends to continue to work closely with theNation to help ensure cash generated from operations, available cash and cashequivalents, short-term investments and cash available under our Senior SecuredRevolving Loan Agreement are sufficient to service our debt, satisfy our otherfinancial obligations and commitments and meet our working capital requirementsfor the remainder of the fiscal year.

 

***RecentDevelopments. ***Theongoing recession has continued to negatively impact our operating performanceand results, primarily due to reduced consumer discretionary spending and visitation,which has negatively impacted consumer spending on gaming andentertainment.  Over the past fifteenmonths, we have attempted to mitigate the effects of the economic recessionthrough implementation of expense reduction measures and efforts to increaseoperational efficiencies.  In December 2008,we implemented a multifaceted plan to further reduce expenses, including, butnot limited to: an approximate five percent temporary workforce reduction; awage freeze for all employees earning in excess of $70,000 per year; voluntarytemporary salary reductions for senior management; and suspension of our bonusprogram in 2008, which had historically been paid in December of eachyear.  While we have successfully reducedcertain expenses and increased certain operational efficiencies, we anticipatecontinuing to take measures to help preserve SGC’s financial condition,maintain adequate liquidity and position us for future growth and success, andendeavor to do so in a manner that will not compromise the quality or levels ofour offerings and services provided at each of our properties.

 

Followingdiscussions with the Nation, our payments and distributions to the Nation werereduced in an effort to enhance our liquidity position, provide cash forpriority maintenance capital expenditures and fund a reserve for potentialrepurchase or repayment of our senior debt. The measures resulting from the joint planning initiatives with theNation included principally, rescission of an earlier Council request for $20million relating to certain capital improvement projects of the Nation, areduction in monthly distributions to the Nation from the then-current level of$4 million per month to $3 million per month commencing in March 2009, thereturn of $5 million previously distributed to the Nation for the capitalimprovement projects described above (which has been used as a credit againstSGC’s monthly distribution obligations), and a $5 million reduction in rent forfiscal 2009 under the Corporation’s Head Leases.

 

During the third quarter of fiscal 2009, SGC paid$20.0 million on the Senior Secured Revolving Loan Agreement, leaving nooutstanding balance at June 30, 2009. SGC also exercised its election to extend the maturity date to December 19,2009.  As of June 30, 2009, at SGC’srequest, the lender under the Senior Secured Revolving Loan Agreement hadissued letters of credit totaling $19.6 million.

 

As previouslynoted, on August 27, 2008, the construction activities at Seneca AlleganyCasino and Hotel and Seneca Buffalo Creek Casino and Hotel were suspended forreasons including:  the economicrecession; inability to obtain construction financing at reasonable interestrates; and operating and other demands on our available cash, 

 

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such as ourpayments to the Nation.  As of June 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, it is unlikelyconstruction will resume in the foreseeable future.  Furthermore, certain planning efforts relatedto the future expansion of the Seneca Niagara property have been suspended forthe same reasons.  As a result of thesecircumstances and in accordance with SFAS 144, an impairment charge of $109.0million was recognized at June 30, 2009.

 

Althoughwe have suspended our construction for the foreseeable future on a number ofpermanent expansion plans, as discussed above, on August 8, 2009, the Nation offered SEGC a $9million unsecured loan.  The proceedswill be used for purposes of expanding the Buffalo Creek Casino temporaryfacility to include up to 250 additional slot machines.  The loan carries an interest rate of 5% perannum with principal and interest payable over a 12 month period commencing onthe 15th day of the calendar month following theopening of the expansion, currently estimated to occur in February 2010.  The note is prepayable at any time withoutpenalty.  The SEGC Board of Directors, onAugust 14, 2009, found such terms acceptable but SEGC has not yet executed anote for the loan.  SEGC is currently inthe initial design stage for this expansion, and therefore, the final budget,construction timeline and the number of machines for the expanded facility arebeing finalized.

 

**CriticalAccounting Policies and Estimates**

** **

There have been nochanges in critical accounting policies and estimates since the filing of our2008 Form 10-K.

 

**Reclassifications**

 

Certain prior yearamounts have been reclassified to conform to current year presentation.

 

**OperatingResults - Three Months Ended June 30, 2009 Compared to the Three MonthsEnded June 30, 2008**

** **

*Summaryof Operating Results*

 

Asof June 30, 2009, we own and operate the Seneca Niagara Casino and Hotelin Niagara Falls, New York; the Seneca Allegany Casino and Hotel in Salamanca,New York; and the Seneca Buffalo Creek Casino in Buffalo, New York.  In addition, Lewiston Golf Course Corporationwas established to operate a golf course which is currently under constructionin Lewiston, New York.  All of ourrevenues are derived from our operations at our completed facilities.

 

Thefollowing table summarizes our results from operations by corporation and/orfacility:

 
| ** **                            | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **June 30,**                    | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)** | ** ** |
| Net revenues:                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 98,591     |   | $ | 112,175 |   |
| Seneca Allegany Casino and Hotel      |       | 39,338                               |       | 44,094 |   |
| Seneca Buffalo Creek Casino           |       | 11,103                               |       | 9,402 |   |
| Total                                 |       | $                                    | 149,032    |   | $ | 165,671 |   |
|                                  |       |                                 |       |   |   |
| Operating expenses:                   | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 71,942     |   | $ | 76,310 |   |
| Seneca Allegany Casino and Hotel      |       | 54,104                               |       | 39,138 |   |
| Seneca Buffalo Creek Casino           |       | 95,391                               |       | 7,866 |   |
| Seneca Hickory Stick Golf Club        |       | 96                                   |       | 169 |   |
| Seneca Gaming Corporation             |       | 766                                  |       | 761 |   |
| Total                                 |       | $                                    | 222,299    |   | $ | 124,244 |   |
|                                  |       |                                 |       |   |   |
| Operating income (loss):              |       |                                 |       |   |   |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 26,649     |   | $ | 35,865 |   |
| Seneca Allegany Casino and Hotel      |       | (14,766                              | )          | 4,956 |   |
| Seneca Buffalo Creek Casino           |       | (84,288                              | )          | 1,536 |   |
| Seneca Hickory Stick Golf Club        |       | (96                                  | )          | (169 | ) |
| Seneca Gaming Corporation             |       | (766                                 | )          | (761 | ) |
| Total                                 |       | $                                    | (73,267    | ) | $ | 41,427 |   |

 

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The most importantfactors or trends contributing to our operating performance during the threemonths ended June 30, 2009 were:

 

·                  The reduction of expenses attributable toimplementation of operating initiatives, which included:  a continued focus on hotel yield management;reduced food and beverage costs as a percentage of food and beverage revenue;repricing of our food and beverage products; initiatives to increase our cashpaying patrons; reduced marketing costs; and labor efficiencies achievedthrough active monitoring of scheduling activities and a reduction inworkforce;

 

·                  The rescission of a Councilrequest for $20 million, a reduction in monthly distributions to the Nationfrom the current level of $4 million per month to $3 million per monthcommencing in March 2009, and a reduction in Head Leases payments forFiscal 2009 from $81 million to $76 million;

 

·                  Extension of hours of operation of theBuffalo Creek facility, effective February 2009;

 

·                  Increased promotional room rates offeredto casino hotel guests, designed to maintain occupancy levels to support gamingand non-gaming revenues;

 

·                  The effects of increased Head Leasepayments to the Nation from $62 million to $76 million, which have reduced ourcash reserves and funds available for construction, capital reinvestment andliquidity reserves;

 

·                  The ongoing economic recession, which hasreduced consumer spending and encouraged an apparent transition to gaming oflogistical convenience;

 

·                  Adverse credit market conditions whichhave reduced the availability, and increased the cost, of capital for expansionprojects to generate additional revenues;

 

·                  Recognition of an impairment charge inthe amount of $109 million related to costs incurred on certain constructionand development projects;

 

·                  Limited maintenance capital investment inboth our Niagara Falls and Allegany properties;

 

·                  Additional marketing by New York racinoswhich may be attributable, in part, to recent New York State legislationproviding financial support for marketing to racinos; and

 

·                  Recruitment and retention issuespertaining to key members of the management team, including, but not limitedto, the marketing department.

 

*GrossRevenues*

 

Gross revenuesconsisted of the following:

 
| ** **                      | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **June 30,**                    | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                          |       | $                                    | 153,162    |   | $ | 164,693 |   |
| Food and beverage               |       | 14,739                               |       | 16,295 |   |
| Lodging                         |       | 5,928                                |       | 7,277 |   |
| Retail, entertainment and other |       | 5,353                                |       | 6,169 |   |
| Total                           |       | $                                    | 179,182    |   | $ | 194,434 |   |

 

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The table belowsummarizes the percentage of gross revenues from each revenue source:

 
| ** **                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **June 30,**                | ** ** |
| ** **                      | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Gaming                          |       | 85.5                             | %          | 84.7 | % |
| Food and beverage               |       | 8.2                              | %          | 8.4 | % |
| Lodging                         |       | 3.3                              | %          | 3.7 | % |
| Retail, entertainment and other |       | 3.0                              | %          | 3.2 | % |
| Total                           |       | 100.0                            | %          | 100.0 | % |

 

*GamingRevenue*

 

Our gaming revenue forthe three months ended June 30, 2009 decreased when compared to the sameperiod in the prior year, primarily due to the impact of adverse economicconditions which reduced consumer demand for gaming and entertainmentofferings.

 

Our net gaming revenue,net of promotional credits of $16.0 million and $12.0 million in the threemonths ended June 30, 2009 and 2008, respectively, decreased $15.5million, or 10%, when comparing these periods. During the three months ended June 30, 2009, Seneca Niagara Casinoand Hotel’s net gaming revenue decreased $12.6 million, or 12%; Seneca AlleganyCasino and Hotel’s net gaming revenue decreased $4.5 million, or 11%; andSeneca Buffalo Creek Casino’s net gaming revenue increased $1.6 million, or 18%when comparing  these same periods.

 

The following tablepresents data related to slot revenues (in thousands, except where noted):

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **June 30,**                | ** ** |
| ** **                                           | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Slot handle                                          |       | $                                | 1,616,272  |   | $ | 1,741,729 |   |
| Gross slot revenue                                   |       | $                                | 142,005    |   | $ | 150,930 |   |
| Net slot revenue                                     |       | $                                | 122,711    |   | $ | 135,578 |   |
| Weighted average number of slot machines (in  units) |       | 6,653                            |       | 6,760 |   |
| Gross slot hold percentage                           |       | 8.8                              | %          | 8.7 | % |
| Gross slot win per unit per day (in dollars)         |       | $                                | 235        |   | $ | 245 |   |

 

Net slot revenuedecreased $12.9 million, or 10%, when comparing the three months ended June 30,2009 to the three months ended June 30, 2008.

