**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended March 31, 2007**

**OR**

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

**For the transition period from                     to**

**CommissionFile Number: **333-117633

**SENECA GAMING CORPORATION**

(Exact name of registrantas 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.) |

 

**310Fourth Street**

**NiagaraFalls, New York (Seneca Nation Territory) 14303**

**(716) 299-1100**

(Address,including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant has (1) has filed allreports required to be filed by Section 13 or 15 (d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes x    No o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

Yes o    No x

At May 14, 2007, the registrant had no outstanding shares of commonstock. The registrant is wholly owned by the Seneca Nation of Indians.

 

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**TABLE OF CONTENTS**
| **PART I.    FINANCIAL  INFORMATION** | **Page Number**                                                                                                       |
|-------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
| Item 1.                                         | Financial Statements                                                                                                  |   |
|                                            | Consolidated Balance  Sheets as of March 31, 2007 (Unaudited) and September 30, 2006                                  | 1 |
|                                            | Consolidated  Statements of Operations for the three months and six months ended March 31,  2007 and 2006 (Unaudited) | 2 |
|                                            | Consolidated  Statements of Cash Flows for the six months ended March 31, 2007 and 2006  (Unaudited)                  | 3 |
|                                            | Notes to  Condensed Consolidated Financial Statements                                                                 | 4 |
| Item 2.                                         | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                           | 8 |
| Item 3.                                         | Quantitative  and Qualitative Disclosures About Market Risk                                                           | 21 |
| Item 4.                                         | Controls and  Procedures                                                                                              | 21 |
|                                            |                                                                                                                  |   |
| **PART II.   OTHER  INFORMATION**     | ** **                                                                                                            |
| Item 1.                                         | Legal Proceedings                                                                                                     | 22 |
| Item  1A.                                       | Risk  Factors                                                                                                         | 24 |
| Item 2.                                         | Unregistered  Sales of Equity Securities and Use of Proceeds                                                          | 25 |
| Item 3.                                         | Defaults Upon  Senior Securities                                                                                      | 25 |
| Item 4.                                         | Submission of  Matters to a Vote of Security Holders                                                                  | 25 |
| Item 5.                                         | Other Information                                                                                                     | 25 |
| Item  6.                                        | Exhibits                                                                                                              | 26 |
|                                            | Signatures                                                                                                            | 27 |

 

ii

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**PART I. FINANCIAL INFORMATION**

**Item I.****                              FinancialStatements**

**SENECAGAMING CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**
| ** **                         | ** ** | **March 31,  2007**             | ** ** | **September 30,  2006** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **(Dollars in Thousands)** | ** ** |
| **Assets**                         | ** ** | ** **                           | ** ** | ** **                   | ** ** |
| Current assets:                    |       |                                 |       |                         |       |
| Cash and cash  equivalents         |       | $                                    | 54,912     |                         | $          | 78,195 |   |
| Short-term  investments            |       | 24,600                               |       | 62,300                       |       |
| Receivables from  affiliates       |       | 316                                  |       | 410                          |       |
| Other  receivables, net            |       | 2,075                                |       | 2,139                        |       |
| Inventories                        |       | 3,504                                |       | 2,734                        |       |
| Other current  assets              |       | 7,527                                |       | 6,268                        |       |
| Total current  assets              |       | 92,934                               |       | 152,046                      |       |
|                               |       |                                 |       |                         |       |
| Property and equipment,  net       |       | 677,679                              |       | 615,207                      |       |
| Restricted cash                    |       | 14,579                               |       | 25,800                       |       |
| Other long-term assets             |       | 60,096                               |       | 47,323                       |       |
|                               |       |                                 |       |                         |       |
| Total assets                       |       | 845,288                              |       | $                            | 840,376    |   |
|                               |       |                                 |       |                         |       |
| **Liabilities and Capital**        | ** ** | ** **                           | ** ** | ** **                   | ** ** |
| Current liabilities:               |       |                                 |       |                         |       |
| Trade payables                     |       | 6,193                                |       | 4,939                        |       |
| Construction  payables — SCMC |       | 23,344                               |       | 52,489                       |       |
| Distributions  payable to Nation   |       | 24,000                               |       | 24,000                       |       |
| Exclusivity fees  payable          |       | 9,475                                |       | 7,263                        |       |
| Accrued interest                   |       | 15,104                               |       | 15,104                       |       |
| Customer point  liability          |       | 9,838                                |       | 11,632                       |       |
| Accrued  regulatory expenses       |       | 18,759                               |       | 14,700                       |       |
| Other current  liabilities         |       | 23,853                               |       | 26,271                       |       |
| Total current  liabilities         |       | 130,566                              |       | 156,398                      |       |
|                               |       |                                 |       |                         |       |
| Long-term debt                     |       | 494,847                              |       | 494,347                      |       |
|                               |       |                                 |       |                         |       |
| Total  liabilities                 |       | 625,413                              |       | 650,745                      |       |
|                               |       |                                 |       |                         |       |
| Capital:                           |       |                                 |       |                         |       |
| Retained earnings                  |       | 219,875                              |       | 189,631                      |       |
|                               |       |                                 |       |                         |       |
| Total liabilities and  capital     |       | $                                    | 845,288    |                         | $          | 840,376 |   |

 

See accompanying notes toconsolidated financial statements.

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**SENECA GAMING CORPORATION**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Unaudited)**
| ** **                               | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                         | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)**             | ** ** |
|                                     |       |                                             |       |                                           |       |   |   |   |   |
| **Revenues**                             | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                   |       | $                                                | 138,404    |                                           | $          | 126,615 |   | $ | 279,677 |   | $ | 236,653 |   |
| Food and  beverage                       |       | 12,759                                           |       | 12,559                                         |       | 26,028 |   | 22,345 |   |
| Lodging                                  |       | 4,587                                            |       | 1,521                                          |       | 9,245 |   | 1,582 |   |
| Retail,  entertainment and other         |       | 4,352                                            |       | 4,852                                          |       | 9,597 |   | 9,513 |   |
| Less:  Promotional allowances            |       | (24,228                                          | )          | (16,290                                        | )          | (48,495 | ) | (31,921 | ) |
| Net revenues                             |       | 135,874                                          |       | 129,257                                        |       | 276,052 |   | 238,172 |   |
|                                     |       |                                             |       |                                           |       |   |   |   |   |
| **Expenses**                             | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                   |       | 36,440                                           |       | 32,859                                         |       | 69,421 |   | 60,899 |   |
| Food and  beverage                       |       | 10,848                                           |       | 11,565                                         |       | 22,145 |   | 20,375 |   |
| Lodging                                  |       | 2,229                                            |       | 1,388                                          |       | 4,596 |   | 1,492 |   |
| Retail,  entertainment and other         |       | 2,242                                            |       | 2,872                                          |       | 5,811 |   | 5,774 |   |
| Advertising,  general and administrative |       | 36,871                                           |       | 32,423                                         |       | 72,129 |   | 63,848 |   |
| Pre-opening  costs                       |       | 5,903                                            |       | 1,875                                          |       | 10,582 |   | 4,932 |   |
| Depreciation and  amortization           |       | 11,534                                           |       | 8,291                                          |       | 22,610 |   | 15,362 |   |
|                                     |       |                                             |       |                                           |       |   |   |   |   |
| Total operating  expenses                |       | 106,067                                          |       | 91,273                                         |       | 207,294 |   | 172,682 |   |
|                                     |       |                                             |       |                                           |       |   |   |   |   |
| Operating income                         |       | 29,807                                           |       | 37,984                                         |       | 68,758 |   | 65,490 |   |
| Other  non-operating expenses            |       | —                                           |       | —                                         |       | (286 | ) | — |   |
| Interest income                          |       | 1,087                                            |       | 1,356                                          |       | 2,491 |   | 2,827 |   |
| Interest expense                         |       | (7,959                                           | )          | (7,214                                         | )          | (16,522 | ) | (14,906 | ) |
|                                     |       |                                             |       |                                           |       |   |   |   |   |
| Net income                               |       | $                                                | 22,935     |                                           | $          | 32,126 |   | $ | 54,441 |   | $ | 53,411 |   |

 

See accompanyingnotes to consolidatedfinancial statements.

2

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**SENECAGAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| ** **                                                                         | ** ** | **Six Months Ended**       | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**                   | ** ** |
| ** **                                                                         | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| ** **                                                                         | ** ** | **(Dollars in Thousands)** | ** ** |
| **Cash  flows relating to operating activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                    | 54,441     |   | $ | 53,411 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                      |       | 22,610                               |       | 15,362 |   |
| Amortization of deferred financing costs and debt  discount                        |       | 1,615                                |       | 1,585 |   |
| Other                                                                              |       | 91                                   |       | 210 |   |
|                                                                               |       |                                 |       |   |   |
| Change in  operating assets and liabilities:                                       |       |                                 |       |   |   |
| Current assets                                                                     |       | (1,923                               | )          | (467 | ) |
| Current liabilities                                                                |       | 3,313                                |       | 7,841 |   |
|                                                                               |       |                                 |       |   |   |
| Net cash  provided by operating activities                                         |       | 80,147                               |       | 77,942 |   |
|                                                                               |       |                                 |       |   |   |
| **Cash  flows relating to investing activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                               |       | (114,264                             | )          | (119,635 | ) |
| Land acquisition  costs                                                            |       | (15,250                              | )          | (15,946 | ) |
| Drawdown/(payment)  on letter of credit                                            |       | 11,221                               |       | (33,500 | ) |
| Sales of  investments, net                                                         |       | 37,700                               |       | 13,741 |   |
|                                                                               |       |                                 |       |   |   |
| Net cash used in  investing activities                                             |       | (80,593                              | )          | (155,340 | ) |
|                                                                               |       |                                 |       |   |   |
| **Cash  flows relating to financing activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Payment of  deferred financing costs                                               |       | —                               |       | (542 | ) |
| Distributions  paid to the Nation                                                  |       | (22,837                              | )          | (9,225 | ) |
|                                                                               |       |                                 |       |   |   |
| Net cash used in  financing activities                                             |       | (22,837                              | )          | (9,767 | ) |
|                                                                               |       |                                 |       |   |   |
| Net decrease in  cash                                                              |       | (23,283                              | )          | (87,165 | ) |
|                                                                               |       |                                 |       |   |   |
| Cash balances:                                                                     |       |                                 |       |   |   |
| Beginning of period                                                                |       | 78,195                               |       | 142,467 |   |
| End of period                                                                      |       | $                                    | 54,912     |   | $ | 55,302 |   |

 

See accompanying notes toconsolidated financial statements.

3

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**SENECAGAMING CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.**                                      Organization and Basis of Presentation

The consolidated financial statements include theaccounts of Seneca Gaming Corporation, or SGC, and its wholly ownedsubsidiaries, or collectively, the Company. In consolidation, all intercompany balances and transactions have beeneliminated.  The accompanying unauditedconsolidated financial statements have been prepared in accordance with U.S.generally accepted accounting principles for interim financialinformation.  Accordingly, they do notinclude all of the information and notes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of SGC’s management, alladjustments, consisting of normal recurring accruals, considered necessary fora fair presentation have been included. Operating results for the six months and three months ended March 31,2007 are not necessarily indicative of the results that may be expected for theyear ended September 30, 2007.  Forfurther information, reference is made to the consolidated financial statementsand notes thereto included in SGC’s Annual Report on Form 10-K for the fiscalyear ended September 30, 2006, or 2006 Form 10-K, as well as SGC’s otherfilings with the Securities Exchange Commission, or SEC, pursuant to theSecurities Exchange Act of 1934, as amended, and the Securities Act of 1933, asamended.