 

Slotpromotional credits, which are recorded in gross slot revenues and promotionalallowances, amounted to $9.7 million and $7.1 million at Seneca Niagara Casinoand Hotel during the three months ended June 30, 2009 and 2008,respectively, and $6.3 million and $4.9 million at Seneca Allegany Casino andHotel during the three months ended June 30, 2009 and 2008,respectively.  The increase in slotpromotional credit play during the three months ended June 30, 2009 wasprimarily due to increased marketing promotions offering slot promotionalcredits.

 

The following tablepresents data related to table game revenues (in thousands, except wherenoted):

 
| ** **                                               | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **June 30,**                | ** ** |
| ** **                                               | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Table games drop                                         |       | $                                | 91,845     |   | $ | 102,526 |   |
| Net table games revenue                                  |       | $                                | 14,345     |   | $ | 16,965 |   |
| Weighted average number of table games (in units)        |       | 145                              |       | 142 |   |
| Table games hold percentage                              |       | 15.2                             | %          | 16.7 | % |
| Gross table games revenue per unit per day (in  dollars) |       | $                                | 1,056      |   | $ | 1,321 |   |

 

Net table games revenuedecreased $2.6 million, or 15%, when comparing the three months ended June 30,2009 to the three months ended June 30, 2008.  The decrease was principally due to thosefactors previously noted, as well as a decrease in the table games holdpercentage when comparing these same periods.

 

*Food andBeverage Revenue*

 

The following tablepresents data related to food and beverage revenue (in thousands, except wherenoted):

 

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| ** **                 | ** ** | **Three Months Ended** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **June 30,**                | ** ** |
| ** **                 | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Covers                     |       | 1,013                            |       | 1,125 |   |
| Average check (in dollars) |       | $                                | 14.55      |   | $ | 14.49 |   |
|                            |            |                                  |            |  |  |  |  |

 

During the three monthsended June 30, 2009, our consolidated food and beverage revenue decreased$1.6 million, or 10% when compared to the same period in 2008, primarily due toa decrease in consumer spending, which resulted in a decrease in the number ofcovers, offset by an increase in the average revenue per check.  Seneca Niagara Casino and Hotel’s food andbeverage revenue accounted for $1.4 million of the decrease; Seneca AlleganyCasino and Hotel’s and food and beverage revenue accounted for $0.2 million ofthe decrease; and Seneca Buffalo Creek Casino’s food and beverage revenueapproximated the revenue for the same quarter in the prior year.  During the three months ended June 30,2009 and 2008, 52% and 54%, respectively, of our food and beverage revenue werethe result of Seneca Link Player’s Card point redemptions.

 

*LodgingRevenue*

 

The following tablepresents data related to lodging revenue:

 
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **June 30,**                | ** ** |
| ** **                          | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Occupied rooms                      |       | 71,603                           |       | 71,808 |   |
| Average daily room rate (ADR)       |       | $                                | 82.78      |   | $ | 101.34 |   |
| Occupancy rate                      |       | 96.7                             | %          | 97.2 | % |
| Revenue per available room (REVPAR) |       | $                                | 80.07      |   | $ | 98.53 |   |

 

During the three monthsended June 30, 2009, our lodging revenue decreased by $1.4 million, or19%, when compared to the three months ended June 30, 2008, due to adecrease in average rate per occupied room. During the three months ended June 30, 2009, SGC continued to offerhotel room rates at discounted prices in an effort to continue to stimulatecasino patron visitation and encourage longer trip duration.  Seneca Niagara Casino and Hotel’s lodgingrevenue accounted for $1.1 million of the decrease and Seneca Allegany Casinoand Hotel’s lodging revenue accounted for $0.3 million of the decrease.  During the three months ended June 30,2009 and 2008, 75% and 71%, respectively, of our lodging revenue were theresult of Seneca Link Player’s Card point redemptions.

 

*Retail,Entertainment and Other Revenue*

 

During the three monthsended June 30, 2009, our retail, entertainment and other revenue decreased$0.8 million, or 13%, when compared to the same period in 2008.  During the three months ended June 30,2009 and 2008, 72% and 77%, respectively, of our retail revenue, and 52% and60% of our entertainment revenue, respectively, was attributable to Seneca LinkPlayer’s Card point redemptions.

 

*PromotionalAllowances*

 

SGC operates a complimentary program in which food andbeverage, retail, entertainment, and other services are provided to patronsbased on points earned through the Seneca Link Player’s Card.  The retail value of these complimentary itemsis included in gross revenues and then deducted as promotional allowances to arriveat net revenues.

 

The retail value of providing such promotionalallowances was included in revenues as follows:

 
| ** **                      | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **June 30,**                    | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                          |       | $                                    | 15,987     |   | $ | 12,047 |   |
| Food and beverage               |       | 7,776                                |       | 8,929 |   |
| Lodging                         |       | 4,313                                |       | 5,038 |   |
| Retail, entertainment and other |       | 2,074                                |       | 2,749 |   |
| Total                           |       | $                                    | 30,150     |   | $ | 28,763 |   |

 

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Theestimated cost of providing such promotional allowances was as follows:

 
| ** **                      | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **June 30,**                    | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Food and beverage               |       | $                                    | 5,586      |   | $ | 6,585 |   |
| Lodging                         |       | 2,365                                |       | 2,361 |   |
| Retail, entertainment and other |       | 1,821                                |       | 2,529 |   |
| Total                           |       | $                                    | 9,772      |   | $ | 11,475 |   |

 

Promotional allowances as a percentage of gamingrevenue were 19.7% and 17.5% during the three months ended June 30, 2009and 2008, respectively.  Promotionalallowances increased $1.4 million, or 5%, when comparing the three months endedJune 30, 2009 to the same period in 2008.

 

*DetailedOperating Expense Information*

 
| ** **                              | ** ** | **Three Months Ended**     | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **June 30,**                    | ** ** |
| ** **                              | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **(Dollars in Thousands)** | ** ** |
|                                    |       |                                 |       |   |   |
| Operating expenses:                     |       |                                 |       |   |   |
| Gaming                                  |       | $                                    | 38,884     |   | $ | 43,742 |   |
| Food and beverage                       |       | 11,126                               |       | 12,435 |   |
| Lodging                                 |       | 3,084                                |       | 3,274 |   |
| Retail, entertainment and other         |       | 3,307                                |       | 4,185 |   |
| Advertising, general and administrative |       | 45,084                               |       | 47,934 |   |
| Pre-opening costs                       |       | 110                                  |       | 70 |   |
| Depreciation                            |       | 11,668                               |       | 12,604 |   |
| Impairment of property and equipment    |       | 109,036                              |       | — |   |
| Total Operating expenses                |       | $                                    | 222,299    |   | $ | 124,244 |   |

 

*GamingExpenses*

 

Gaming expensesprincipally consist of costs incurred from operating our table games and slotmachines, of which the primary components are payroll and payroll related costsand the slot exclusivity fee paid to New York State pursuant to the Compact.

 

The following tablesummarizes the exclusivity fee incurred by property:

 
| ** **                            | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **June 30,**                    | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 17,617     |   | $ | 20,170 |   |
| Seneca Allegany Casino and Hotel      |       | 7,515                                |       | 8,211 |   |
| Seneca Buffalo Creek Casino           |       | 2,397                                |       | 2,037 |   |
| Total                                 |       | $                                    | 27,529     |   | $ | 30,418 |   |

 

The slot exclusivity feedecreased $2.9 million, from $30.4 million for the three months ended June 30,2008 to $27.5 million for the three months ended June 30, 2009, due tolower net slot revenues.  Gaming expensesas a percentage of gross gaming revenues were 25.4% and 26.6% for the threemonths ended June 30, 2009 and 2008, respectively.

 

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*Food andBeverage Expenses*

 

Foodand beverage expenses represent those costs incurred for the operation of ourrestaurants, snack bars and beverage outlets. The primary components of these expenses are the cost of food andbeverage products and payroll and payroll related expenses for team membersproviding the service.  During the threemonths ended June 30, 2009, food and beverage costs decreased $1.3million, or 11%, when compared to the same period in 2008, due primarily to acontinued concerted effort to reduce all components of such costs, whilemaintaining superior product offerings to our patrons.  Food and beverage expenses as a percentage offood and beverage revenues were 75.5% and 76.3% for the three months ended June 30,2009 and 2008, respectively.

 

*LodgingExpenses*

 

Lodgingexpenses represent those costs incurred for the operation of our luxury hotelat Seneca Niagara Casino and Hotel and our resort hotel at Seneca AlleganyCasino and Hotel.  The components ofthese expenses include payroll and payroll related expenses, guest amenitysupplies, laundry and other expenses. During the three months ended June 30, 2009, lodging expensesdecreased $0.2 million, or 6%, as compared to the three months ended June 30,2008.  The decrease is primarily due to a$0.1 million decrease in payroll and benefit expenses and a $0.1 milliondecrease in laundry expense.  Lodgingexpenses as a percentage of lodging revenues were 52.0% and 45.0% for the threemonths ended June 30, 2009 and 2008, respectively.

 

*Retail,Entertainment and Other Expenses*

 

Retail,entertainment and other expenses primarily represent those costs incurred forthe operation of our retail shops and spas, and our entertainmentofferings.  The components of theseexpenses include payroll and payroll related costs, the purchase of productsoffered for sale in our retail outlets and contract costs for entertainers.  For the three months ended June 30, 2009,these costs decreased approximately $0.9 million, or 21%, over the comparable2008 period, due principally to a $0.8 million decrease in headlineentertainment costs.  Retail,entertainment and other expenses as a percentage of retail, entertainment and otherrevenues were 61.8% and 67.8%, for the three months ended June 30, 2009and 2008, respectively.

 

*Advertising,General and Administrative Expenses*

 

Advertising,general and administrative expenses consist primarily of payroll and payrollrelated expenses, regulatory fees, advertising and marketing costs, Head Leaseexpense, insurance, legal and utility costs. For the three months ended June 30, 2009, such costs decreased $2.9million, or 6%, from the same period in 2008. For the three months ended June 30, 2009, a $3.5 million increasein Head Lease expense over the comparative period in 2008, was offset by a $3.4million decrease in payroll and payroll related expenses, $0.8 million decreasein promotional expenses, a $0.7 million decrease in utility costs, a $0.2million decrease in advertising costs and a $1.3 million decrease in variousother operating expenses. Advertising, general and administrative expenses as apercentage of gross revenues were 25.2% and 24.7%, for the three months ended June 30,2009 and 2008, respectively.

 

*Pre-openingExpenses*

 

Pre-openingexpenses are non-recurring costs incurred to support the expected opening ofnew facilities.  During the three monthsended June 30, 2009 and 2008, pre-opening expenses incurred were primarilyrelated to the preparation of the Seneca Hickory Stick Golf Club, to beoperated by the Lewiston Golf Course Corporation.

 

*DepreciationExpense*

 

Duringthe three months ended June 30, 2009 and 2008, depreciation expense was$11.7 million and $12.6 million, respectively, a decrease of $0.9 million, or7%.

 

*Impairmentcharge*

 

On August 27, 2008, the construction activitiesat Seneca Allegany Casino and Hotel and Seneca Buffalo Creek Casino, aspreviously described, were suspended for the foreseeable future for reasonsincluding:  the economic recession;inability to obtain construction financing at reasonable interest rates; andoperating and other demands on our available cash, such as our payments anddistributions to the Nation.  As of June 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, it is unlikelyconstruction will resume in the foreseeable future.  Furthermore, certain master planning effortsrelated to the future expansion of the Seneca Niagara Falls property have beensuspended for the same reasons.  As aresult of 

 

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these circumstances and in accordance with SFAS 144,an impairment charge of $109.0 million was recognized at June 30, 2009 inorder to write off these costs as they do not currently represent any futurevalue or provide future benefit to the Company.

 

*Other Non-Operating Expenses*

 

The following table summarizes information relatedto other non-operating expenses:

 
| ** **             | ** ** | **Three Months Ended**     | ** ** |
|------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **June 30,**                    | ** ** |
| ** **             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **             | ** ** | **(Dollars in Thousands)** | ** ** |
|                   |       |                                 |       |   |   |
| Non-operating expenses |       | $                                    | 25         |   | $ | 250 |   |
|                        |            |                                      |            |  |  |  |  |

 

Duringthe three months ended June 30, 2009 and 2008, we recorded an other-than-temporaryloss on one specific investment of $25,000 and $0.3 million, respectively, asother non-operating expense. The cost basis of this investment has been reducedby the amount of the other-than-temporary loss recorded.

 

*Interest Income*

 

Interest income was $0.1million for the three months ended June 30, 2009 and June 30, 2008.

 

*Interest Expense*

 

Thefollowing table summarizes information related to interest on our long-termdebt and Senior Secured Revolving Loan Agreement:

 
| ** **       | ** ** | **Three Months Ended**     | ** ** |
|------------------|------------|--------------------------------------|------------|
| ** **       | ** ** | **June 30,**                    | ** ** |
| ** **       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **       | ** ** | **(Dollars in Thousands)** | ** ** |
|             |       |                                 |       |   |   |
| Interest expense |       | $                                    | 9,500      |   | $ | 9,089 |   |
|                  |            |                                      |            |  |  |  |  |

 

Duringthe three months ended June 30, 2009, interest expense consistedsubstantially of interest on our $500 million aggregate principal amount of 71⁄4%senior notes, including $0.8 million of amortization related to financing costsand discount, which was partially offset by $0.4 million of capitalizedinterest on our construction activities for our Seneca Hickory Stick GolfClub.  During the three months ended June 30,2008, there was $0.8 million interest capitalized in conjunction with ourconstruction activities for our Seneca Hickory Stick Golf Club, the permanentcasino at Seneca Buffalo Creek Casino and Phase V at Seneca Allegany Casino &Hotel.

 

*Net (Loss) Income*

 

Net loss for the three months ended June 30,2009 was $82.7 million, compared to a $32.2 million net income for the threemonths ended June 30, 2008, a decrease of $114.9 million, for the reasonsstated above.

 

**Operating Results - Nine months ended June 30,2009 Compared to the Nine months ended June 30, 2008**

** **

*Summary of Operating Results*

 

The following table summarizes our results fromoperations by corporation and/or facility:

 

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| ** **                             | ** ** | **Nine Months Ended**      | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | **June 30,**                    | ** ** |
| ** **                             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                             | ** ** | **(Dollars in Thousands)** | ** ** |
| Net revenues:                          | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Seneca Niagara Falls Casino  and Hotel |       | $                                    | 286,851    |   | $ | 322,355 |   |
| Seneca Allegany Casino and  Hotel      |       | 110,610                              |       | 121,177 |   |
| Seneca Buffalo Creek  Casino           |       | 30,328                               |       | 23,357 |   |
| Total                                  |       | $                                    | 427,789    |   | $ | 466,889 |   |
|                                   |       |                                 |       |   |   |
| Operating expenses:                    |       |                                 |       |   |   |
| Seneca Niagara Falls  Casino and Hotel |       | $                                    | 213,379    |   | $ | 228,057 |   |
| Seneca Allegany Casino and  Hotel      |       | 126,485                              |       | 115,905 |   |
| Seneca Buffalo Creek  Casino           |       | 110,713                              |       | 22,439 |   |
| Seneca Hickory Stick Golf  Club        |       | 198                                  |       | 169 |   |
| Seneca Gaming Corporation              |       | 1,853                                |       | 3,019 |   |
| Total                                  |       | $                                    | 452,628    |   | $ | 369,589 |   |
|                                   |       |                                 |       |   |   |
| Operating income (loss):               |       |                                 |       |   |   |
| Seneca Niagara Falls  Casino and Hotel |       | $                                    | 73,472     |   | $ | 94,298 |   |
| Seneca Allegany Casino and  Hotel      |       | (15,875                              | )          | 5,272 |   |
| Seneca Buffalo Creek  Casino           |       | (80,385                              | )          | 918 |   |
| Seneca Hickory Stick Golf  Club        |       | (198                                 | )          | (169 | ) |
| Seneca Gaming Corporation:             |       | (1,853                               | )          | (3,019 | ) |
| Total                                  |       | $                                    | (24,839    | ) | $ | 97,300 |   |

 

Themost important factors or trends contributing to our operating performanceduring the nine months ended June 30, 2009 were similar to those notedabove for the three months ended June 30, 2009.

 

*GrossRevenues*

 

Grossrevenues consisted of the following:

 
| ** **                       | ** ** | **Nine Months Ended**      | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **June 30,**                    | ** ** |
| ** **                       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                           |       | $                                    | 431,505    |   | $ | 469,139 |   |
| Food and beverage                |       | 43,174                               |       | 46,677 |   |
| Lodging                          |       | 17,800                               |       | 21,501 |   |
| Retail, entertainment and  other |       | 17,619                               |       | 18,486 |   |
| Total                            |       | $                                    | 510,098    |   | $ | 555,803 |   |

 

Thetable below summarizes the percentage of gross revenues from each revenuesource:

 
| ** **                       | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **June 30,**               | ** ** |
| ** **                       | ** ** | **2009**                        | ** ** | **2008** | ** ** |
| Gaming                           |       | 84.6                            | %          | 84.4 | % |
| Food and beverage                |       | 8.5                             | %          | 8.4 | % |
| Lodging                          |       | 3.5                             | %          | 3.9 | % |
| Retail, entertainment and  other |       | 3.4                             | %          | 3.3 | % |
| Total                            |       | 100.0                           | %          | 100.0 | % |

 

*GamingRevenue*

 

Ourgaming revenue for the nine months ended June 30, 2009 decreased whencompared to the same period in the prior year, primarily due to the impact ofadverse economic conditions which reduced consumer demand for gaming andentertainment offerings.

 

Ournet gaming revenue, net of promotional credits of $38.9 million and $38.6million in the nine months ended June 30, 2009 and 2008, respectively,decreased $37.9 million, or 9%, when comparing these periods.  During the nine months ended June 30,2009, Seneca Niagara Casino and Hotel’s net gaming revenue decreased $34.5million, or 12%; Seneca Allegany Casino and Hotel’s net gaming revenuedecreased $10.2 million, or 9%; and Seneca Buffalo Creek Casino’s net gamingrevenue increased $6.8 million, or 29% when comparing these same periods.

 

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Thefollowing table presents data related to slot revenues (in thousands, exceptwhere noted):

 
| ** **                                           | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **June 30,**               | ** ** |
| ** **                                           | ** ** | **2009**                        | ** ** | **2008** | ** ** |
| Slot handle                                          |       | $                               | 4,609,068  |   | $ | 4,987,383 |   |
| Gross slot revenue                                   |       | $                               | 396,450    |   | $ | 427,993 |   |
| Net slot revenue                                     |       | $                               | 348,173    |   | $ | 377,799 |   |
| Weighted average number of  slot machines (in units) |       | 6,666                           |       | 6,705 |   |
| Gross slot hold percentage                           |       | 8.6                             | %          | 8.6 | % |
| Gross slot win per unit  per day (in dollars)        |       | $                               | 218        |   | $ | 233 |   |

 

Netslot revenue decreased $29.6 million, or 8%, when comparing the nine monthsended June 30, 2009 to the nine months ended June 30, 2008.

 

Slot promotional credits, which are recorded ingross slot revenues and promotional allowances, amounted to $26.1 million and$23.1 million at Seneca Niagara Casino and Hotel during the nine months ended June 30,2009 and 2008, respectively, and $12.8 million and $15.5 million at SenecaAllegany Casino and Hotel during the nine months ended June 30, 2009 and2008, respectively.  During the ninemonths ended June 30, 2009, slot promotional credit play increased atSeneca Niagara Falls Casino and Hotel due to increased marketing promotionsoffering slot promotional credits and decreased at Seneca Allegany Casino andHotel primarily due to decreased slot play.

 

Thefollowing table presents data related to table game revenues (in thousands,except where noted):

 
| ** **                                               | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                               | ** ** | **June 30,**               | ** ** |
| ** **                                               | ** ** | **2009**                        | ** ** | **2008** | ** ** |
| Table games drop                                         |       | $                               | 274,848    |   | $ | 316,352 |   |
| Net table games revenue                                  |       | $                               | 44,098     |   | $ | 52,422 |   |
| Weighted average number of  table games (in units)       |       | 143                             |       | 142 |   |
| Table games hold  percentage                             |       | 15.9                            | %          | 16.6 | % |
| Gross table games revenue  per unit per day (in dollars) |       | $                               | 1,119      |   | $ | 1,348 |   |

 

Nettable games revenue decreased $8.3 million, or 16%, when comparing the ninemonths ended June 30, 2009 to the nine months ended June 30,2008.  The decrease was due to thosefactors previously noted, as well as a decrease in the table games holdpercentage when comparing these same periods.

 

*Food andBeverage Revenue*

 

Thefollowing table presents data related to food and beverage revenue (inthousands, except where noted):

 
| ** **                 | ** ** | **Nine Months Ended** | ** ** |
|----------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **June 30,**               | ** ** |
| ** **                 | ** ** | **2009**                        | ** ** | **2008** | ** ** |
| Covers                     |       | 2,904                           |       | 3,223 |   |
| Average check (in dollars) |       | $                               | 14.87      |   | $ | 14.48 |   |
|                            |            |                                 |            |  |  |  |  |

 

Duringthe nine months ended June 30, 2009, our consolidated food and beveragerevenue decreased $3.5 million, or 8% when compared to the same period in 2008,due primarily to the decrease in consumer spending, which resulted in adecrease in the number of covers, offset by an increase in the average revenueper check.  Seneca Niagara Casino andHotel’s food and beverage revenue accounted for $3.2 million of the decrease;Seneca Allegany Casino and Hotel’s food and beverage revenue accounted for $0.4million of the decrease; and Seneca Buffalo Creek Casino’s food and beveragerevenue increased $0.1 million over the same quarter in the prior year.  During the nine months ended June 30,2009 and 2008, 52% and 55%, respectively, of our food and beverage revenue werethe result of Seneca Link Player’s Card point redemptions.