SGC, which was formed on August 1, 2002, iswholly owned by the Seneca Nation of Indians, or the Nation, a federallyrecognized Indian nation.  SGC wasorganized by the Nation to operate and manage its Class III gaming activitieson the Nation’s territories pursuant to the Indian Gaming Regulatory Act of1988, or IGRA.  Under IGRA, federallyrecognized Indian tribes are permitted to conduct full-scale casino gamingoperations on tribal land, subject to, among other things, the negotiation of acompact with the affected state. Pursuant to IGRA, the Nation entered into the Nation-State GamingCompact with the State of New York in August 2002, or the Compact, which hasbeen approved by the Federal Bureau of Indian Affairs, Department of theInterior.  The Compact expires inDecember 2016 and automatically renews for an additional seven year periodunless either the Nation or the State of New York objects in writing, in whichcase the parties are required to negotiate in good faith to address theobjecting party’s concerns, with only the issue of a party’s good faith subjectto third party dispute resolution.  TheCompact provides that its terms will remain in effect during the pendency ofsuch negotiations  The Compact providesthe Nation the right to conduct Class III gaming activities at three sitesin the western region of the State of New York. The right is exclusive, subject to certain limited exceptions.

The Nation’s Council, or the Council, acts as theNation’s legislative authority, and acts on the Nation’s behalf with respect toSGC.  The Council enacted a gamingordinance which established the Seneca Gaming Authority, or SGA, to regulatethe gaming activities of SGC under the Compact.

The Council, at the request of the SGC Board ofDirectors, chartered three subsidiary corporations of SGC to operate the threesites authorized by the Compact.  Inaddition, the SGC Board of Directors hired the senior management of SGC,including the President and Chief Executive Officer, to oversee, develop, andmanage the three sites.  The subsidiarycorporations are as follows:

·              Seneca Niagara Falls GamingCorporation, or SNFGC

·              Seneca Territory GamingCorporation, or STGC

·              Seneca Erie Gaming Corporation, orSEGC

SNFGC was formed on August 1, 2002 to operate theNation’s gaming activities in Niagara Falls, New York.  Operations at SNFGC’s casino, or SenecaNiagara Casino, commenced December 31, 2002.  On December 30, 2005, SNFGC officially openedthe first 10 of 26 floors of rooms of its luxury hotel, which includes 35,000square feet of additional gaming space, three new restaurants, three new retailstores and a 25,200 square-foot multi-purpose room and an additional8,000 square feet of conference and banquet space.  On March 31, 2006, the remaining 16 floors ofthe luxury hotel, including a penthouse floor featuring one and two bedroomsuites with butler service, were officially opened, along with a full-servicespa, salon, fitness center and pool.**** The luxury hotel is adjacent and connected tothe Seneca Niagara Casino.  The entirecomplex, including the luxury hotel and the Seneca Niagara Casino, is referredto as the Seneca Niagara Casino and Hotel.

4

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STGC was formed on September 20, 2003 to operatethe Nation’s gaming activities near Salamanca, New York on its existingterritorial land. Operations at STGC’s casino, the Seneca Allegany Casino,commenced May 1, 2004.  On December28, 2006, a permanent 92,000 square feet gaming facility was opened, providing37,000 square feet more gaming space than the original 55,000 square feetgaming facility.  The expansion projectwas completed on March 30, 2007, with the opening of a 212-room resort hotel,two fine dining restaurants, a spa and fitness center, and retail and otheramenities.  The entire complex, includingthe Seneca Allegany Casino and resort hotel, is referred to as the SenecaAllegany Casino and Hotel.

SEGC was formed on August 9, 2003 to operate theNation’s gaming activities in Erie County, New York.  On October 3, 2005, the Nation acquiredapproximately nine acres of land in the inner-harbor district of downtownBuffalo, New York.  SEGC commencedconstruction of its Seneca Buffalo Creek Casino on those nine acres onDecember 8, 2005.  The exclusiveright, under the Compact, to establish and operate a third Class IIIgaming facility in Erie County may terminate if the Nation or SEGC fails tocommence Class III gaming operations in Erie County by December 9,2007.  SEGC expects to open the temporarySeneca Buffalo Creek Casino in Summer 2007 to satisfy the timing requirementsset forth in the Compact.

**2.**                                      Long-Term Debt

Long-term debt, as described below, consists of the2004 and 2005 71⁄4% senior notes.

**71⁄4% Senior Notes**

On May 5, 2004, SGC issued $300.0 million in71⁄4% senior notes due 2012, or the 2004 senior notes.  On May 23, 2005, SGC issued an additional$200.0 million in 71⁄4% senior notes due 2012, Series B, or the 2005 seniornotes.  The 2004 and 2005 senior notesare guaranteed by SNFGC, STGC and SEGC. The 2005 senior notes are treated as a single class with the 2004 seniornotes and are identical to the 2004 senior notes, except for certain taxattributes and prior to November 1, 2005 the amount of interest accruedthereon.   Interest on the 2004 and 2005senior notes is payable semi-annually on May 1 and November 1.  The 2004 and 2005 senior notes are unsecuredand rank equally.  As of March 31, 2007,aggregate accrued interest on the 2004 and 2005 senior notes was$15.1 million. The senior notes mature on May 1, 2012, are redeemable atSGC’s option in whole or in part at any time after May 1, 2008, at theredemption prices set forth in SGC’s Indenture, are subject to redemptionrequirements imposed by gaming laws and regulations and are required to berepurchased by SGC at the option of holders upon certain change of controlevents.

The Indenture governing the 2004 and 2005 senior notescontains certain financial and non-financial covenants.  The financial covenants include limitationson restricted payments, the incurrence of indebtedness and affiliatetransactions, while the non-financial covenants include reporting obligationsand compliance with laws and regulations. As of March 31, 2007, SGC was in compliance with all covenants in theIndenture.

5

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**3.****                                      Related-PartyTransactions**

**Land Leases from the Nation**

The Nation has entered into operating lease agreements(each a Head Lease) with each of SGC’s wholly owned subsidiaries, SNFGC, STGCand SEGC.  Due to the related partynature of these leases, which can be effectively modified by the Nation, SGCrecords monthly lease expense equal to the required payment amount for therespective month.  Lease paymentincreases under the Head Leases are restricted under the terms of the Indenturegoverning the senior notes.  These leasescontain no renewal options or escalation clauses.

The SNFGC Head Lease (dated October 25, 2002) has aterm of 21 years and covers use of the land and certain improvements existingat the commencement of such lease, principally structures formerly known as theNiagara Falls Convention Center and Lackey Plaza.   As of October 1, 2005, monthly leasepayments under the SNFGC Head Lease were $1,287,500.  On December 11, 2006, the lease payments wereincreased by 3% effective October 1, 2006, to $1,326,125 per month, as approvedby the board of directors of SGC and SNFGC. The lease payments may be further increased by up to 3% each October 1,subject to approval  by the board ofdirectors of SNFGC and compliance with the terms of the Indenture governing SGC’ssenior notes.  Lease payments under theSNFGC Head Lease are payable only to the extent that sufficient funds areavailable, measured on an annual basis, from the net proceeds derived from theoperation of the casino facilities and other related operations.  If on an annual basis sufficient funds arenot available, any shortfall in the rent amount does not accumulate.

The STGC (effective as of May 1, 2004) and SEGC (effectiveas of April 1, 2006) Head Leases were formerly oral agreements, which werememorialized in writing on March 2, 2007. Both of these Head Leases cover use of the land that is currently beingused or is expected to be used in operating the Seneca Allegany Casino andHotel and Seneca Buffalo Creek Casino, respectively.  The STGC and SEGC Head Leases are effectiveuntil the date 21 years after the commencement of the Nation’s Class III gamingoperations under the Compact.  Withrespect to the STGC Head Lease, as of October 1, 2005, monthly lease paymentswere $1,287,500.  On December 11, 2006,the lease payments were increased by 3% effective October 1, 2006, to$1,326,125 per month, as approved by the board of directors of STGC.  With respect to the SEGC Head Lease, for thefirst six months of the term, SEGC made monthly lease payments of $520,000 tothe Nation.  Effective October 1, 2006,the SEGC board of directors approved an increase to SEGC’s monthly leasepayments to $1,250,000.  Each October 1,annual rent under both the STGC and SEGC Head Leases will increase to 103% ofthe prior year’s annual rent, provided that no increase in annual rent will beeffective if it violates or results in a default under, any agreement,indenture, instrument or other commitment legally binding upon STGC or SEGC (orthe Nation), or to which the leased premises are subject.  Under SGC’s Indenture, annual Head Leasepayment increases in excess of 3% require a written opinion from an independentfinancial advisor stating that the terms of the transaction are fair, from afinancial point of view, to the applicable SGC subsidiary.

Lease expense resulting from the above agreements wereas follows for the three and six month periods ended March 31, 2007 and 2006:
|            | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                         | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** ** | ** ** | **(In Millions of Dollars)**      | ** ** |
|       |       |                                             |       |                                           |       |   |   |   |   |
| SNFGC      |       | $                                                | 4.0        |                                           | $          | 3.9 |   | $ | 8.0 |   | $ | 7.7 |   |
|       |       |                                             |       |                                           |       |   |   |   |   |
| STGC       |       | 4.0                                              |       | 3.9                                            |       | 8.0 |   | 7.7 |   |
|       |       |                                             |       |                                           |       |   |   |   |   |
| SEGC       |       | 3.8                                              |       | 0                                              |       | 7.5 |   | 0 |   |
|       |       | $                                                | 11.8       |                                           | $          | 7.8 |   | $ | 23.5 |   | $ | 15.4 |   |

 

SNFGC and STGC bothrecord the lease costs as a component of advertising, general andadministrative costs in the accompanying consolidated statements ofoperations.  SEGC records the lease costas a component of pre-opening costs in the accompanying consolidated statementsof operations.

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**Other Related Party Transactions**

SNFGC, STGC andSEGC have each entered into a construction management agreement with SenecaConstruction Management Corporation, or SCMC, for the construction of theluxury hotel project at Seneca Niagara Casino, the construction of the resorthotel project at Seneca Allegany Casino, and construction of the SEGC temporarySeneca Buffalo Creek Casino, respectively. SCMC is wholly-owned by the Nation. For the three-month period and six-month period ended March 31, 2007,SNFGC, STGC and SEGC have collectively made payments to SCMC for constructionmanagement fees and other related costs of $1.8 million and $2.6 million,respectively.

SNFGC and STGClease space within the Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively, for operation of poker rooms by Seneca Gaming& Entertainment, a Class II business enterprise of the Nation.  For the three-month periods ended March 31,2007 and 2006, SGC recorded $0.2 million and $0.2 million of poker room rentalincome and fees, respectively, and for the six-month periods ended March 31,2007 and 2006, SGC recorded $0.4 million and $0.4 million of rental income andfees, respectively.  At March 31, 2007and 2006, SGC has recorded $0.3 million and $0.5 million, respectively, as areceivable from the Nation relating to poker room rentals and fees.

EffectiveSeptember 1, 2006, SGC declared cash distributions to the Nation totaling $26.0million, payable in thirteen equal monthly payments of $2.0 million beginningSeptember 2006.  Effective December 1,2006, SGC declared additional cash distributions to the Nation totaling $20.0million, payable in ten equal monthly payments of $2.0 million beginningDecember 2006.  For the six months endedMarch 31, 2007, SGC paid cash distributions of $20.0 million to the Nationpursuant to the foregoing distribution declarations. The remaining declaredcash distributions of $24.0 million which are payable on future payment datesare shown as ‘Distributions payable to Nation’ on the accompanying  consolidated balance sheets.

Duringthe six months ended March 31, 2007 and 2006, SGC recorded distributions to theNation of acquired real property of $1.4 million and $4.7 million,respectively, for use in its casino and other related entertainmentoperations.  Such distribution amountswere based on the acquisition cost of the real property.

Inaddition, SGC has recorded approximately $48.3 million in land and relatedacquisition costs as ‘Other long-term assets’ in the accompanying balancesheets as of March 31, 2007, which are expected to be transferred to theNation.

SGCis charged by the Nation for SGA costs incurred by the Nation.  SGA costs charged to SGC were approximately$2.6 million for both the three months ended March 31, 2007 and 2006,respectively and $5.0 million and $4.9 million for the six months ended March31, 2007 and 2006, respectively.  SGCalso incurs costs, which are passed through to the Nation, for New York Stategaming regulatory services, New York State Police services and CattaraugusCounty Sheriff Department services.  SGChas recorded costs of approximately $2.0 million and $1.9 million for thethree-month periods ended March 31, 2007 and 2006, respectively, and $4.0 millionand $3.7 million for the six months ended March 31, 2007 and 2006,respectively, in connection with these services.  At March 31, 2007 and September 30, 2006,approximately $18.8 million and $14.7 million, respectively, of SGA, otherregulatory, and police costs were recorded as current liabilities.

STGC leases officespace in a building owned by the brother of Maribel Printup, a member of SGC’sboard of directors.  For the three-monthperiods ended March 31, 2007 and 2006, such lease expense totaled $61,000 and$60,000, respectively, and for the six month period ended March 31, 2007 and2006, such lease expense totaled $123,000 and $119,000, respectively.

**4.****                                      Commitmentsand Contingencies**

**The Seneca Nation Compact**

As part of its Compact, the Nation agrees tocontribute to the State of New York a portion of the proceeds from theoperation and conduct of each category of gaming device for which exclusivityexists, based upon the win of such machines (cash dropped into machines, afterpayouts but before expenses) and totaled on a cumulative quarterly basis to beadjusted annually at the end of the relevant calendar year.  The exclusivity fee to the State of New Yorkfor years 1-4 (through December 31, 2006) was 18.0% payable on an annual basis.  Thereafter, the exclusivity fee is 22.0% foryears 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.

7

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Pursuant to the Compact, amounts due to New York Stateare payable by the Nation.  In February,2005, SNFGC and STGC commenced monthly payments to the Nation of each entity’sprior month’s exclusivity fees.  For thethree months ended March 31, 2007 and 2006, total exclusivity fees were $25.1million and $19.2 million, respectively. Of the $25.1 million exclusivity fee for the three months ended March31, 2007, $18.0 million was attributable to SNFGC and $7.1 million wasattributable to STGC. For the six months ended March 31, 2007 and 2006, totalexclusivity fees were $45.8 million and $35.7 million, respectively.  Of the $45.8 million exclusivity fee for thesix months ended March 31, 2007, $32.9 million was attributable to SNFGC and$12.9 million was attributable to STGC.

**Planned Additional CasinoLocation and Other Expansion**

Asdescribed in Note 1, the Compact provides the Nation the right to conductClass III gaming activities at three sites in the western region of theState of New York.  The plannedconstruction of the third casino, in Erie County, New York, as well asadditional construction planned at the Seneca Allegany Casino and Hotel, willrequire significant capital outlays.  Theamount and timing of these capital expenditures are dependent on variousfactors including certain Nation and other governmental approvals, the effectsof legal and/or administrative proceedings, construction timelines, and theperformance of SGC’s two operating casinos.

**Distribution Agreement Obligations**

On April 27, 2007, SGC entered into a DistributionAgreement among the Nation, the Seneca Nation of Indians Capital ImprovementsAuthority, or the Authority, SGC and Wells Fargo Bank, as Trustee, inconnection with the Authority’s issuance in two series (one tax exempt and theother taxable) of an aggregate principal amount of $159,495,000 specialobligation bonds, or the 2007 Bonds.  TheDistribution Agreement obligates SGC, subject to any contractual restrictionsapplicable to SGC (including those contained in the Indenture governing SGC’s2004 and 2005 senior notes), to make monthly distributions to the Nation at thetimes and in the amounts necessary to enable the Authority to pay the debtservice on the 2007 Bonds as required under the Authority’s indenture.  At the direction of the Nation and theAuthority, SGC will pay such distributions directly to the Trustee.  The Authority’s debt service commences onJune 1, 2007.  For the period from June1, 2007 through December 1, 2007, the Authority’s debt service averagesapproximately $0.9 million per month. For the period from January 1, 2008through December 1, 2013, the Authority’s debt service averages approximately $1.8million per month. For the period from June 1, 2014 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 Agreementprovides that neither the Trustee nor the Authority’s bondholders will have anyrecourse under the Distribution Agreement to any revenues, assets or propertyof SGC or its subsidiaries should SGC fail to comply with its distributionobligations.

**Item 2.**                           Management’s Discussion andAnalysis of Financial Condition and Results of Operations

You should read the following discussion and analysisin conjunction with the sections titled “Financial Statements” and “Notes toConsolidated Financial Statements” included elsewhere in this Quarterly Reporton Form 10-Q.  References below to yearsare to fiscal years of SGC unless otherwise noted. SGC’s fiscal year is fromOctober 1 through September 30.

**Forward-LookingStatements**

Whenused in this Quarterly Report on Form 10-Q, in other filings with the SEC, inour press releases or in our other public communications, the words “believe,” “estimate,”“anticipate,” “expect,” “contemplate,” “may,” “will” and similar expressionsare intended to identify forward-looking statements.  Statements looking forward in time areincluded in this Quarterly Report on Form 10-Q pursuant to the “safe harbor”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 2006 Form 10-K.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of theirrespectivedates.  We undertake noobligation to update these forward-looking statements to reflect events or circumstancesoccurring after their respective dates.

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**Overview**

SGC is wholly owned by the Nation and chartered tomanage and direct all of the Nation’s Class III gaming operations on the Nation’sterritories.   The Nation entered into aCompact with New York State on August 18, 2002 that provides the Nationwith the right to establish and operate three Class III gaming facilitiesin Western New York.  We opened our firstClass III gaming facility, Seneca Niagara Casino and Hotel (then SenecaNiagara Casino), on Nation Territory in the City of Niagara Falls, New York onDecember 31, 2002, featuring Class III slot machines, table games andkeno.  Our expanded facility at SenecaNiagara Casino and Hotel, including a 604-room luxury hotel with additionalgaming space, three restaurants, events center, meeting and conference space,and a spa and salon was substantially open at December 31, 2005 and completelyopen at March 31, 2006.  This facility isoperated by our wholly-owned subsidiary, SNFGC. On May 1, 2004, we opened our second Class III gaming facility,Seneca Allegany Casino and Hotel (then Seneca Allegany Casino), on the Nation’sTerritory in the City of Salamanca, New York. This facility features Class III slot machines and tablegames.  This facility is operated by ourwholly owned subsidiary, STGC.  OnDecember 28, 2006, we officially opened our permanent gaming floor at SenecaAllegany Casino and Hotel, and on March 30, 2007 we officially opened our new212-room resort hotel with two fine dining restaurants, a spa and fitnesscenter, and retail and other amenities. Under the Compact, the Nation has the right  to establish and operate a thirdClass III gaming facility to be located in Erie County, New York.  The Nation’s right is exclusive, subject tocertain limited exceptions. On October 3, 2005, the Nation acquiredapproximately nine acres of land in the inner harbor district of Buffalo, NewYork (Buffalo Creek Territory).  Wecommenced construction of the Seneca Buffalo Creek Casino on those nine acreson December 8, 2005.  The Nation’sexclusivity rights, under the Compact, with respect to the establishment andoperation of a third Class III gaming facility in Erie County mayterminate if the Nation or SEGC fails to commence Class III gamingoperations in Erie County by December 9, 2007.  We expect to open a temporary Class IIIgaming facility during Summer 2007, which we believe fulfills the Nation’sCompact obligations as to the third Class III gaming facility in order tomaintain our exclusivity rights under the Compact.  See “Executive Summary — Seneca Buffalo CreekCasino” and “Part II. Item 1. — Legal Proceedings” for information regardingthe status of and litigation related to our Seneca Buffalo Creek Casino.

**Executive Summary**

*Our Current Operations*. We currently operate two Class III gaming facilities, SenecaNiagara Casino and Hotel, on Nation territory located in the City of NiagaraFalls, New York, and Seneca Allegany Casino and Hotel, on the Nation’s Alleganyterritory located near the City of Salamanca, New York.  Our operations include gaming, dining,lodging, entertainment and retail.  Forthe three and six months ended March 31, 2007, approximately 94% of our netrevenue was derived from our gaming activities.

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

*Seneca Niagara Casino and Hotel*. Seneca Niagara Casino and Hotel continues to rely primarily on drive-inand bus patrons from the Buffalo, Niagara Falls, and Rochester areas in NewYork and secondarily from the Erie, Pennsylvania area, Ohio and other parts ofNew York.  Since its partial opening onDecember 30, 2005, and with a more notable increase since final completionof the luxury hotel and amenities in March 2006, Seneca Niagara Casino andHotel has experienced continuous growth in its patron base.  With the completion of our 604-room luxuryhotel and related amenities in March 2006, we believe we have increasedhigher-end patron volume, gaming activity and length of stay, and extended ourgeographic penetration, and have appealed to a more diverse demographicbase.  The total cost to construct andequip the luxury hotel was approximately $234.0 million.

*Seneca Allegany Casino and Hotel*. Since opening on May 1, 2004, Seneca Allegany Casino and Hotel hasexperienced steady growth in its patron base, net revenue, andprofitability.  Seneca Allegany Casinoand Hotel has attracted patrons from the southern portion of Western New York,Erie and Pittsburgh, Pennsylvania, and Ohio. From opening through March 31, 2007, approximately 68% of the casino’spatron base has come from outside of the State of New York.

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On March 30, 2007, we opened a 212-room resort hotel,two fine dining restaurants, a 24-hour casual restaurant, retail andcertain related amenities at Seneca Allegany Casino and Hotel.  On December 28, 2006, we officially openedthe new permanent gaming floor. We expect that the total cost to construct andequip the resort hotel and permanent casino will be approximately$167.0 million.  As of March 31,2007, we have capitalized approximately $151.9 million of costs related to thisexpansion project. We are converting the former approximate 120,000 square foottemporary casino structure into an events center with seating capacity for1,700 people, along with additional administrative and support space. Weestimate that the cost of this conversion, including extensive landscaping andfaçade enhancements, will be approximately $40 million.  We plan to fund this additional constructionwith cash flows from operations and cash on hand.  We estimate that the events center will openby the end of December 2007. We believe the new resort hotel, permanent casinoand events center will provide a first-class gaming experience for our patrons,increase their length of stay and maintain the competitive position of thisfacility in light of competition in Pennsylvania, consisting principally of anew gaming facility that opened in Erie, Pennsylvania (Presque Isle Downs) inlate February 2007, located approximately 80 miles from the Seneca Allegany Casino and Hotel and 120 miles fromthe Seneca Niagara Falls Casino and Hotel.

*Seneca Buffalo Creek Casino*.  On October 3, 2005, the Nation acquiredapproximately nine acres of land in the inner-harbor district of Buffalo, NewYork.  Initially, the nine acre parcelwas bisected by a two-block section of a street owned by the City of Buffalo(Fulton Street).  In November 2006, weacquired the two-block section of Fulton Street from the City of Buffalo for apurchase price of $0.6 million.  In orderto meet the requirements of the Compact, on December 8, 2005 we beganconstruction of a temporary Class III gaming facility on the Seneca BuffaloCreek Territory.  We anticipate openingthe temporary casino in Summer 2007, but no later than the December 9,2007 Compact deadline. This temporary facility is expected to be approximately6,000 square feet, and will feature approximately 125 slot machines and a snackbar.  The total cost to construct andequip the temporary facility is estimated to be $8.5 million.