 

*LodgingRevenue*

 

The followingtable presents data related to lodging revenue:

 

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| ** **                           | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **June 30,**               | ** ** |
| ** **                           | ** ** | **2009**                        | ** ** | **2008** | ** ** |
| Occupied rooms                       |       | 208,644                         |       | 208,577 |   |
| Average daily room rate  (ADR)       |       | $                               | 85.31      |   | $ | 103.08 |   |
| Occupancy rate                       |       | 94.7                            | %          | 94.0 | % |
| Revenue per available room  (REVPAR) |       | $                               | 80.76      |   | $ | 96.93 |   |

 

Duringthe nine months ended June 30, 2009, our lodging revenue decreased by $3.7million, or 17%, when compared to the nine months ended June 30, 2008, dueto a decrease in average rate per occupied room.  During the nine months ended June 30,2009, SGC continued to offer hotel room rates at discounted prices in an effortto continue to stimulate casino patron visitation and encourage longer tripduration.  Seneca Niagara Casino andHotel’s lodging revenue accounted for $2.9 million of the decrease and SenecaAllegany Casino and Hotel’s lodging revenue accounted for $0.8 million of thedecrease.  During the nine months ended June 30,2009 and 2008, 76% of our lodging revenue was the result of Seneca LinkPlayer’s Card point redemptions.

 

*Retail,Entertainment and Other Revenue*

 

Duringthe nine months ended June 30, 2009, our retail, entertainment and otherrevenue decreased $0.9 million, or 5%, when compared to the same period in2008.  During the nine months ended June 30,2009 and 2008, 77% and 76%, respectively, of our retail revenue, and 50% and54% of our entertainment revenue, respectively, was attributable to Seneca LinkPlayer’s Card point redemptions.

 

*PromotionalAllowances*

 

SGC operates acomplimentary program in which food and beverage, retail, entertainment, andother services are provided to patrons based on points earned through theSeneca Link Player’s Card.  The retailvalue of these complimentary items is included in gross revenues and thendeducted as promotional allowances to arrive at net revenues.

 

The retail value ofproviding such promotional allowances was included in revenues as follows:

 
| ** **                       | ** ** | **Nine Months Ended**      | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **June 30,**                    | ** ** |
| ** **                       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                           |       | $                                    | 38,890     |   | $ | 38,591 |   |
| Food and beverage                |       | 23,042                               |       | 26,274 |   |
| Lodging                          |       | 13,050                               |       | 15,973 |   |
| Retail, entertainment and  other |       | 7,327                                |       | 8,076 |   |
| Total                            |       | $                                    | 82,309     |   | $ | 88,914 |   |

 

The estimated cost of providing such promotionalallowances was as follows:

 
| ** **                       | ** ** | **Nine Months Ended**      | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **June 30,**                    | ** ** |
| ** **                       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Food and beverage                |       | $                                    | 16,782     |   | $ | 20,383 |   |
| Lodging                          |       | 7,241                                |       | 7,762 |   |
| Retail, entertainment and  other |       | 6,229                                |       | 7,538 |   |
| Total                            |       | $                                    | 30,252     |   | $ | 35,683 |   |

 

Promotional allowances asa percentage of gaming revenue were 19.1% and 19.0% during the nine monthsended June 30, 2009 and 2008, respectively.  Promotional allowances decreased $6.6million, or 7%, when comparing the nine months ended June 30, 2009 to thesame period in 2008.

 

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*Detailed Operating Expense Information*

 
| ** **                               | ** ** | **Nine Months Ended**      | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **June 30,**                    | ** ** |
| ** **                               | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
|                                     |       |                                 |       |   |   |
| Operating expenses:                      |       |                                 |       |   |   |
| Gaming                                   |       | $                                    | 112,534    |   | $ | 126,689 |   |
| Food and beverage                        |       | 33,030                               |       | 37,150 |   |
| Lodging                                  |       | 9,243                                |       | 9,800 |   |
| Retail, entertainment and  other         |       | 10,752                               |       | 12,357 |   |
| Advertising, general and  administrative |       | 140,949                              |       | 144,766 |   |
| Pre-opening costs                        |       | 246                                  |       | 294 |   |
| Depreciation                             |       | 36,838                               |       | 38,533 |   |
| Impairment of property and  equipment    |       | 109,036                              |       | — |   |
| Total Operating expenses                 |       | $                                    | 452,628    |   | $ | 369,589 |   |

 

*GamingExpenses*

 

Gamingexpenses principally consist of costs incurred from operating our table gamesand slot machines, of which the primary components are payroll and payrollrelated costs and the slot exclusivity fee paid to New York State pursuant tothe Compact.

 

Thefollowing table summarizes the exclusivity fee incurred by property:

 
| ** **                             | ** ** | **Nine Months Ended**      | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | **June 30,**                    | ** ** |
| ** **                             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                             | ** ** | **(Dollars in Thousands)** | ** ** |
| Seneca Niagara Falls  Casino and Hotel |       | $                                    | 50,815     |   | $ | 57,732 |   |
| Seneca Allegany Casino and  Hotel      |       | 20,707                               |       | 22,506 |   |
| Seneca Buffalo Creek  Casino           |       | 6,549                                |       | 5,064 |   |
| Total                                  |       | $                                    | 78,071     |   | $ | 85,302 |   |

 

Theslot exclusivity fee decreased $7.2 million, from $85.3 million for thenine months ended June 30, 2008 to $78.1 million for the nine months endedJune 30, 2009, due to lower net slot revenues.  Gaming expenses as a percentage of grossgaming revenues were 26.1% and 27.0% for the nine months ended June 30,2009 and 2008, respectively.

 

*Food andBeverage Expenses*

 

Foodand beverage expenses represent those costs incurred for the operation of ourrestaurants, snack bars and beverage outlets. The primary components of these expenses are the cost of food andbeverage products and payroll and payroll related expenses for team membersproviding the service.  During the ninemonths ended June 30, 2009, food and beverage costs decreased $4.1million, or 11%, when compared to the same period in 2008, due primarily to acontinued concerted effort to reduce all components of such costs, whilemaintaining superior product offerings to our patrons.  Food and beverage expenses as a percentage offood and beverage revenues were 76.5% and 79.6% for the nine months endedJune 30, 2009 and 2008, respectively.

 

*LodgingExpenses*

 

Lodgingexpenses represent those costs incurred for the operation of our luxury hoteland spa at Seneca Niagara Casino and Hotel and our resort hotel and spa atSeneca Allegany Casino and Hotel.  Thecomponents of these expenses include payroll and payroll related expenses,guest amenity supplies, laundry and other expenses.  During the nine months ended June 30,2009, lodging expenses decreased $0.6 million, or 6%, as compared to the ninemonths ended June 30, 2008.  Thedecrease is primarily due to a $0.5 million decrease in payroll and benefitexpenses.  Lodging expenses as apercentage of lodging revenues were 51.9% and 45.6% for the nine months endedJune 30, 2009 and 2008, respectively.

 

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*Retail,Entertainment and Other Expenses*

 

Retail,entertainment and other expenses primarily represent those costs incurred forthe operation of our retail shops and spas, and our entertainmentofferings.  The components of theseexpenses include payroll and payroll related costs, the purchase of productsoffered for sale in our retail outlets and spas and contract costs forentertainers.  For the nine months endedJune 30, 2009, these costs decreased approximately $1.6 million, or 13%,over the comparable 2008 period, due principally to a $1.4 million decrease inheadline entertainment costs and a $0.5 million decrease in retail cost ofsales, offset by a $0.1 million increase in payroll and payroll relatedcosts.  Retail, entertainment and otherexpenses as a percentage of retail, entertainment and other revenues were 61.0%and 66.8%, for the nine months ended June 30, 2009 and 2008, respectively.

 

*Advertising,General and Administrative Expenses*

 

Advertising,general and administrative expenses consist primarily of payroll and payrollrelated expenses, regulatory fees, advertising and marketing costs, Head Leaseexpense, insurance, legal and utility costs. For the nine months ended June 30, 2009, such costs decreased $3.8million, or 3%, from the same period in 2008, primarily due to a $10.5 millionincrease in Head Lease expense, offset by a $2.5 million decrease inadvertising costs, a $2.2 million decrease in promotional expenses, a $1.6million decrease in special event costs, a $1.5 million decrease in outsideservices (primarily related to employee transportation and tour bus services),a $1.4 million decrease in utility costs, a $1.2 million decrease in payrolland payroll related costs, a $0.9 million decrease in employee relationsexpenses and a $1.9 million decrease in various other operating expenses .  Furthermore, during the nine months endedJune 30, 2008, a write off of $1.1 million was recognized related toexternal development costs associated with Seneca Massachusetts GamingCorporation.  Advertising, general andadministrative expenses as a percentage of gross revenues were 27.6% and 26.0%,for the nine months ended June 30, 2009 and 2008, respectively.

 

*Pre-openingExpenses*

 

Pre-openingexpenses are non-recurring costs incurred to support the expected opening ofnew facilities.  During the nine monthsended June 30, 2009, pre-opening expenses incurred were primarily relatedto the construction and preparation of the Seneca Hickory Stick Golf Club, tobe operated by the Lewiston Golf Course Corporation.  During the nine months ended June 30,2009, pre-opening expenses decreased when compared to the same period in 2008.

 

*DepreciationExpense*

 

Duringthe nine months ended June 30, 2009 and 2008, depreciation expense was$36.8 million and $38.5 million, respectively, a decrease of $1.7 million, or4%.

 

*Impairmentcharge*

 

On August 27, 2008, the construction activitiesat Seneca Allegany Casino and Hotel and Seneca Buffalo Creek Casino, aspreviously described, were suspended for reasons including:  the economic recession; inability to obtainconstruction financing at reasonable interest rates; and operating and otherdemands on our available cash, such as our payments and distributions to theNation.  As of June 30, 2009, due tothe continuation of weak economic conditions, adverse credit market conditionsand an uncertain economic outlook, it is unlikely construction will resume inthe foreseeable future.  Furthermore,certain master planning efforts related to the future expansion of the SenecaNiagara Falls property have been suspended for the same reasons.  As a result of these circumstances and inaccordance with SFAS 144, an impairment charge of $109.0 million was recognizedat June 30, 2009 in order to write off these costs as they do notcurrently represent any future value or provide future benefit to the Company.

 

*Other Non-Operating Expenses*

 

The following table summarizes information relatedto other non-operating expenses:

 
| ** **             | ** ** | **Nine Months Ended**      | ** ** |
|------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **June 30,**                    | ** ** |
| ** **             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **             | ** ** | **(Dollars in Thousands)** | ** ** |
|                   |       |                                 |       |   |   |
| Non-operating expenses |       | $                                    | 188        |   | $ | 4,150 |   |
|                        |            |                                      |            |  |  |  |  |

 

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Duringthe nine months ended June 30, 2009 and 2008, we recorded an other-than-temporaryloss on one specific investment of $0.2 million and $4.2 million, respectively,as other non-operating expense. The cost basis of this investment has beenreduced by the amount of the other-than-temporary loss recorded.