In addition, we continueto finalize our plans for a permanent casino on the Seneca Buffalo CreekTerritory.  The Seneca Buffalo CreekCasino permanent facility is expected to initially feature 1,900 to 2,200 slotmachines, 30 to 50 table games, two fine dining restaurants, a conference andmeeting room space, a 2,500-space parking garage and retail and otheramenities. The total cost to construct and equip the permanent Seneca BuffaloCreek Casino is estimated to be $125 million. Our estimates may change as we finalize the design and elements of thepermanent Seneca Buffalo Creek Casino and related amenities.  We intend to operate the permanent SenecaBuffalo Creek Casino in a manner that will complement both Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel.

Our ability to complete, and the timing of the openingof both the temporary and permanent Seneca Buffalo Creek Casinos will depend onvarious factors, including existing legal challenges.  Reference is made to our 2006 Form 10-K for adescription of the legal proceedings relating to our planned Seneca BuffaloCreek Casino.  See also “Part II. Item 1- Legal Proceedings” for material developments regarding certain of theseproceedings.  In the event that we areable to open a casino in Erie County, this casino will be owned and operated bySEGC.

*Marketing*.  We believe we are the premier gaming operatorin Western New York and in the areas of northern Pennsylvania and Ohio locatedwithin our primary and secondary markets. We use an integrated marketing strategy to attract and retain ourpatrons and to brand the Seneca name.  Wecoordinate our marketing events to maximize the quality and length of stay ofpatron visits and to minimize competition among our gaming facilities.  With the opening of the luxury hotel andrelated amenities at the Seneca Niagara Casino and Hotel and the resort hoteland related amenities at Seneca Allegany Casino and Hotel, we have increasedand intend to further increase our marketing efforts in the region, includingin areas of New York outside of the Niagara Falls and Salamanca areas, and inPennsylvania, Ohio, and Toronto, Canada, and in areas outside the regionincluding Michigan, Massachusetts and Connecticut.

*Current, Continued and Future Reliance on Cash Flow*.  We intend to fund the maintenance of ourfacilities and our current expansion projects from our cash flow and cash onhand.  We currently rely and willcontinue to rely on our ability to generate cash flow from operations to meetour debt and other obligations.

*Seasonality*.  Due to factors including continuedconstruction and expansion activity during our initial years of operation, wehave not yet been able to clearly determine the effect of seasonality on ouroperations.

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*OverallOutlook*.  Since theopening on December 31, 2002 of the Seneca Niagara Casino, we have investedsignificantly in the development, expansion and maintenance of our gamingproperties. In the remainder of fiscal 2007, investments are planned tocontinue with the conversion of the former Seneca Allegany temporary casinointo an events center, and the planned opening of our temporary Seneca BuffaloCreek Casino.

We believe theWestern New York hotel, entertainment and gaming markets are significantlyunderserved, and our exclusivity, as provided in the Nation’s Compact with theState of New York, gives us the opportunity to serve these markets by providingour patrons with unique entertainment and gaming experiences. In addition, webelieve the March 2006 opening of our hotel at Seneca Niagara Casino and Hoteland the March 2007 opening of our resort hotel at Seneca Allegany Casino andHotel has enabled and will continue to enable us to penetrate a wider geographicarea and attract higher-end gaming patrons, providing us with a competitiveadvantage.

To assist us inmaintaining our position as the premier gaming operator in western New Yorkstate and in the areas of northern Pennsylvania and Ohio within our primary andsecondary markets, and to provide for expanded opportunities in the conventionand tourism markets, we continue to proceed with a master planning process forthe Niagara Falls, Allegany and Buffalo gaming and related facilities. Aprincipal goal is for each of these facilities to complement each other,offering diverse gaming, hotel and entertainment experiences for our guests.

**CriticalAccounting Policies and Estimates**

There have been no changes in critical accountingpolicies and estimates since the filing of our 2006 Form 10-K.

**Operating Results- Three Months Ended March 31, 2007 Compared to the Three Months Ended March31, 2006**

*OperatingResults*
|                                          | ** ** | **Three Months Ended  March 31,**     | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
| ** **                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net revenue                              |       | $                                                    | 135,874    |   | $ | 129,257 |   |
| ** **                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Operating  expenses:                     |       |                                                 |       |   |   |
| Gaming                                   |       | 36,440                                               |       | 32,859 |   |
| Food and  beverage                       |       | 10,848                                               |       | 11,565 |   |
| Lodging                                  |       | 2,229                                                |       | 1,388 |   |
| Retail, entertainment  and other         |       | 2,242                                                |       | 2,872 |   |
| Advertising,  general and administrative |       | 36,871                                               |       | 32,423 |   |
| Pre-opening  costs                       |       | 5,903                                                |       | 1,875 |   |
| Depreciation                             |       | 11,534                                               |       | 8,291 |   |
|                                     |       |                                                 |       |   |   |
| Operating income                         |       | $                                                    | 29,807     |   | $ | 37,984 |   |

 

The most important factors and trends affecting ouroperating performance during the three months ended March 31, 2007 and 2006 were:

*Positive factors and trends*

·                  Ourcontinued expansion at and investment in both of our properties, most notablyour December 31, 2005 partial opening and March 31, 2006 complete opening ofthe luxury hotel expansion project at Seneca Niagara Casino and the December28, 2006 opening of the new permanent gaming floor at Seneca Allegany Casinoand Hotel.

·                  Ourability to successfully market Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel to our primary and secondary markets located within100 miles and 175 miles, respectively, of such casinos.

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·                  Ourability to enroll approximately 1.3 million patrons in our cross-propertySeneca Player’s Club program, which has increased our ability to use effectivedirect mail and targeted marketing programs to establish patron loyalty to theSeneca brand at a profitable level.

·                  Ourmix of slot machines, which we believe is superior to our competition andincludes the latest product introductions by leading United States andinternational slot manufacturers.

·                  Ouruse of current information technology, including “ticket-in/ticket-out” slotmachines, automated ticket redemption machines, player tracking systemenhancements and the on-going development of a Seneca brand inter-propertyprogressive link.

*Negative factors and trends*

·                    Theimpact of ongoing construction on operations at Seneca Allegany Casino andHotel in preparation for the opening of the 212 room resort hotel and relatedamenities on March 30, 2007, and inclement winter weather during the quarter.

·                    Afour percentage point increase in the slot exclusivity fee rate from 18% to22%, effective January 1, 2007, pursuant to the Compact.

*Detailed Revenue Information*
|                                          | ** ** | **Three Months Ended  March 31,**     | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                     |       |                                                 |       |   |   |
| Gaming revenue:                          |       |                                                 |       |   |   |
| Slots                                    |       | $                                                    | 121,487    |   | $ | 108,400 |   |
| Table games                              |       | 16,801                                               |       | 18,101 |   |
| Keno                                     |       | 116                                                  |       | 114 |   |
|                                     |       |                                                 |       |   |   |
| Gaming revenue                           |       | 138,404                                              |       | 126,615 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming  revenue:                     |       |                                                 |       |   |   |
| Food and  beverage                       |       | 12,759                                               |       | 12,559 |   |
| Lodging                                  |       | 4,587                                                |       | 1,521 |   |
| Retail,  entertainment and other         |       | 4,352                                                |       | 4,852 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming  revenue                      |       | 21,698                                               |       | 18,932 |   |
| Less promotional  allowances and credits |       | (24,228                                              | )          | (16,290 | ) |
|                                     |       |                                                 |       |   |   |
| Net revenue                              |       | $                                                    | 135,874    |   | $ | 129,257 |   |

 

Our gaming revenue for the three months ended March31, 2007 increased relative to the comparable period in the prior year, due to(a) the complete opening of our luxury hotel and related amenities at SenecaNiagara Casino and Hotel on March 31, 2006, (b) additional marketing programsto attract more higher level gaming patrons, and (c) continued growth of ourplayer database.  As of March 31, 2007,our gaming operations featured an aggregate 141 table games and 6,499 slotmachines, representing a net increase of 17 table games and 243 slot machinesfrom March 31, 2006.  During theseperiods, the number of patrons enrolled in our Seneca Player’s Club program hassteadily increased.  As of March 31,2007, we had approximately 1.3 million patrons enrolled, an increase ofapproximately 234,000 patrons, or 22% over the number of enrolled members atMarch 31, 2006.

Our net gaming revenue, which excludes promotionalslot credits of $10.6 million and $5.3 million in the quarters ended March 31,2007 and 2006, respectively, increased $6.5 million, or 5%.  During the three months ended March 31, 2007,Seneca Niagara Casino and Hotel’s net gaming revenue increased $7.0 million, or8%, principally attributable to the casino expansion and supported by the newluxury hotel and amenities.  Thisincrease reflected an $8.0 million growth in net slot revenue, which waspartially offset by a $1.0 million decrease in net table games

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revenue, attributable to a lower table games holdpercentage in the current quarter in relation to the comparable quarter in theprior year.  The $5.3 million increase inpromotional slot credits was principally due to increased slot play, along withsubstantially higher redemptions resulting from our “Great Exchange” marketingpromotion which alternated between our two casinos each month during the threemonths ended March 31, 2007, and allowed patrons to exchange a portion of theirSeneca Player’s Club points for promotional slot credits.  Seneca Allegany Casino and Hotel’s net gamingrevenue for the quarter ended March 31, 2007 was $35.4 million, a decrease of$0.5 million, or 1%, from the quarter ended March 31, 2006, mainly due to alower table games hold percentage during the 2007 quarter.****Therevenue growth at Seneca Allegany Casino and Hotel for the quarter ended March31, 2007 was also negatively impacted by inclement winter weather conditionsduring the quarter and by on-going construction disruption, as we madepreparations for the opening of the new hotel and other amenities during March2007.

Our food and beverage revenue has increased in directrelation to our increase in gaming revenue. There is a direct relationship between our food and beverage revenue andour gaming revenue because a significant portion of this revenue is generatedfrom Seneca Player’s Club point redemptions.

For the three months ended March 31, 2007 and 2006,58% and 60%, respectively, of our food and beverage revenue, represented SenecaPlayer’s Club point redemptions.  For thethree months ended March 31, 2007, our consolidated food and beverage revenueincreased $0.2 million, or 2% over the same period in 2006, to $12.8 million.

Seneca Niagara Casino and Hotel’s food and beveragerevenue for the quarter ended March 31, 2007 increased $0.1 million, or 2%, inrelation to the comparable period for the prior year.

Lodging revenue represents rentals of rooms in theluxury hotel in Niagara Falls, which partially opened in late December 2005,and completely opened on March 31, 2006, along with nominal revenue from theresort hotel at Seneca Allegany Casino and Hotel, which officially opened onMarch 30, 2007.

For the three months ended March 31, 2007, our retail,entertainment and other revenue decreased by $0.5 million in relation tothe comparable 2006 period.  Thisdecrease was primarily attributable to lower retail revenue of $0.3 million atour Seneca Niagara Casino and Hotel, due to a higher level of complimentarysales in the comparable quarter in the prior year, which coincided with theopening of our luxury hotel and retail shops. For the three months ended March31, 2007 and 2006, 83% and 85% of our retail revenue, respectively, representedSeneca Player’s Club point redemptions.