 

*Interest Income*

 

Interest income was $0.2million for the nine months ended June 30, 2009, compared to $1.3 millionfor the nine months ended June 30, 2008. The decrease in interest income can be attributed to the decrease in theaverage cash balance on deposit with financial institutions in interest bearingaccounts when comparing these periods.

 

*Interest Expense*

 

Thefollowing table summarizes information related to interest on our long-termdebt and Senior Secured Revolving Loan Agreement:

 
| ** **       | ** ** | **Nine Months Ended**      | ** ** |
|------------------|------------|--------------------------------------|------------|
| ** **       | ** ** | **June 30,**                    | ** ** |
| ** **       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **       | ** ** | **(Dollars in Thousands)** | ** ** |
|             |       |                                 |       |   |   |
| Interest expense |       | $                                    | 28,777     |   | $ | 28,833 |   |
|                  |            |                                      |            |  |  |  |  |

 

Duringthe nine months ended June 30, 2009, interest expense consisted primarilyof interest on our $500 million aggregate principal amount of 71⁄4% senior notes,including $2.4 million of amortization related to financing costs and discount,which was partially offset by $1.1 million of capitalized interest on ourconstruction activities for our Seneca Hickory Stick Golf Club.  During the nine months ended June 30,2008, there was $0.8 million interest capitalized in conjunction with ourconstruction activities for our Seneca Hickory Stick Golf Club, the permanentcasino at Seneca Buffalo Creek Casino, and Phase V at the Seneca AlleganyCasino and Hotel.

 

*Net (Loss) Income*

 

Net loss for the nine months ended June 30,2009 was $53.6 million, compared to a $65.6 million net income for the ninemonths ended June 30, 2008, a decrease of $119.2 million, for the reasonsstated above.

 

**Liquidity and Capital Resources**

 

As previously discussed, our senior management continues to monitor,and review with the Corporation’s Board of Directors and its owner, the SenecaNation of Indians, our financial condition and liquidity needs, to help ensureappropriate strategic plans are developed and implemented to meet ongoingeconomic challenges and to address our ongoing liquidity requirements.

 

Inaddition, we intend to continue to work closely with the Nation to help ensurecash generated from our operations, available cash and cash equivalents,short-term investments and cash available under our Senior Secured RevolvingLoan Agreement are sufficient to service our debt, satisfy our other financialobligations and commitments and to meet our working capital requirements forthe remainder of the current fiscal year.

 

Ourability to fund our operations, make planned capital expenditures, service ourdebt and satisfy our other financial obligations and commitments depends on ourfuture operating performance and cash flow, which are in turn subject toprevailing economic conditions and to financial, business and other factors,some of which are beyond our control. Additionally, unlike traditional corporations, we are prohibited by lawfrom obtaining capital through an offering of equity securities and our abilityto incur additional indebtedness is limited under the terms of the Indenturegoverning the senior notes, the Distribution Agreement and the Senior SecuredRevolving Loan Agreement.

 

We areleveraged, have significant interest payment requirements under the SeniorNotes Indenture, distribution obligations under the Distribution Agreement andother commitments from time to time to the Nation. We make distributions to theNation pursuant to declarations by our Board of Directors.  During the nine months ended June 30,2009 we distributed $33.2 million to the Nation pursuant to such declarations.  We distributed an additional 

 

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$10.7million to the Nation during the nine months ended June 30, 2009 pursuantto the Distribution Agreement.  As such,limitations on our capital resources could force us to delay or abandon capitalprojects as well as the construction and development of suspended expansionprojects when and if resumed.

 

*Cash Flows*

 
| ** **                                             | ** ** | **Nine Months Ended**      | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                             | ** ** | **June 30,**                    | ** ** |
| ** **                                             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **(Dollars in Thousands)** | ** ** |
| ** **                                             | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net cash provided by  operations                       |       | $                                    | 84,873     |   | $ | 105,851 |   |
|                                                   |       |                                 |       |   |   |
| Cash flows relating to  investing activities           |       |                                 |       |   |   |
| Purchases of property and  equipment                   |       | (40,137                              | )          | (94,254 | ) |
| Land acquisition costs                                 |       | (1,022                               | )          | (5,408 | ) |
| Decrease in restricted  cash                           |       | —                               |       | 14,579 |   |
| Sale of investments, net                               |       | —                               |       | 14,600 |   |
| Net cash used in investing  activities                 |       | (41,159                              | )          | (70,483 | ) |
|                                                   |       |                                 |       |   |   |
| Cash flows relating to  financing activities           |       |                                 |       |   |   |
| Proceeds from senior  secured revolving loan agreement |       | 20,000                               |       | — |   |
| Payments on senior secured  revolving loan agreement   |       | (20,000                              | )          | — |   |
| Distributions paid to the  Nation                      |       | (43,937                              | )          | (51,158 | ) |
| Net cash used in financing  activities                 |       | (43,937                              | )          | (51,158 | ) |
|                                                   |       |                                 |       |   |   |
| Net decrease in cash and  cash equivalents             |       | $                                    | (223       | ) | $ | (15,790 | ) |

 

*Cash Flows—Operating Activities*

 

The$21.0 million decrease in cash flows from operations during the nine monthsended June 30, 2009 as compared to the nine months ended June 30,2008 was primarily due to a $119.2 million decrease in net income, aspreviously described, offset by a $109.0 million impairment of property andequipment charge.  The decrease in cashflows from operations was also due to a decrease in an other than temporaryloss in investment of $4.0 million, a $2.1 million increase in cash paid forcurrent assets, and an increase in net cash paid for current liabilities of$3.5 million.

 

*Cash Flows—Investing Activities*

 

Duringthe nine months ended June 30, 2009, cash flows used in investingactivities were approximately $41.2 million, compared to $70.5 million duringthe nine months ended June 30, 2008. The decrease of $29.3 million was due to:  a decrease in proceeds from the sale ofinvestments of $14.6 million and a $14.6 million decrease in cash provided by therelease of restricted cash; offset by a decrease in cash paid for property andequipment of $54.1 million; and a decrease in cash paid for land acquisition of$4.4 million.

 

Duringthe nine months ended June 30, 2009, capital expenditures were$40.1 million and consisted of: $15.2 million relating to the construction of the permanent SenecaBuffalo Creek Casino and Hotel on the Nation’s Buffalo Creek Territory; $6.5million associated with pre-construction costs relating to the additional hoteltower at the Seneca Allegany Casino and Hotel; $3.9 million relating toconstruction of the Seneca Hickory Stick Golf Club; and $1.0 million for theconversion of the temporary gaming facility at Seneca Allegany Casino and Hotelinto an events center, with related amenities. The remaining $13.5 million in capital expenditures were principally forthe acquisition of equipment for existing casino operations.  Our land acquisitions of $1.0 million includelegal expenses and other acquisition costs related to certain parcelswithin the 50 acre “footprint” described in the Compact with New York State anddesignated for ownership by the Nation.

 

*Cash Flows—Financing Activities*

 

During the nine months ended June 30,2009, net cash used in financing activities was $43.9 million, compared to$51.2 million during the nine months ended June 30, 2008, a decrease of$7.3 million.  The decrease was due to adecrease in distributions paid to the Nation of $7.3 million. Cash distributions were $33.2 millionand payments pursuant to the Distribution Agreement were $10.7 million.

 

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*Principal Debt Arrangements*

 

As of June 30,2009, our debt instruments and facilities consisted of the 2004 and 2005 seniornotes on which we pay a fixed interest rate of 71⁄4%, and a $50.0 million SeniorSecured Revolving Loan Agreement, which matures on December 19, 2009.  Following is a summary of certain materialterms of the senior notes and the Senior Secured Revolving Loan Agreement.

 

TheSenior Notes.   On May 5, 2004 and May 23, 2005,SGC issued $300.0 million and $200.0 million, respectively, in senior noteswith fixed interest payable at a rate of 71⁄4% per annum due 2012, which we referto collectively as the Senior Notes, under the Indenture.  The Senior Notes are currently guaranteed bySNFGC, STGC, SEGC, and LGCC.  Interest onthe Senior Notes is payable semi-annually on May 1 and November 1.  The Senior Notes mature on May 1,2012.  The Senior Notes are unsecuredgeneral obligations.  As of June 30,2009 and September 30, 2008, accrued interest on the Senior Notes was$6.0 million and $15.1 million, respectively.  Reference is made to “Part II. Item 1. —Legal Proceedings — Seneca Gaming Authority Proposed Notices of Violationissued to Seneca Gaming Corporation and Employees dated, July 13, 2009.”as of June 30, 2009, SGC was in compliance with all covenants in theIndenture.

 

Senior Secured Revolving Loan Agreement. Effective June 19, 2008, SGC entered into a $50.0 million SeniorSecured Revolving Loan Agreement, which would have matured on June 19,2009, subject to extension by SGC at its election (at any time after the sixmonth anniversary of the closing date and prior to June 19, 2009) for anadditional period of six months, provided that no default or event of defaultexisted at the time of election.  On June 11, 2009, SGC exercisedthis election.  Amounts borrowed underthe Senior Secured Revolving Loan Agreement bear interest at either one, threeor six-month LIBOR plus one and one quarter percent (1.25%), or the prime rate(as reported in *The Wall Street Journal*)plus one quarter percent (0.25%).  Anyoutstanding principal balance is required to be paid on the maturity date.

 

SGC’s obligations underthe Senior Secured Revolving Loan Agreement are secured by substantially allgaming and related assets (including substantially all gaming revenues) notconstituting real property or improvements.  SGC’s obligations areguaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations aresecured by substantially all of each guarantor’s gaming and related assets(including substantially all gaming revenues) not constituting real property orimprovements.

 

TheSenior Secured Revolving Loan Agreement contains certain financial covenantsrequiring minimum consolidated EBITDA of $160 million (on a rolling 12 monthbasis) and compliance with certain leverage and coverage ratios. The SeniorSecured Revolving Loan Agreement also contains additional customary covenants,including covenants restricting the incurrence of additional indebtedness, thecreation of additional liens, and the disposition of assets.  Reference is made to “Part II. Item 1. — LegalProceedings — Seneca Gaming Authority Proposed Notices of Violation issued toSeneca Gaming Corporation and Employees dated, July 13, 2009.” as of June 30,2009, SGC was in compliance with all covenants in the Senior Secured RevolvingLoan Agreement.

 

As of June 30, 2009, at SGC’s request, the lenderunder the Senior Secured Revolving Loan Agreement had issued letters of credittotaling $19.6 million, $13.2 million of which may be drawn upon to fund thepurchase of certain parcels within the 50 acre “footprint” described in theCompact with New York State and designated for ownership by the Nation, withthe remaining $6.4 million issued in connection with worker’s compensationpolicies and certain other contracts, as required.

 

On October 29, 2008 SGC borrowed $20.0 millionunder the Senior Secured Revolving Loan Agreement.  During the third quarter of fiscal 2009, SGCpaid $20 million on the Senior Secured Revolving Loan Agreement, leaving nooutstanding balance at June 30, 2009.

 

Effective June 19, 2008, SGC’s securedreimbursement facilities were terminated and all outstanding letters of creditunder such facilities were assumed as outstanding letters of credit under theSenior Secured Revolving Loan Agreement.

 

*DistributionAgreement Obligations*

 

On April 27,2007, SGC entered into a Distribution Agreement among the Nation, the SenecaNation of Indians Capital Improvements Authority, or the Authority, SGC andWells Fargo Bank, as Trustee, in connection with the Authority’s issuance intwo series (one tax exempt and the other taxable) of an aggregate principalamount of

 

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$159,495,000special obligation bonds, or the 2007 Nation Bonds.  The Distribution Agreement obligates SGC,subject to any contractual restrictions applicable to SGC (including, but notlimited to, those contained in the Senior Notes Indenture) to make monthlydistributions to the Nation at the times and in the amounts necessary to enablethe Authority to pay the debt service on the 2007 Nation Bonds as requiredunder the Authority’s indenture.  At thedirection of the Nation and the Authority, SGC pays such distributions directlyto the Trustee.  The Authority’s debtservice commenced on June 1, 2007. For the period from June 1, 2007 through November 1, 2007, theAuthority’s debt service averaged approximately $0.9 million permonth.  For the period December 1,2007 through June 1, 2008, the Authority’s debt service averagedapproximately $1.7 million per month.  InJune 2008, it was determined that the amortization (debt service) scheduleprovided, upon which the foregoing $1.7 million monthly payments was made, wasincorrect.  A corrected amortizationschedule was provided and, after giving effect to a resulting credit foramounts overpaid, for the period from January 1, 2008 through December 1,2023, the Authority’s debt service averages approximately $1.2 million permonth.  The foregoing debt serviceaverages are based on scheduled payments of interest and principal under theAuthority’s indenture and bonds and do not address the effects of any earliercall for redemption, by acceleration or otherwise.  The Distribution Agreement provides thatneither the Trustee nor the Authority’s bondholders will have any recourseunder the Distribution Agreement to any revenues, assets or property of SGC orits subsidiaries should SGC fail to comply with our distributionobligations.  During the nine monthsended June 30, 2009 and 2008, SGC distributed to the Nation $10.7 millionand $14.9 million, respectively, for the Authority’s debt service on thespecial obligation bonds.

 

Referenceis made to the Senior Notes Indenture, the Senior Secured Revolving LoanAgreement and the Distribution Agreement for an understanding of all terms ofsuch financing arrangements.

 

*OtherCommitments*

 

Wehave acquired approximately 45 acres in the City of Niagara Falls, New York,designated by New York State under the Compact for ownership by the Nation, andintend to acquire approximately three additional acres. Under the Compact, theNation is required to fund the acquisition of this property, including allrelated costs and expenses. As initial security for the Nation’s obligations topay site acquisition costs and in furtherance of the ongoing condemnationproceeding, the Nation was required to, and did, deliver, to the Empire StateDevelopment Corporation, or ESDC, a letter of credit in the amount of $33.5million representing 150% of the then estimate of the total remaining siteacquisition costs not yet paid by the Nation. In July 2006, we acquired, through the condemnation process,approximately 18 acres of land and trade fixtures appurtenant thereto fromFallsite, LLC, or Fallsite and Fallsville, LLC, or Fallsville, for an aggregateinitial advance payment of $17.0 million, which land is a portion of the landin the City of Niagara Falls, New York designated under the Compact forownership by the Nation. Of this amount, $7.7 million was drawn on the letterof credit as part of the consideration for the purchase, leaving $25.8 millionavailable under the letter of credit.  InMarch 2007, an additional $11.5 million was drawn under the letter ofcredit to fund the acquisition of 18 additional parcels of land and certainimprovements.    In December 2007,an additional $3.0 million was drawn under the letter of credit to fund theacquisition of seven additional parcels of land owned by the City of NiagaraFalls.  In connection with the closing ofthe Senior Secured Revolving Loan Agreement, at SGC’s request, the lenderissued letters of credit totaling $19.6 million, $13.2 million of which couldbe drawn upon as of June 30, 2009 to fund the purchase of the remainingparcels within the “footprint” described in the Compact.  If the estimate of such site acquisitioncosts increases or if certain other events occur, the Nation may have toprovide an additional letter of credit or replace the existing one with one fora larger monetary amount or, if acceptable to the ESDC, provide a supplementalcash escrow amount.  Unreimbursed amountson the letter of credit may result in automatic draw-downs under the SeniorSecured Revolving Loan Agreement.

 

The amounts paid tocondemnees from whom we have acquired property are deemed to be advancepayments. Pursuant to the New York State Eminent Domain Procedure Law, or EDPL,the New York state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of theirproperty.  To date, all record owners fromwhom property was condemned pursuant to the EDPL have reserved rights to claimadditional compensation.  Four recordowners have filed notices of claim to challenge the fair market valueappraisals utilized by ESDC.

 

Fallsite LLC andFallsville Splash, LLC have filed notices of claim in the amounts of $40.0million and $35.0 million for land and trade fixtures, respectively, relatingto a former water park within the footprint. ESDC’s fair market appraisal value for the foregoing was approximately$17.0 million.  If a court determinesthat the value for the land and improvements, including trade fixtures, ishigher than what ESDC has determined to be their appraised values, then we maybe liable for the difference and potentially also responsible for certainadditional costs and

 

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payments to theapplicable condemnee(s), such as their attorney fees.  The valuation trial proceedings with regardto the former water park are complete with a decision expected in August orSeptember 2009.

 

Intertrust Developmenthad filed a notice of claim for $15.8 million for land and trade fixturesassociated with a former Holiday Inn hotel within the footprint. ESDC’s fairmarket appraisal value for the foregoing was $8.2 million (excluding fixtures). We have agreed to a settlement of this matter with Intertrust, wherebyIntertrust has received an additional $3.8 million in addition to the appraisalvalue of $8.2 million, and whereby we have agreed to purchase, for our businesspromotional use, tickets to Fallsview Waterpark, an affiliate of Intertrust,for $2.5 million to be paid in three installments over three years. Pursuant to the stipulation of settlement, Intertrust  has executed arelease of SNFGC, ESDC and the Seneca Nation of Indians with respect to thevaluation proceeding, and ESDC and Intertrust shall file a stipulation ofdiscontinuance.

 

Additionally,JFD Holdings has filed a notice of claim for $1.1 million for a parcel of landat 621 Niagara Street within the footprint. ESDC’s fair market appraisal for the foregoing is approximately$550,000.  No trial date has yet beenset.

 

Also, Elizabeth Stone,Robert Stone and Alan Stone have filed notices of claim with respect to fourparcels within the footprint.  According to the trial-ready appraisalreports submitted by the Stones, they will seek $955,000, in aggregate, for thefour parcels.  ESDC’s fair-market appraisal for the four properties, inaggregate, is $185,000.  No trial date has been set.

 

As of June 30,2009, we have an existing reserve in the amount of $2.5 million for suchmatters, which is included as a component of other current liabilities on SGC’sconsolidated balance sheet.

 

*Expansionand Development Plans*

 

Duringthe next 12 months, due to liquidity concerns, ongoing demands on ourcash, and the state of the capital markets, it is unlikely that we will makesubstantial capital investments in our gaming facilities from cash on hand.

 

On August 27, 2008, the construction activities at Seneca AlleganyCasino and Hotel and Seneca Buffalo Creek Casino, as previously described, weresuspended for reasons including:  theeconomic recession; inability to obtain construction financing at reasonableinterest rates; and operating and other demands on our available cash, such asour payments to the Nation.  As of June 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, it is unlikelyconstruction will resume in the foreseeable future.  Furthermore, certain planning efforts relatedto the future expansion of the Seneca Niagara Falls property have beensuspended for the same reasons.  As aresult of these circumstances and in accordance with SFAS 144, an impairmentcharge of $109.0 million was recognized at June 30, 2009.

 

*Seneca Niagara Falls Casino and Hotel*

 

In 2006, we began master planning activities for the remainingapproximately 24 acres of undeveloped land contained in the Niagara Fallsfootprint.  As discussed above, thesemaster planning activities have ceased due to the continuation of weak economicconditions and adverse credit market conditions and an uncertain economicoutlook.    As of June 30, 2009, theCompany had incurred $3.5 million related to these master planning activities,for which an impairment charge was recognized in order to write off these costsas they do not currently represent any future value or provide future benefitto the Company.

 

*Seneca Allegany Casino and Hotel*

 

In March 2008,we completed the conversion of the former temporary casino facility at SenecaAllegany Casino and Hotel, at a cost of approximately $29.3 million, into anapproximate 2,200 seat event center with additional amenities and administrativespace.  The exterior landscaping andfaçade enhancements, originally planned as part of the conversion of thetemporary casino, had been deferred to the next phase of construction.

 

Thenext phase of construction, originally planned for an additional 200 room hoteland 30,000 square feet of additional gaming and related amenities, wassuspended for reasons including:  thecontinuing economic recession; inability to obtain construction financing onacceptable terms; and operating and other demands on our available cash, suchas our payments and distributions to the Nation.  As of June 30, 2009, the Company hasincurred $18.2 million related to this phase of construction, for which animpairment charge was recognized in order to write off

 

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thesecosts as they do not currently represent any future value or provide futurebenefit to the Company.

 

*Seneca Buffalo Creek Casino*

 

InMarch 2008, the Company completed a 109 slot machine expansion (for atotal of 244 slot machines) of the temporary Seneca Buffalo Creek Casino. Construction of the permanent Seneca Buffalo Creek Casino and Hotel commencedin January 2008, with completion originally estimated for Summer2010.  The permanent complex was originally planned to feature 90,000square feet of gaming space with 2,000 slot machines, 45 table games and a22-story all suite hotel with approximately 206 rooms.  In August 2008, we suspendedconstruction due to various factors, including challenging economic and capitalmarket conditions, operating and other demands on our available cash andincreased competition and construction costs. As of June 30, 2009, the Company has incurred $87.4 million on theconstruction of the permanent casino and hotel, for which an impairment chargewas recognized in order to write off these costs as they do not currentlyrepresent any future value or provide future benefit to the Company.