*DetailedOperating Expenses Information*
|                                          | ** ** | **Three Months Ended  March 31,**     | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                     |       |                                                 |       |   |   |
| Operating  expenses:                     |       |                                                 |       |   |   |
| Gaming                                   |       | $                                                    | 36,440     |   | $ | 32,859 |   |
| Food and  beverage                       |       | 10,848                                               |       | 11,565 |   |
| Lodging                                  |       | 2,229                                                |       | 1,388 |   |
| Retail,  entertainment and other         |       | 2,242                                                |       | 2,872 |   |
| Advertising,  general and administrative |       | 36,871                                               |       | 32,423 |   |
| Pre-opening  costs                       |       | 5,903                                                |       | 1,875 |   |
| Depreciation and  amortization           |       | 11,534                                               |       | 8,291 |   |
| Total Operating  expenses                |       | $                                                    | 106,067    |   | $ | 91,273 |   |

 

Gaming expenses principally consist of costs incurredfrom operating our table games and slot machines, of which the primarycomponents are related payroll and employee benefit costs, and the slotexclusivity fee due to New York State pursuant to the Compact.   The slot exclusivity fee increased by $5.9million from $19.2 million for the three months ended March 31, 2006 to$25.1 million for the three months ended March 31, 2007, due to higher net slotrevenues, along with a four percentage point increase in the slot exclusivityfee rate from 18% to 22%, effective January 1, 2007, pursuant to the Compact.Approximately $4.6 million of the $5.9 million increase in slot exclusivityfees was due to the 4% increase in the rate under the Compact. In addition,gaming-related promotional expenses decreased $2.7 million in relation to thecomparable 2006 quarter primarily due to a decrease in patron incentive pointsexpense resulting from the expansion of our “Great Exchange” promotion in 2007,pursuant to which a significant number of Seneca Player’s Club points wereconverted into free slot play during each month of fiscal 2007**.**

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Food and beverage expenses are costs we incur for theoperation of our restaurants, snack bars and beverage outlets.  The primary components of these expenses arethe cost of food and beverage products and related payroll and employee benefitexpenses.  For the quarter ended March31, 2007, food and beverage product costs decreased $0.6 million due to certainchanges to menu mix, as well as other operational changes which have resultedin improved cost efficiency.

Lodging expenses primarily represent our costs tooperate SNFGC’s luxury hotel.  Thecomponents of these expenses include payroll and other employee benefitexpenses, guest amenity supplies, laundry and other expenses.  For the three months ended March 31, 2007,lodging expenses increased $0.8 million, or 61%.  This increase is principally due to operatingthe full hotel in Niagara Falls for the entire three month period in 2007,while for the quarter ended March 31, 2006 the luxury hotel was not fullyopened until March 31, 2006.

Retail, entertainment and other expenses represent ourcosts to operate our retail shops and entertainment offerings.  The components of these expenses includerelated payroll and employee benefit costs, the cost of products offered forsale in our retail outlets, and contract costs for entertainers.  For the three months ended March 31, 2007,these costs decreased approximately $0.6 million, or 22%, over the comparable2006 period, due principally to a $0.6 million decrease in headlineentertainment costs in the current year’s quarter at the Seneca Niagara Casinoand Hotel.

Advertising, general and administrative expenses areincurred to support our operations.  These expenses consist primarily of related payroll and employeebenefits costs, regulatory, advertising, rent, marketing, insurance, legal andenergy costs.  For the three months endedMarch 31, 2007 and 2006, such costs were $36.9 million and $32.4 million,respectively, an increase of $4.4 million, or 14%.  The increase was mainly attributable to a$1.9 million increase in related payroll and benefits costs primarily in thefacilities and maintenance areas, and also included approximately $0.6 million inexecutive separation payments, $0.7 million in increased advertising costssupporting entertainment and other amenities, $0.6 million increase in energycosts, and $0.2 million increase in property taxes relating to SNFGC landpurchases which have not yet been transferred to the Nation.

Pre-opening expenses are non-recurring costs incurredto support the expected opening of new facilities.  For the three months ended March 31, 2007 and2006, such costs were $5.9 million and $1.9 million, respectively, an increaseof $4.0 million.  The increase was mainlydue to $3.8 million in head lease expense in the quarter ended March 31, 2007related to SEGC’s lease of land on the Seneca Buffalo Creek Territory for theconstruction and operation of the Seneca Buffalo Creek Casino, along with coststo support the opening of Seneca Allegany Casino and Hotel’s resort hotel,partially offset by the absence of pre-opening costs in the current quarterrelating to Seneca Niagara Casino and Hotel, which completely opened in lateMarch 2006.

For the three months ended March 31, 2007 and 2006,depreciation and amortization expense was $11.5 million and $8.3 million,respectively, an increase of $3.2 million, or 39%.  This increase was attributable to the openingof our additional gaming and  retailspace and luxury hotel at Seneca Niagara Casino and Hotel, which costapproximately $234.0 million and was completely placed into service on March31, 2006, along with the addition of our permanent gaming floor at SenecaAllegany Casino and Hotel, which was placed in service on December 28, 2006.

*Non-Operating Expenses*

The following tablesummarizes information related to interest on our long-term debt:
|                  | ** ** | **Three Months Ended  March 31,**     | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **       | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|             |       |                                                 |       |   |   |
| Interest expense |       | $                                                    | 7,959      |   | $ | 7,214 |   |
|                  |            |                                                      |            |  |  |  |  |

 

Our interest expense for the three months ended March31, 2007 increased $0.7 million over the three months ended March 31,2006.  This increase was primarilyattributable to a $0.7 million reduction in the amount of interest

14

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capitalized in the quarter ended March 31, 2007 inrelation to the comparable 2006 quarter. Capitalized interest relating to construction projects for the quartersended March 31, 2007 and 2006 was $1.9 million and $2.6 million, respectively,and are recorded as components of net property and equipment within theaccompanying consolidated balance sheets.

**Operating Results - Six Months Ended March 31,2007 Compared to the Six Months Ended March 31, 2006**

*OperatingResults*
|                                         | ** ** | **Six Months Ended  March 31,**       | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                              | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                    |       |                                                 |       |   |   |
| Net revenue                             |       | $                                                    | 276,052    |   | $ | 238,172 |   |
|                                    |       |                                                 |       |   |   |
| Operating  expenses:                    |       |                                                 |       |   |   |
| Gaming                                  |       | 69,421                                               |       | 60,899 |   |
| Food and beverage                       |       | 22,145                                               |       | 20,375 |   |
| Lodging                                 |       | 4,596                                                |       | 1,492 |   |
| Retail,  entertainment and other        |       | 5,811                                                |       | 5,774 |   |
| Advertising, general and administrative |       | 72,129                                               |       | 63,848 |   |
| Pre-opening costs                       |       | 10,582                                               |       | 4,932 |   |
| Depreciation                            |       | 22,610                                               |       | 15,362 |   |
|                                    |       |                                                 |       |   |   |
| Operating income                        |       | $                                                    | 68,758     |   | $ | 65,490 |   |

 

The most important factors and trends contributing to our operatingperformance during the six months ended March 31, 2007 and 2006 were similar tothose noted above for the three month periods ended March 31, 2007 and 2006.

*Detailed Revenue Information*
|                                          | ** ** | **Six Months Ended  March 31,**       | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
| ** **                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Gaming revenue:                          |       |                                                 |       |   |   |
| Slots                                    |       | $                                                    | 242,672    |   | $ | 203,086 |   |
| Table games                              |       | 36,803                                               |       | 33,345 |   |
| Keno                                     |       | 202                                                  |       | 222 |   |
|                                     |       |                                                 |       |   |   |
| Gaming revenue                           |       | 279,677                                              |       | 236,653 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming  revenue:                     |       |                                                 |       |   |   |
| Food and  beverage                       |       | 26,028                                               |       | 22,345 |   |
| Lodging                                  |       | 9,245                                                |       | 1,582 |   |
| Retail,  entertainment and other         |       | 9,597                                                |       | 9,513 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming revenue                       |       | 44,870                                               |       | 33,440 |   |
| Less promotional  allowances and credits |       | (48,495                                              | )          | (31,921 | ) |
|                                     |       |                                                 |       |   |   |
| Net revenue                              |       | $                                                    | 276,052    |   | $ | 238,172 |   |

 

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Our gaming revenue for the six months endedMarch 31, 2007 increased relative to the comparable period last year due to (a)the opening of the additional gaming space at Seneca Niagara Casino and Hotelon December 15, 2005, which added approximately 950 slot machines and 21 tablegames to our operations, (b) the full six month impact of the complete openingof the luxury hotel at Seneca Niagara Casino on March 31, 2006, (c) theaddition of 150 slot machines at Seneca Allegany Casino and Hotel, and (d)continued growth in our patron base.  Asof March 31, 2007, our gaming operations featured an aggregate of 141 tablegames and 6,499 slot machines available to our patrons, representing a net increase of 17 tablegames and 243 slot machines from March 31, 2006.  During these periods, the number of patronsenrolled in our Seneca Player’s Club program has steadily increased.  As of March 31, 2007, we had approximately1.3 million patrons enrolled, an increase of approximately 0.2 million patrons,or 22% over the number of enrolled members at March 31, 2006.

Our net gaming revenue, which excludes promotional credits of $20.0million and $11.8 million in the six month periods ended March 31, 2007 and2006, respectively, increased $34.9 million, or 16%, for the six months endedMarch 31, 2007 relative to the comparable six month period ended March 31,2006.  During the six months ended March31, 2007, Seneca Niagara Casino and Hotel’s net gaming revenue increased $33.9million, or 22%, principally attributable to the casino expansion and supportedby the new luxury hotel and its amenities. Seneca Allegany Casino and Hotel’s net gaming revenue for the six monthsended March 31, 2007 was $70.8 million, an increase of $0.9 million or 1% fromthe six months ended March 31, 2006. This minimal increase reflects the negative financial impact ofdisruption relating to the construction of the resort hotel during the sixmonths ended March 31, 2007, and inclement winter weather conditions during thethree month period ending March 31, 2007.

Our food and beverage revenue and retail revenue have increased indirect relation to our increase in gaming revenue.  There is a direct relationship between ourfood and beverage revenue and our gaming revenue because a significant portionof this revenue is generated from players’ point redemptions.  For the six months ended March 31, 2007 and2006, 58% and 60%, respectively, of our food and beverage revenue represented SenecaPlayer’s Club point redemptions.  For thesix months ended March 31, 2007, food and beverage revenue increased $3.7million, or 16% to $26.0 million versus the same period ended March 31,2006.  For the six months ended March 31,2007 Seneca Niagara Casino and Hotel generated an additional $3.5 million infood and beverage revenue versus the comparable period ended March 31, 2006,primarily due to the addition of three new restaurants and two bars opened inDecember 2005.  Seneca Allegany Casinoand Hotel’s food and beverage revenue for the six months ended March 31, 2007increased $0.2 million, or 4%, in relation to the comparable period ended March31, 2006.

Lodging revenue represents rentals of rooms in the luxury hotel inNiagara Falls, which partially opened in December 2005, and completely openedon March 31, 2006.