 

Althoughwe have suspended for the foreseeable future our construction on a number ofpermanent expansion plans, as previously discussed, on August 8, 2009, the Nation offered SEGC a $9million unsecured loan.  The proceeds willbe used for purposes of expanding the Buffalo Creek Casino temporary facilityto include up to 250 additional slot machines.  The loan carries an interest rate of 5% per annum with principal andinterest payable monthly over a 12 month period commencing on the 15th day of the calendarmonth following the opening of the expansion, currently estimated to occur in February 2010.  The note is prepayable at any time withoutpenalty.  The SEGC Board of Directors, onAugust 14, 2009, found such terms acceptable but SEGC has not yet executeda note for the loan.  SEGC is currentlyin the initial design stage for this expansion, and therefore, the finalbudget, construction timeline and the number of machines for the expandedfacility are being finalized.  See “ExecutiveSummary — Seneca Buffalo Creek Casino,” “Part II. Item 1. — LegalProceedings,” and “2008 Form 10-K Item 3. — Legal Proceedings” forinformation regarding the status of, and litigation related to, our SenecaBuffalo Creek Casino.

 

*Seneca Hickory Stick Golf Club*

 

InJuly 2007, the Company commenced construction of the Seneca Hickory StickGolf Club, an 18-hole Robert Trent Jones II designed golf course, located inLewiston, New York, approximately eight miles from the Seneca Niagara Casinoand Hotel.  Construction of the course isexpected to be complete in Summer 2009, but to allow for proper grow-in of thecourse, it is anticipated that the official opening of the course will occur inSpring 2010.  As of June 30, 2009,the Company has incurred $19.1 million on land acquisition and constructioncosts, with the total cost to construct the golf course, clubhouse and relatedamenities estimated to be approximately $25.5 million.

 

**Regulation**

 

Ouroperations are regulated by Nation laws, the Compact and federal statutes, mostnotably the Indian Gaming Regulatory Act, or IGRA.  Several bills were proposed during pastsessions of Congress that would have affected Indian gaming but were notenacted into law.  While bills may beintroduced that are relevant to Indian gaming in the 111th Congress,leaders from the committees that have jurisdiction over the IGRA have not madeany indications that gaming regulation will be an agenda item for the 111th Congress.  Moreover, the new administration has yet toappoint new members to the NIGC thus it remains unclear whether theadministration will pursue legislative initiatives related to the topic ofIndian gaming.

 

TheDepartment of the Interior published final regulations effective August 25,2008 governing the conduct of gaming on lands taken into trust after October 17,1988.  The regulations on their face donot purport to impair the ability of the Nation and SGC to expand its gamingoperations.  Future gaming legislation orcourt decisions construing the new regulations could adversely impact expansionof SGC gaming operations and the future growth of the Nation’s revenue base. Inaddition, from time to time, various government officials have proposed taxingIndian casino gaming or otherwise limiting or restricting the conduct of gamingoperations by Indian tribes. No assurance can be given that such legislation,if and when enacted by Congress, would not have a material adverse effect onthe operations of SGC. If Congress were to enact comprehensive amendments tothe IGRA, such legislation could have a material adverse effect on theoperations of SGC. In addition, under federal law, gaming on the Nation’s landsmay be dependent upon the permissibility under New York law of certain forms ofgaming or similar activities. If New York State were to make various forms ofgaming illegal or against public policy (or the courts were to similarly rule),or otherwise to take a legal position adverse to SGC, such actions could have amaterial adverse effect on our ability to conduct our gaming operations ascurrently conducted. Moreover, a 1996

 

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U.S.Supreme Court decision may permit a state to avoid or refuse to negotiateamendments to existing compacts such as the Compact.

 

**New Accounting Pronouncements**

** **

InJune 2009, the FASB issued SFAS No. 168, “The FASB AccountingStandards Codification and the Hierarchy of Generally Accepted AccountingPrinciples - a replacement of FASB Statement No. 162” (“SFAS No. 168)”.  SFAS No. 168 stipulates the FASBAccounting Standards Codification is the source of authoritative U.S. GAAPrecognized by the FASB to be applied by nongovernmental entities.  SFAS No. 168 is effective for thefinancial statements issued for interim and annual reporting periods endingafter September 15, 2009.  TheCompany does not expect that the adoption of this standard will have a materialimpact on its consolidated financial statements.

 

InMay 2009, the FASB issued SFAS No. 165, *“Subsequent Events”*(“SFAS 165”).SFAS 165 establishes general standards for accounting for and disclosureof events that occur after the balance sheet date but before financialstatements are available to be issued (“subsequent events”).  More specifically, SFAS 165 sets forththe period after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition in the financial statements, identifies the circumstances underwhich an entity should recognize events or transactions occurring after thebalance sheet date in its financial statements and the disclosures that shouldbe made about events or transactions that occur after the balance sheet date.  SFAS 165 provides largely the sameguidance on subsequent events which previously existed only in auditingliterature.  The Company does notanticipate that the adoption of this statement will have a material impact onits consolidated financial statements. The Company adopted SFAS 165 on April 5, 2009.  We have evaluated subsequent events through August 14,2009, the date this quarterly report on Form 10-Q was filed with the U.S.Securities and Exchange Commission.  Wemade no significant changes to our condensed consolidated financial statementsas a result of our subsequent events evaluation.

 

OnApril 5, 2009, the Company adopted the provisions of FSP SFAS No. 107-1,“*Interim Disclosures about Fair Value of FinancialInstruments*” (“FSP SFAS 107-1”), which amends SFAS No. 107, “*Disclosures about Fair Value of Financial Instruments*,” andAPB Opinion No. 28, “*Interim FinancialReporting*.” FSP SFAS No. 107-1 requires disclosures about fairvalue of financial instruments in financial statements for interim reportingperiods and in annual financial statements of publicly-traded companies.  This FSP also requires entities to disclosethe method(s) and significant assumptions used to estimate the fair valueof financial instruments in financial statements on an interim and annual basisand to highlight any changes from prior periods.  The adoption of FSP SFAS 107-1 did not have amaterial impact on the Company’s consolidated financial position or results ofoperations.  Disclosures required by SFAS107 are included in Note 4.

 

**Item3.**   Quantitative and Qualitative Disclosures About MarketRisk

 

Referenceis made to our 2008 Annual Report on Form 10-K for a complete discussionof our market risk.

 

On June 19,2008, we entered into the Senior Secured Revolving Loan Agreement that exposesSGC to interest rate risk in that amounts borrowed under the Senior Secured Revolving Loan Agreementwill bear interest at either one, three or six-month LIBOR plus one and onequarter percent (1.25%), or the prime rate (as reported in *The Wall Street Journal*) plus one quarterpercent (0.25%).  On October 29, 2008, SGC borrowed $20.0million under the Senior Secured Revolving Loan Agreement. During the thirdquarter of fiscal 2009, SGC paid $20 million on the Senior Secured Revolving LoanAgreement, leaving no outstanding balance at June 30, 2009.   See “Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Principal DebtArrangements” for further information relating to the Senior Secured RevolvingLoan Agreement.

 

Since our senior notes are fixed-rate indebtedness,and our obligations under the Distribution Agreement are based upon fixed-rateindebtedness of the Authority, we believe that our overall exposure to marketrisk in the form of interest rate fluctuations is low.

 

**Item 4T.     Controls and Procedures**

** **

**Evaluationof Disclosure Controls and Procedures**

 

Wemaintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act)that are designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that such informationis accumulated and communicated to our

 

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management,including our principal executive officer and principal financial officer, asappropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognized that any controls and procedures,no matter how well designed and operated, have inherent limitations due to costissues, the possibility of human error, judgments and assumptions regarding thelikelihood of future events, and the circumvention and overriding of thecontrols and procedures.   Accordingly,even effective disclosure of controls and procedures can provide onlyreasonable assurance of achieving the desired control objectives.

 

SGC’smanagement, under the supervision of our principal executive officer, and withthe participation of our principal executive officer and our principalfinancial officer, has evaluated the effectiveness of the design and operationof our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principalfinancial officer have concluded that the design and operation of ourdisclosure controls and procedures as of June 30, 2009 provided reasonableassurance that the disclosure controls and procedures are effective toaccomplish their objectives.

 

**Changes in Internal Control over Financial Reporting**

** **

Therehave been no changes in our internal control over financial reportingidentified in connection with the evaluation required by Exchange Act Rules 13a-15or 15d-15 or otherwise that occurred during the quarter ended June 30,2009 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**Part II.     OTHER INFORMATION**

** **

**Item 1.**    Legal Proceedings

** **

***Citizens Against Casino Gambling in Erie County v.Hogen (1:2009-cv-00291 (WDNY)) — CACGEC III***

 

OnMarch 31, 2009 , Citizens Against Casino Gambling in Erie County  (CACGEC) filed a third action in the UnitedStates District Court, Western District of New York against the Chairman of theNational Indian Gaming Commission, or NIGC, the United States Department ofInterior, the NIGC, the Secretary of the Interior and the President of theUnited States.  The action seeksdeclaratory and injunctive relief under the Administrative Procedure Act, theDeclaratory Judgments Act, and the Indian Regulatory Gaming Act and isprincipally directed at the decision by the NIGC Chairman, on January 20,2009, to approve the Seneca Nation’s amendments to its Class III GamingOrdinance regarding the Nation’s Buffalo Creek Territory.  The NIGC Chairman concluded that IGRA’sgeneral prohibition against gaming on lands acquired after its enactment in1988 does not apply to lands, such as the Buffalo Creek Territory, that areheld in restricted fee.   The plaintiffsclaim that, in approving the Nation’s Class III Gaming ordinance on January 20,2009, the NIGC Chairman ignored the intention of Congress.  The plaintiffs also make several claims thatgo beyond their prior lawsuits.  Mostnotably, they challenge the constitutionality of the land purchase provisionscontained in the Seneca Nation Settlement Act of 1990 (“SNSA”), and attempt tochallenge in a more extensive fashion than they had previously the validity ofthe Nation-State Gaming Compact.

 

OnJune 15, 2009, the Nation moved to intervene as a defendant in CACGECIII.  The Nation’s proposed interventionand participation as a defendant are expressly restricted to the three claimsfor relief specified in the plaintiffs’ complaint, namely:  (1) whether, as restricted fee landsover which the Nation exerts governmental authority, the Buffalo CreekTerritory qualifies as “Indian lands” under IGRA; (2) whether the BuffaloCreek Territory is subject to the general prohibition found in section 2719 ofIGRA against gaming on trust lands acquired after IGRA’s effective date eventhough the Territory consists of restricted fee, rather than trust, lands; and (3) whether,if the Buffalo Creek Territory is subject to Section 2719’s generalprohibition, Class III gaming may nevertheless proceed on it because theBuffalo Creek Territory was acquired in settlement of a land claim.

 

Theplaintiffs are opposing the Nation’s motion and as of August 14, 2009, theNation’s motion was still pending before the Court.

 

Ifthe plaintiffs ultimately succeed in this action, or in their pending appealsin the CACGEC I and CACGEC II proceedings, the SGC may be unable to conduct anyClass III gaming at its existing properties.