For the six months ended March 31, 2007, our retail, entertainment andother revenue increased by $0.1 million in relation to the comparable 2006period.  This increase was primarilyattributable to a $0.6 million increase in entertainment revenue at our SenecaNiagara Casino and Hotel due to an increased number and quality of shows at theSeneca Events Center, partially offset by a $0.5 million decrease in retailrevenues at both casinos, due to lower complimentary retail sales. For the sixmonths ended March 31, 2007 and 2006, 85% and 87% of our retail revenue,respectively, represented Seneca Player’s Club point redemptions

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*DetailedOperating Expenses Information*
|                                          | ** ** | **Six Months Ended  March 31,**       | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                     |       |                                                 |       |   |   |
| Operating expenses                       |       |                                                 |       |   |   |
| Gaming                                   |       | $                                                    | 69,421     |   | $ | 60,899 |   |
| Food and  beverage                       |       | 22,145                                               |       | 20,375 |   |
| Lodging                                  |       | 4,596                                                |       | 1,492 |   |
| Retail,  entertainment and other         |       | 5,811                                                |       | 5,774 |   |
| Advertising,  general and administrative |       | 72,129                                               |       | 63,848 |   |
| Pre-opening  costs                       |       | 10,582                                               |       | 4,932 |   |
| Depreciation and  amortization           |       | 22,610                                               |       | 15,362 |   |
| Operating expenses                       |       | $                                                    | 207,294    |   | $ | 172,682 |   |

 

Gaming expenses principally consist of costs incurred from operatingour table games and slot machines, of which the primary components are relatedpayroll and employee benefit costs, and the slot exclusivity fee due to NewYork State pursuant to the Compact.  Theslot exclusivity fee increased by $10.1 million from $35.7 million for thesix months ended March 31, 2006 to $45.8 million for the six months ended March31, 2007.  This was due to increased slotrevenue, along with the four percentage point increase in the slot exclusivityfee effective January 1, 2007 pursuant to the Compact. Approximately $4.6million of the $10.1 million increase in slot exclusivity fees was due to the4% increase in the rate under the Compact.  In addition, gaming-related payroll and benefits costs increased $0.7million in relation to the prior year six month period primarily due to theaddition of the expanded gaming floor at Seneca Niagara Casino and Hotel, whichopened December, 2005.  These increaseswere partially offset by a $3.0 million decrease in patron incentive pointsexpense due to the expansion of our “Great Exchange” promotion in 2007,pursuant to which a significant number of Seneca Player’s Club points wereconverted into free slot play during each month of fiscal 2007.

Food and beverage expenses are costs incurred for the operation of ourrestaurants, snack bars and beverage outlets. The primary components of these expenses are the cost of food andbeverages and related payroll and employee benefit expenses.  For the six months ended March 31, 2007, foodand beverage product cost increased $0.4 million associated with our revenueincrease, and food and beverage payroll and benefits increased $1.2 million inrelation to the six months ended March 31, 2006, due to the increased staffingrelated to the opening of three additional restaurants and two additional bars,in conjunction with the luxury hotel expansion at Seneca Niagara Casino andHotel.

Lodging expenses primarily represent our costs to operate SNFGC’sluxury hotel, which completely opened on March 31, 2006.  The components of these expenses includepayroll and other employee benefit expenses, guest amenity supplies, utilitiesand laundry and other expenses.   Theincrease in lodging expenses for the six months ended March 31, 2007 inrelation to the comparable prior year period is due to operating the full hotelfor all six months in the 2007 period.

Retail, entertainment and other expenses represent our costs to operateour retail shops and entertainment offerings. The components of these expenses include related payroll and employeebenefit costs, the cost of products offered for sale in our retail outlets, andcontract costs for entertainers.  For thesix months ended March 31, 2007 in relation to the same period in 2006, thesecosts remained relatively flat.

Advertising, general and administrative expenses are incurred tosupport our operations.   These expensesconsist primarily of related payroll and employee benefits costs, regulatory,advertising, rent, marketing, insurance, legal and energy costs.  For the six months ended March 31, 2007 and2006, such costs were $72.1 million and $63.8 million, respectively, an $8.3million increase, or 13%.  The increasewas mainly attributable to a $1.9 million increase in advertising costs insupport of increased entertainment and other amenities at both casinos, a $1.2million increase in energy costs reflecting the full six month impact of theexpanded facilities at Seneca Niagara Casino and Hotel, a $0.6 million increasein property taxes for land acquisitions for SNFGC which have not yet beentransferred to the Nation, a $0.4 million increase in regulatory costs in thesix months ended March 31, 2007 over the same period in 2006, and a $4.1million increase in labor and related costs and $1.9 million in otheroperational costs in support of expanded facilities at both casinos.

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*Non-OperatingExpenses*

The following tablesummarizes information related to interest on our long-term debt:
|                  | ** ** | **Six Months Ended  March 31,**       | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **       | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|             |       |                                                 |       |   |   |
| Interest expense |       | $                                                    | 16,522     |   | $ | 14,906 |   |
|                  |            |                                                      |            |  |  |  |  |

 

Our interest expense for the six months ended March31, 2007 increased $1.6 million over the six months ended March 31, 2006.  This increase was primarily attributable tolower capitalizedinterest related to our construction of the hotel at Seneca Niagara Casino andthe hotel at Seneca Allegany Casino during the six months ended March 31, 2007and 2006, which totaled $3.2 million and $4.7 million, respectively, andare recorded as components of net property and equipment within theaccompanying consolidated balance sheets.

**Liquidity and Capital Resources**

*Cash Flows*
|                                               | ** ** | **Six Months Ended  March 31,**       | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                          |       |                                                 |       |   |   |
| Net cash provided by  operations              |       | $                                                    | 80,147     |   | $ | 77,942 |   |
|                                          |       |                                                 |       |   |   |
| Cash flows relating to  investing activities: |       |                                                 |       |   |   |
| Capital  expenditures                         |       | (114,264                                             | )          | (119,635 | ) |
| Payments for  land acquisitions               |       | (15,250                                              | )          | (15,946 | ) |
| Drawdown/(payment)  for letter of credit      |       | 11,221                                               |       | (33,500 | ) |
| Sales of  investments, net                    |       | 37,700                                               |       | 13,741 |   |
| Net cash used in  investing activities        |       | (80,593                                              | )          | (155,340 | ) |
|                                          |       |                                                 |       |   |   |
| Cash flows relating to  financing activities: |       |                                                 |       |   |   |
| Payment of  deferred financing costs          |       | —                                               |       | (542 | ) |
| Distributions  paid to the Nation             |       | (22,837                                              | )          | (9,225 | ) |
| Net cash used in  financing activities        |       | (22,837                                              | )          | (9,767 | ) |
|                                          |       |                                                 |       |   |   |
| Net decrease in cash and cash equivalents     |       | $                                                    | (23,283    | ) | $ | (87,165 | ) |

 

*Cash Flows—Operating Activities.* The $2.2 million increase in cash flows fromoperations during the six months ended March 31, 2007 compared to the sameperiod in 2006 resulted principally from a $1.0 million increase in net incomeover the prior year, principally due to the positive financial impact of the luxuryhotel and expanded gaming and amenities at Seneca Niagara Casino and Hotel.

*Cash Flows—Investing Activities*.  Ourcapital expenditures of $114.3 million during the six months ended March31, 2007 were mainly comprised of $78.0 million of costs associated with theconstruction and equipping of the resort hotel and permanent gaming andamenities at the Seneca Allegany Casino and Hotel and $12.1 million related tofinal close-out of costs of the luxury hotel at Seneca Niagara Casino.  The remaining capital expenditures wereprincipally for the acquisition of equipment for existing casino operations andthe construction of an additional parking lot at Seneca Niagara Casino andHotel.  Sales and purchases ofinvestments represent transactions in short-term investments of excess cash ininstruments having a maturity of more than 90 days.

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The Compact designates approximately 50 acres of landin the City of Niagara Falls, New York, for ownership by the Nation.  Except for certain streets owned by the Cityof Niagara Falls, New York, and a bike path owned by the New York StateDepartment of Transportation, the acquisition of which properties is ongoing,SNFGC has acquired (for purposes of sale and transfer to the Nation), eitherthrough direct negotiated purchase from the owner(s) or through condemnationproceedings with the assistance of the Empire State Development Corporation, orESDC, substantially all of the land designated in Appendix I of the Compact forpotential acquisition by the Nation. Under the Compact, the Nation is requiredto fund the acquisition of such properties, including all related costs andexpenses. As initial security for the Nation’s obligations to pay siteacquisition costs and in furtherance of ongoing condemnation proceedings, wewere required to deliver to ESDC, and delivered, a letter of credit in theamount of $33.5 million, representing 150% of the then estimate of the totalremaining site acquisition costs not yet paid by SNFGC.  If the estimate of such site acquisitioncosts increases or if certain other events occur, SGC must provide anadditional letter of credit or replace the existing one with one for a largermonetary amount or, if acceptable to ESDC, provide a supplemental cash escrowamount.  In July 2006, we acquiredthrough condemnation approximately 18 acres of land and related trade fixturesfrom Fallsite, LLC, or Fallsite, and Fallsville, LLC, or Fallsville, for anaggregate initial advance payment of $18.0 million.  In conjunction with the Fallsite acquisitionreferenced above, in July 2006, $7.7 million was drawn under the letter ofcredit as partial funding of the purchase and the balance was paid from ouroperating cash.  In March 2007, anadditional $11.5 million was drawn under the letter of credit to fund theacquisition of 18 additional parcels of land and certain improvements.  As a result of amounts drawn under the letterof credit to date, the current letter of credit amount has been reduced toapproximately $14.3 million. This outstanding letter of credit is 100% collateralizedby a cash deposit in an interest-bearing restricted account with a bank.

The amounts paid to condemnees from whom we haveacquired property are deemed to be advanced payments.  Pursuant to the New York State Eminent DomainProcedure Law, New York state courts will determine the final purchase price tobe paid to such condemnees.  In July2006, each of Fallsite and Fallsville filed notice of claims seeking $40million and $35 million, respectively, for their land and trade fixtures.  We have been informed that appraisals for theland and trade fixtures prepared by ESDC’s appraisers are $12.3 million and$5.2 million, respectively.  We expectother condemnees to challenge the advanced payment amounts determined by ESDC’sappraisers.  If the New York state courtsdetermine that the value for the land and trade fixtures is higher than whatESDC has determined to be their values, then we would be liable for thedifference and potentially also responsible for certain additional costs andpayments to the applicable condemnee(s), such as their attorney fees.  The additional land we recently acquired hasnot yet been transferred to the Nation. We can provide no assurance that, upon transfer of such land to theNation, restricted fee status for such land will be sought by the Nation or, ifsought, approved.

*Cash Flows—Financing Activities*. Effective September 1, 2006, SGC declared a cash distribution of $26.0million to the Nation, payable in thirteen equal installments of $2.0 million,beginning in September 2006.  EffectiveDecember 11, 2006, we declared an additional cash distribution of $20.0 millionto the Nation, payable in ten equal installments of $2.0 million, beginning inDecember 2006.

*Principal Debt Arrangements*. As of March 31, 2007, our long-term debt consists of $300.0 million in2004 senior notes and $200.0 million in 2005 senior notes.  The senior notes carry a fixed annualinterest rate of 71⁄4% and semi-annual interest payments are due on May 1 and November1.

The 2004 and 2005 senior notes are unsecured and rankequally.  As of March 31, 2007 aggregateaccrued interest on the 2004 and 2005 senior notes was $15.1 million.  The senior notes mature on May 1, 2012, areredeemable at our option in whole or in part at any time after May 1, 2008, atthe redemption prices set forth in our Indenture, are subject to redemptionrequirements imposed by gaming laws and regulations and are required to berepurchased by us at the option of holders upon certain change of controlevents.

We expect cash generated from our operations,available cash and cash equivalents and short-term investments as of March 31,2007 will be sufficient to fund our expansion plans described below, serviceour debt, and meet our working capital requirements and other commitments andobligations for at least the next 12 months. However, our ability to fund our operations, make planned capitalexpenditures, service our debt and meet our other commitments and obliationsdepends on our future operating performance and cash flow (and may be impactedby any cash distributions to our owner, the Nation, in excess of those to bepaid pursuant to existing commitments and obligations, such as distributions topay or reimburse certain operating expenses, to pay declared distributions payableon future payment dates and to meet our obligations under the DistributionAgreement), which are in turn subject to prevailing economic conditions, and tofinancial, business and other factors, some of which are beyond

19

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our control. Additionally, unlike traditional corporations, we are prohibited by lawfrom generating cash through an offering of equity securities.  Also, our ability to make distributions tothe Nation and to incur additional indebtedness is restricted under the termsof the indenture governing the 2004 and 2005 senior notes and the DistributionAgreement.

We are highly leveraged and have significant interestpayment requirements on our 2004 and 2005 senior notes as well as othercommitments and obligations.  As such,limitations on our capital resources could force us to delay or abandon capitalprojects as well as the construction and development of new properties.

*Expansion Plans. *During the next 18 months, we plan to makesubstantial capital investments in our gaming facilities.

We recently completed construction of the permanentgaming floor at the Seneca Allegany Casino and a 212-room resort hotel andother amenities at this property.  Thepermanent casino floor was officially opened on December 28, 2006 and theresort hotel and related amenities opened on March 30, 2007.  We estimate the total cost to complete theresort hotel and permanent casino to be approximately $167.0 million. Wenow plan to proceed with the development of the next phase of construction atthe Seneca Allegany Casino and Hotel, to include conversion of the formeroriginal casino into an approximate 1,700 seat events center with additionaladministrative and support space, and certain exterior improvements to theoriginal casino, and the hotel and parking garage, including landscaping andother cosmetic improvements, at a total estimated cost of up to $40million.  We estimate completion of theinterior components of the original casino renovation by December 31, 2007.

As previously noted, weplan to open a temporary Class III gaming facility and to commence gamingoperations on the Seneca Buffalo Creek Territory in Summer 2007.  In addition, we continue to finalize ourplans for a permanent casino on the Seneca Buffalo Creek Territory.  The Seneca Buffalo Creek Casino permanentfacility is expected to initially feature 1,900 to 2,200 slot machines, 30 to50 table games, two fine dining restaurants, a conference and meeting roomspace, a 2,500-space parking garage and retail and other amenities. The totalcost to construct and equip the permanent Seneca Buffalo Creek Casino isestimated to be $125 million.  Ourestimates may change as we finalize the design and elements of the permanentSeneca Buffalo Creek Casino and related amenities.  We intend to operate the permanent SenecaBuffalo Creek Casino in a manner that will complement both Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel.

Our ability to complete, and the timing of, theopening of both the temporary and permanent Seneca Buffalo Creek Casinos willdepend on various factors, including existing legal challenges.  Reference is made to our 2006 Form 10-K for adescription of the legal proceedings relating to our planned Seneca BuffaloCreek Casino.  See also “Part II. Item 1- Legal Proceedings” for material developments regarding certain of theseproceedings.  In the event that we areable to open a casino in Erie County, this casino will be owned and operated bySEGC.

*Distribution Agreement Obligations*

On April 27, 2007, we entered into a DistributionAgreement among the Nation, the Seneca Nation of Indians Capital ImprovementsAuthority, or the Authority, us and Wells Fargo Bank, as Trustee, in connectionwith the Authority’s issuance in two series (one tax exempt and the othertaxable) of an aggregate principal amount of $159,495,000 special obligationbonds, or the 2007 Bonds.  TheDistribution Agreement obligates us, subject to any contractual restrictionsapplicable to us (including but not limited to those contained in the Indenturegoverning our 2004 and 2005 senior notes) to make monthly distributions to theNation at the times and in the amounts necessary to enable the Authority to paythe debt service on the 2007 Bonds as required under the Authority’s indenture.At the direction of the Nation and the Authority, we will pay suchdistributions directly to the Trustee. The Authority’s debt service commenceson June 1, 2007.  For the period fromJune 1, 2007 through December 1, 2007, the Authority’s debt service averagesapproximately $0.9 million per month. For the period from January 1, 2008through December 1, 2013, the Authority’s debt service averages approximately $1.8 millionper month. For the period from June 1, 2014 through December 1, 2023, theAuthority’s debt service averages approximately $1.2 million per month.The foregoing debt service averages are based on scheduled payments of interestand principal under the Authority’s indenture and bonds and do not address theeffects of any earlier call for redemption, by acceleration or otherwise. TheDistribution Agreement provides that neither the Trustee nor the Authority’sbondholders will have any recourse under the Distribution Agreement to anyrevenues, assets or property of SGC or its subsidiaries should we fail tocomply with our distribution obligations.  Reference is made to our Current Report on Form 8-K filed with the SECon May 1, 2007 for a description of the payment terms, including maturity datesand redemption terms, of the 2007 Bonds, and certain material terms of theDistribution Agreement.

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**Regulation**

Our operations are regulated by Nation laws, theCompact and federal statutes, most notably the Indian Gaming Regulatory Act, orIGRA.  Several bills have been proposedduring recent sessions of Congress that would have affected Indian gaming.  Most notably, in the most recent session ofCongress, Senator McCain’s S. 2078, the Indian Gaming Regulatory Act Amendmentsof 2006 and Congressman Pombo’s (R-CA) H. 4893, Restricting Indian Gaming to Homelandsof Tribes Act of 2006, proposed additional regulations for tribes and morerestrictions on “off-reservation” gaming. These bills contained provisions that would have grandfathered existingIndian gaming operations such as Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel.  Neither billwas passed by the either the House or Senate. Also, the administration has published proposed regulations relative tooff-reservation gaming.  Certain of suchbills and regulations, if enacted, could impair the ability of the Nation andSGC to expand its gaming operations and adversely impact the future growth ofthe Nation’s revenue base.  In addition,from time to time, various government officials have proposed taxing Indiancasino gaming or otherwise limiting or restricting the conduct of gamingoperations by Indian tribes.  Noassurance can be given that such legislation, if and when enacted by Congress,would not have a material adverse effect on the operations of SGC.  If Congress were to enact comprehensiveamendments to the IGRA, such legislation could have a material adverse effecton our operations.

Under federal law, gaming on the Nation’s lands may bedependent upon the permissibility under New York law of certain forms of gamingor similar activities.  If New York Statewere to make various forms of gaming illegal or against public policy (or thecourts were to similarly rule), or otherwise to take a legal position adverseto us, such actions could affect the ability of the Nation to conduct thoseforms of gaming under the Compact, which could have a material adverse effecton our ability to conduct gaming operations as currently conducted.

**New Accounting Pronouncements**

There are no accounting standards that have not yetbeen adopted which are expected to have a material impact on our financialreporting

**Item 3.**                           Quantitative and QualitativeDisclosures About Market Risk

Reference is made to our 2006 Annual Report on Form10-K for a complete discussion of our market risk.  This market risk information has notmaterially changed in the interim period.

**Item 4.**                           Controls and Procedures

**Evaluation of Disclosure Controls and Procedures**

We maintain disclosure controls and procedures (asthat term is defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, or the Exchange Act) that are designed to ensure thatinformation required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicated toour management, including our President and Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.  In designing and evaluatingthe disclosure controls and procedures, management recognized that any controlsand procedures, no matter how well designed and operated, have inherentlimitations due to cost issues, the possibility of human error, judgments andassumptions regarding the likelihood of future events, and the circumventionand overriding of the controls and procedures.  Accordingly, even effective disclosure of controls and procedures canprovide only reasonable assurance of achieving the desired control objectives.

SGC’s management, under the supervision and withparticipation of our Interim President and Chief Executive Officer and ChiefFinancial Officer (as our principal executive officer and principal financialofficer, respectively), has evaluated the effectiveness of the design andoperation of our disclosure controls and procedures.  Based on that evaluation, our InterimPresident and Chief Executive Officer and Chief Financial Officer haveconcluded that the design and operation of our disclosure controls andprocedures as of March 31, 2007 provided reasonable assurance that thedisclosure controls and procedures are effective to accomplish theirobjectives.

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**Changes inInternal Control over Financial Reporting**

There has not been any change in our internal controlover financial reporting identified in connection with the evaluation requiredby Exchange Act Rules 13a-15 or 15d-15 or otherwise that occurred during thequarter ended March 31, 2007 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

**Part II.   OTHER INFORMATION**

**Item 1.**                           Legal Proceedings

***Seneca NiagaraFalls Gaming Corporation v. Klewin Building Company, Inc.*(American Arbitration No. 15 110 00691 05; Arbitration before the ArbitrationPanel of James W. Gresens, Robert A. Dean, and S. Thomas Aiston (Arbitration))**

Consistent with information previously reported in our2006 Form 10-K, on October 15, 2003, SNFGC and Klewin Building Company,Inc. entered into an Owner-Design/Builder Agreement whereby Klewin agreed todesign and build a hotel, casino and spa for SNFGC for a guaranteed maximumprice of $153,048,497.  On August 10, 2005, SNFGC provided Klewin with anotice of default because of Klewin’s failure to pay the architect and Klewin’sacknowledgement that it would not deliver the project within the guaranteedmaximum price.  A second notice of default was issued based on Klewin’sfailure to pay its subcontractors. These matters have been the subject ofarbitration proceedings pursuant to the arbitration clause in the contract.

As a material development in this matter, on May 7,2007 the parties were to have commenced the arbitration hearing before thepanel of arbitrators. Commencement of such hearing has been suspended inanticipation of an expected global settlement of this matter and relatedlitigation between us and both Klewin and T.D. BankNorth, N.A. (whichlitigation is described in our 2006 Form 10-K and Quarterly Report on Form 10-Qfor the quarter ended December 31, 2006). The details of such settlement, ifapplicable, will be described in a Current Report on Form 8-K upon execution ofa definitive written agreement memorializing the terms of such settlement.  If the parties are unable to finalize asettlement, we anticipate commencement of the formal arbitration hearing at theearliest practicable date.

***Citizens Against Casino Gamblingv. Kempthorne (1:06-cv-00001-WMS (WDNY)) (formerly Citizens Against CasinoGambling v. Norton)***

Consistent with information previously reported in our2006 Form 10-K,  in January 2006, anaction was filed in the United State District Court, Western District of NewYork by various plaintiffs against the United States Department of Interior, theNational Indian Gaming Commission and three individuals in their officialcapacities as Secretary of the Interior, Acting Assistant Secretary of theInterior for Indian Affairs and Chairman of the National Indian GamingCommission.  The action seeks declaratory and injunctive relief under theAdministrative Procedure Act, the Declaratory Judgments Act, the NationalHistoric Preservation Act (NHPA), the National Environmental Policy Act (NEPA)and the Indian Regulatory Gaming Act and is principally directed at thedecisions and actions of the defendants that permit the construction andoperation of our Seneca Buffalo Creek Casino.  The plaintiffs claim thatthe defendants have failed to comply with NEPA, NHPA, and IGRA and haverequested that the Court take numerous actions including declaring that thelands acquired by the Nation pursuant to Seneca Nation Land Claims SettlementAct of 1990 (SNLCSA) are not gaming eligible Indian lands within the meaning ofIGRA and declaring that the Nation’s Compact violates IGRA.  If theplaintiffs are successful, the Nation would be unable to conduct any gamingupon lands acquired pursuant to SNLCSA.

Consistent with information previously reported in ourQuarterly Report on Form 10-Q for the quarter ended December 31, 2006 and our2006 Form 10-K, on November 1, 2006 oral argument was heard on thedefendant’s motion to dismiss for lack of jurisdiction, on the Nation’s amicusmotion to dismiss based upon failure to join the Nation as a necessary partyand sovereign immunity, and on the plaintiff’s motion for summary judgment.