 

***SenecaGaming Authority Proposed Notices of Violation issued to the Seneca GamingCorporation and Employees dated July 13, 2009.***

 

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**Summary**

 

On July 14,2009, SGC received a proposed Notice of Violation dated July 13, 2009, orthe 2009 NOV, from the Seneca Gaming Authority, or the SGA, alleging fifteenviolations of certain sections of the Class III Gaming Ordinance and theSeneca Nation of Indians-State of New York Compact, (“Compact”), as well as ourCharter.  In addition to SGC, elevenemployees received similar notices arising out of the same set of facts,alleging from five to twelve violations of the provisions noted above.   Each of the alleged violations isattributable to SGC’s accounting treatment of an alleged table games inventory(i.e., gaming chips) discrepancy of $25,971 that arose due to a single humanerror during an ordinary course table games move on April 3, 2009.  The notices from the SGA indicate that eachof the alleged violations carries with it a potential fine of $500 per day perviolation imposed from the date of the initial alleged infraction, April 3,2009, or approximately $1,000,000 for the SGC and approximately $8,000,000 inthe aggregate for the eleven individuals as of August 14, 2009.

 

As more fully describedbelow, the alleged accounting discrepancy was properly documented in SGC’saccounting records and had a net effect of zero at the close of the reportingperiod and at no time was the applicable inventory unaccounted for or at riskof misappropriation or loss.  Subsequentto receipt of the proposed NOVs, a review by PricewaterhouseCoopers, serving asour internal auditors, supports SGC’s conclusion that:  (1) SGC’s internal controls immediatelyidentified the alleged discrepancy; (2) the alleged discrepancy wasdocumented and resolved through proper procedures and protocols (includingnotification of the SGA); (3) an appropriate audit trail was created forall adjustments that were made; (4) assets were appropriately safeguarded,and (5) duties were appropriately segregated.  SGC is currently awaiting a response from theSGA with regard to whether final proposed NOVs will be issued, after which timeeach recipient will have 30 days to appeal. In the event final proposed NOVs are issued by the SGA, for the reasonsnoted above, and numerous additional substantive and procedural issues relatingto the merits of the proposed violations, the scope of the recipients, and theamounts of the proposed fines, SGC intends to vigorously defend itself, andintends to fully support the defense of its employees in this matter.  Notwithstanding SGC’s position that noviolations occurred, given the potential significance of the actions taken bythe SGA to date, we include below a more detailed description of this matter.

 

**SupplementalDescription of Facts**

 

On April 3,2009 an error occurred during the relocation of certain game tables at ourSeneca Niagara Casino & Hotel in which the table games manager forsuch tables failed to remove inventory (i.e., gaming chips) from the tablesinvolved in the relocation and transport the inventory to the cage prior tomoving the tables.  Rather, the inventoryon the tables remained and in certain instances was subsequently assigned tonew table numbers when the tables were relocated.  As a result, the closing inventory of anygiven numbered table on the shift prior to the move did not match the openinginventory of the re-numbered tables subsequent to the move.  In order to open the tables in our electronicaccounting system, ACSC, the inventory for each table had to be adjusted suchthat the closing inventory for the prior shift and the opening inventory on theopening shift of relocation were the same. This adjustment resulted in adiscrepancy of $25,791 in the recorded electronic inventory vis-a-vis thephysical inventory on the tables at the time of the relocation**. **However, at no timewere the gaming chips not under our control, nor were such assets at risk ofmisappropriation or loss.  The effect ofthe discrepancy was an understatement of revenue on April 2, 2009 and acorrecting and exactly corresponding overstatement on April 3, 2009,resulting in a net effect of zero at the close of the reporting period.  Upon further review, and upon discussion withthe SGA, the inventory of each table was again adjusted such that each table’sopening inventory matched the physical inventory on the tables at that time,and consequently did not match the closing inventory of the table prior to therelocation.  This adjustment alsoresulted in a discrepancy of $25,791. These known, identified variances were appropriately documented in, andsupported by, the accounting records.

 

As a result of theevents on April 3, 2009, the 2009 NOV alleges that we and the namedemployees violated certain provisions of the Class III Gaming Ordinanceand the Compact as well as one provision of our charter. Specifically, the NOValleges violations of provisions pertaining to:

 

(i) the maintenanceof books and records (a) sufficient to establish the amount of gross andnet income, deductions and expenses and other information required in anyfinancial statement, report or other accounting prepared, (b) toaccurately and fairly reflect each day’s transactions, including but notlimited to the receipt of funds, expenses, prize claims, so as to permitpreparation of monthly and annual financial statements in conformity withGenerally Accepted Accounting Principles, or GAAP, (c) pertaining to the Class IIIgaming operation, including, but not limited to accounting records and (d) of

 

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all transactionspertaining to the company’s revenues and expenses, assets, liabilities andequity in conformance with GAAP;

 

(ii) the knowingsubmission of false or misleading information to the regulatory authorities inresponse to any provision of applicable law;

 

(iii) themaintenance of a system of internal controls designed to ensure that the assetsof the company are safeguarded, that the accountability for assets ismaintained in accordance with GAAP, that only authorized personnel have accessto assets and that the functions, duties and responsibilities are appropriatelysegregated and performed in accordance with sound practices by competent,qualified personnel and the training of the company’s personnel in allaccounting and internal control practices and procedures relevant to eachemployee’s function;

 

(iv) certaintechnical and procedural requirements pertaining to the storage of inventorywhen a table is not in use, the generation and storage of “fills” and “credits”in such a way that the data is not susceptible to change or removal afterpreparation and the maintenance of drop boxes corresponding to each gamingtable; and

 

(v) theestablishment and installation by the company’s board of directors of anaccounting system (a) in conformity with accounting principles generallyaccepted in the gaming industry and (b) necessary and advisable, in thereasonable discretion of the board of directors, in order to manage the assetsof the company and the gaming assets of the Nation, which accounting systemshall ensure the availability of information as may be necessary to comply withthe Compact and with applicable Nation and federal regulatory requirements.

 

The NOV alleges fifteenviolations in total. As a result of the alleged violations, SGA proposed finesof $500.00 per day, per violation, from the date of the infraction, April 3,2009, for each of our company and for four of the eleven employees named in the2009 NOV. The remaining seven employees are cited for five to twelve of thefifteen alleged violations.  Further, the2009 NOV outlines six corrective measures to be taken, including establishingand implementing controls to prevent the manipulation of inventory accounting,segregating duties and limiting access to certain records, developing protocolfor table game projects, implementing procedures and controls to ensureseparation of duties within the income audit department and training allemployees on policies for conducting table games projects.

 

We and the eleven namedemployees responded to the proposed NOVs in writing within the five daysprescribed by the SGA’s Notice of Violation and Enforcement Procedures.  In our response, we state that despite theisolated instance of human error, we maintain adequate internal controls andprocedures and, in fact, such controls and procedures were effective inenabling us to address and rectify the error to the best of our ability.Accordingly, we dispute each of the fifteen violations cited in the NOV in ourresponse.

 

We maintain in ourresponse letter that once the error occurred, our internal control processes,which include appropriate segregation of duties, were followed diligently andeffectively.  Immediately upon detectingthat the table closers for five of the tables were incorrect, our pit floorsupervisors sent error notification slips/discrepancy reports to theappropriate parties, including the SGA, pursuant to our Internal Controls andProcedures.  Also when the pit clerkcould not open certain tables in ACSC due to the differing closing and openinginventories, discussions to correct the issue ensued among our Tables GameManager, Cage Manager, the Casino Controller, the Casino Accountant and ourIncome Audit Department.  Further, asdiscussed above, we self-reported to the SGA immediately upon discovering theerror and met with the SGA following****of theincident.

 

Although we areconfident that no violations occurred, and in the corresponding determinationto the same effect by PricewaterhouseCoopers, we can provide no assurance thatthe SGA will agree with us.  According tothe SGA Notice of Violation and Enforcement Procedures, we may receive aproposed final assessment within 10 days of the issuance of the initialNOVs.  Although such date has passed,according to the SGA Notice of Violation and Enforcement Procedures, “[f]ailureto serve the proposed final assessment timely shall not affect its validity”**.**   In accordance withthe SGA Notice of Violation and Enforcement Procedures, if a proposed finalassessment is issued by the SGA instead of a withdrawal or dismissal of the2009 NOVs, the Company and each of the individuals who receive a final proposedNOV will have thirty days to file an appeal. The appeal will be heard by the SGA Commission.   It is unclear what appeal rights we mayhave, if any, from

 

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an adversedecision from the SGA Commission.  Wehave been in continuous contact with the SGA since the issuance of the NOV andplan to vigorously defend the allegations set forth therein.

 

**Item 1A.**                 Risk Factors

 

There are no materialchanges from the risk factors previously disclosed in our Annual Report on Form 10-Kfor the fiscal year ended September 30, 2008, except as disclosed in ourquarterly reports on Form 10-Q, including without limitation, the riskfactors relating to our Seneca Buffalo Creek Casino set forth in “Part I.  Item 2 — Management’s Discussion and Analysisof Financial Condition and Results of Operations” — “Executive Summary —Buffalo Creek Casino” and those relating to our expansion and developmentprojects set forth in “Part I.  Item2 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations” — Liquidity and Capital Resources”, and those relating to LegalProceedings set forth in “Part II.  Other Information:  Item 1. Legal Proceedings.”

 

**Item 2.**                    Unregistered Sales of Equity Securities and Use ofProceeds

 

Notapplicable.

 

**Item 3.**                    Defaults Upon Senior Securities

 

Notapplicable.

 

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

 

Notapplicable.

 

**Item 5.**                    Other Information

 

Not applicable.

 

**Item 6.****                   ****Exhibits**

 
| (a) |   | Exhibits (listed according  to the number assigned in the table in Item 601 of Regulation S-K): |
|-----|--------|-------------------------------------------------------------------------------------------------|

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                                                         |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1             |       | Certification of Catherine  Walker, principal executive officer, pursuant to Rule 13a-14 and 15d-14  of the Securities Exchange Act of 1934 (filed herewith).                                                                                      |
|             |       |                                                                                                                                                                                                                                                    |
| 31.2             |       | Certification of David  Sheridan, principal financial officer, pursuant to Rule 13a-14 and  15d-14 of the Securities Exchange Act of 1934 (filed herewith).                                                                                        |
|             |       |                                                                                                                                                                                                                                                    |
| 32.1             |       | Certification of Catherine  Walker, principal executive officer and David Sheridan, principal financial  officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |

 

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**SIGNATURES**

**SENECA GAMING CORPORATION**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

Dated August 14,2009

 
| /s/ Catherine Walker                          |   |
|-----------------------------------------------|--------|
| Catherine Walker                              |   |
| Chief Operating Officer                       |   |
| (Principal Executive  Officer)                |   |
|                                          |   |
|                                          |   |
| /s/ David Sheridan                            |   |
| David Sheridan                                |   |
| Chief Financial Officer                       |   |
| (Principal Financial and  Accounting Officer) |   |

 

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