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As a material development for the quarter ended March31, 2007, and consistent with information previously reported in our CurrentReport on Form 8-K filed with the SEC on January 17, 2007, on January 12, 2007,the District Court granted the defendant’s motion to dismiss for lack ofsubject matter jurisdiction, denied the Nation’s motion to dismiss (holding, inpart, that the Nation was not a necessary party because the U.S. government’sinterests were aligned with those of the Nation and that the U.S. government(through the U.S. Department of Justice) was vigorously defending the case),and denied, as moot, the plaintiff’s motion for summary judgment.  Inreaching its decision to dismiss on the basis of a lack of subject matterjurisdiction, the Court determined that, notwithstanding the U.S. Department ofInterior’s prior determination that the Nation’s Buffalo Creek Territoryconstitutes “Indian Lands” within the meaning of the IGRA, the National IndianGaming Commission (NIGC) must make its own “Indian Lands” determination, andfurther ordered that the Nation’s 2002 gaming ordinance (which had beenapproved by the NIGC) be vacated insofar as it permits Class III gaming on theNation’s Buffalo Creek Territory (the Court specifically limited its holding tothe Nation’s Buffalo Creek Territory).

As a further materialdevelopment, on April 20, 2007, aside from the Court’s decision to strike asentence in the prior January 12, 2007 order stating that the Secretary ofInterior’s interpretation of IGRA is entitled to no deference, the Court deniedthe U.S. Department of Justice’s motion for reconsideration holding that thedefendants had not established any clear error in the Court’s earlier analysisor conclusions.

Consistent with information previously disclosed bySGC, the Nation is not a party to this action, and as such, neither it nor wehave the ability to direct or control any aspect of the litigation, includingany appeals from the Court’s April 20, 2007 decision or the NIGC’s “IndianLands” determination referenced above. We have previously disclosed that we intend to open the approximate6,000 square foot temporary Seneca Buffalo Creek Casino in May 2007 and tothereafter commence construction of a permanent facility on the Buffalo CreekTerritory.  Due in substantial part to the pending NIGC “Indian Lands”determination, we now anticipate opening the temporary Seneca Buffalo CreekCasino during Summer 2007.  We intend tocontinue with construction of the temporary facility during the pendency of theNIGC “Indian Lands” determination and any appeals from the Court’s April 20,2007 decision, but we may be delayed in the opening of the temporary SenecaBuffalo Creek Casino by Summer 2007, or unable to conduct Class III gaming onthe Buffalo Creek Territory, based upon the status and outcome of the NIGC “IndianLands” determination referenced above, and any appeals relating to the Court’sApril 20, 2007 decision.

***Scott v. Pataki (NYS SupremeCourt, Erie County, Index No. 001189/06)***

Consistent with information previously reported in our2006 Form 10-K, on or about February 1, 2006, an action was filed in theNew York Supreme Court, County of Erie, by various plaintiffs against George E.Pataki, in his official capacity as Governor of the State of New York; StateGaming Officials of the New York State Wagering Board; City of Buffalo; CommonCouncil of the City of Buffalo; Anthony Masiello in his previous capacity asMayor of Buffalo; Byron Brown in his capacity as Mayor of Buffalo; City ofBuffalo Department of Public Works; Buffalo Sewer Authority; and NiagaraFrontier Transportation Authority.  The action initially sought directiveand injunctive relief under the State Environmental Quality Review Act (SEQRA);the First Parks, Recreation, Historic Preservation Law (PRHPL); First CityEnvironmental Review Ordination (CERO); and Freedom of Information Law (FOIL)and is principally directed at the decisions and actions of the defendants inconnection with our Seneca Buffalo Creek Casino.  The plaintiffs initiallyclaimed that the defendants had failed to comply with SEQRA, PRHPL, CERO andFOIL and had requested that the Court take numerous actions including directingcompliance with SEQRA, PRHPL, CERO and FOIL and restraining further actionrelating to the development of our Seneca Buffalo Creek Casino.  In June2006, the plaintiffs amended their complaint to drop their claims againstGovernor Pataki, the State Gaming Officials and the Niagara FrontierTransportation Authority, and added the Buffalo City Department of EconomicDevelopment, Permits and Inspections as a party.  The amended complaintalso dropped all claims except for the SEQRA and CERO claims.

Consistent with information previously reported in ourForm 10-Q for the quarter ended December 31, 2006 and in our 2006Form 10-K, in October 2006, the plaintiffs moved for an injunction toprevent the Buffalo Creek Agreement with the City of Buffalo (filed as Exhibit10.1 to our Current Report on Form 8-K filed on November 14, 2006) frombeing executed and performed, but the motion was denied based upon the judge’sdetermination that the plaintiffs failed to show a likelihood of success on themerits.  The plaintiffs appealed the denial of the injunction to the NewYork Supreme Court Appellate Division.  As a material development in thismatter, on March 16, 2007, the Appellate Division unanimously affirmed thedenial of the injunction.

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Neither the Nation nor SGC is a party to this action,and as such, neither it nor we have the ability to direct or control any aspectof the litigation.  If the plaintiffs aresuccessful, the Nation may be delayed in the completion of the Seneca BuffaloCreek Casino at this site or may be unable to complete the Seneca Buffalo CreekCasino at this site.  Certain of these plaintiffs are also plaintiffs inthe federal lawsuit captioned *Citizens Against CasinoGambling v. Kempthorne*referenced above.

**Item 1A.**                  Risk Factors

**Our 2006 Form 10-K includes adetailed discussion of our risk factors. Set forth below and elsewhere in this QuarterlyReport on Form 10-Q are material updates to certain risk factors included inour 2006 Form 10-K, and a new risk factor.**

**The two risk factors belowupdate and restate risk factors disclosed in our 2006 Form 10-K.**

**Ifwe are unable to retain our key personnel, our ability to execute our businessstrategy could be impaired.**

The continued services of our key operating andexecutive personnel are important to our future success. The loss of theservices of such key operating and executive personnel could have an adverseimpact on us.  There can be no assurancethat the services of such personnel will continue to be made available tous.  We do not maintain key person lifeinsurance policies on any of our executives. As previously disclosed in Current Reports on Form 8-K, effectiveFebruary 7, 2007, John Pasqualoni, our President and Chief Executive Officer,and Joseph D’Amato, our Chief Operating Officer, resigned for personalreasons.  Brian Hansberry, our formerGeneral Manager of Seneca Niagara Casino and Hotel has been appointed asinterim President and Chief Executive Officer. On February 13, 2007,Michael Speller, our Senior Vice President of Gaming Operations, deliveredwritten notice of voluntary termination pursuant to his employment agreement, withsuch termination to be effective June 12, 2007.

**We may not be able to generate enough cash flowto complete our current and future expansion projects.**

We intend to fund a portion of our current and futureexpansion projects with cash flows from operations. There can be no assurancethat we will be able to generate the required amount of cash from ouroperations to complete any or all of these projects. In addition, distributionsto, and investments in, the Nation and its affiliates, as well as our obligationto make the distributions required by the Distribution Agreement, will resultin our cash flow being diverted from our expansion projects.  If we are not able to generate enough cash topay for our expansion projects, our projects may be delayed and we may need tofind additional sources of funds, which may not be available on termsacceptable to us, if at all. Further, if we incur additional debt to cover thecost of our expansion projects, risks related to our indebtedness couldintensify. If we cannot generate enough cash or find alternative sources offunding to expand our operations, our business, financial condition and resultsof operations could be materially adversely affected and we may not be able tomake payments on our senior notes or to meet our distribution obligations underthe Distribution Agreement.

The following isan addition to the risk factors described in our 2006 Form 10-K.

**Thecurrent review by the NIGC of the Nation’s use of gaming revenues couldmaterially adversely affect SGC’s operations.**

In December 2006, the NIGC notified the Nation that itwould be commencing a review of the Nation’s use of gaming revenues starting inJanuary 2007.  The NIGC sent itsinspection team on-site three times during February and March of 2007 to reviewNation financial records for fiscal years 2005 and 2006.  On March 7, 2007, following a request by theNation that the NIGC clarify the scope of documents its inspection team isreviewing, the NIGC issued a subpoena to obtain certain documents needed tocomplete their review.  On March 8, 2007,Nation and SGC staff met with the NIGC inspection team to obtain clarificationon the scope of the review and the documents being sought.  The Nation has been cooperating with the NIGCinspection team and has made Nation and SGC staff available to answer questionsthat have arisen during the course of the inspection team’s review.  As of May 11, 2007, the NIGC’s review of theNation’s use of net gaming revenues is ongoing. The IGRA and NIGC’s implementing regulations do not provide a timelinewithin which the NIGC must complete its review.

Under IGRA net revenues fromtribal gaming operations may only be used for the following purposes: (i) tofund tribal government operations or programs; (ii) to provide for the generalwelfare of the Indian tribe and its members; (iii) to promote economicdevelopment; (iv) to donate to charitable organizations; or (v) to help fundoperations of local government agencies. Under IGRA tribal member distributionsof net gaming revenues may only be made pursuant to a revenue

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allocationplan approved by the Bureau of Indian Affairs, Department of the Interior, orDOI. The Nation makes tribal member distributions from revenues it receivesfrom SGC’s operating lease payments. If the NIGC or DOI determines that thetribal member distributions from the operating lease payments are distributionsof net gaming revenues subject to IGRA’s requirements, it may attempt to takeenforcement actions against the Nation.

IGRA provides for civil penalties for a violation ofthe provisions of IGRA or the regulations promulgated by the NIGC. Such civilenforcement actions include without limitation: notices of violation, issuanceof temporary or permanent closure orders, and assessment of civil fines of upto $25,000 per violation. IGRA also provides for an opportunity for an appealand hearing before the NIGC with respect to any civil penalty imposed. Judicialreview also remains available. We cannot predict the outcome of the NIGC’scurrent review of the Nation’s use of net gaming revenues. If the NIGCdetermines that the Nation has violated IGRA and takes enforcement actionsagainst the Nation, such actions may have a material adverse effect on SGC’sability to conduct its gaming operations as currently conducted.

Reference is made to “Part II. Item1. — Legal Proceedings” of this Quarterly Report for material updates tolitigation described in our 2006 Form 10-K risk factor — **“****If ourability to operate Class III gaming facilities on land held in restrictedfee were********successfully challenged, it would have amaterial adverse effect on our ability to conduct gaming operations in NiagaraFalls and Erie County pursuant to the Compact.”**

**Item 2.**                           Unregistered Sales of EquitySecurities and Use of Proceeds

Not applicable.

**Item 3.**                           Defaults Upon SeniorSecurities

Not applicable.

**Item 4.**                           Submission of Matters to aVote of Security Holders

Not applicable.

**Item 5.**                           Other Information

Notapplicable.

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**Item 6.**                           Exhibits
|  (a) |   | Exhibits (listed according to the number assigned in  the table in Item 601 of Regulation S-K): |
|-----------|--------|-------------------------------------------------------------------------------------------------|

 
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                |
|--------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.1         |       | Head Lease Agreement between Seneca Territory Gaming  Corporation and the Seneca Nation of Indians dated February 28, 2007  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on Form  8-K filed on March 7, 2007).                                                                                                      |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.2         |       | Head Lease Agreement between Seneca Erie Gaming  Corporation and the Seneca Nation of Indians dated February 28, 2007  (incorporated by reference to Exhibit 10.2 to SGC’s Current Report on Form  8-K filed on March 7, 2007).                                                                                                           |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.3         |       | Employment Agreement, dated April 10, 2007, and  effective as of March 5, 2007, between the Seneca Gaming Corporation and  Robert Victoria. (incorporated by reference to Exhibit 10.1 to SGC’s Current  Report on Form 8-K filed on April 16, 2007).                                                                                     |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.4         |       | Employment Agreement, dated April 12, 2007, and  effective as of February 7, 2007, between the Corporation and E. Brian  Hansberry (incorporated by reference to Exhibit 10.1 to SGC’s Current Report  on Form 8-K filed on April 18, 2007).                                                                                              |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.5         |       | Distribution Agreement, dated April 27, 2007, among  the Seneca Nation of Indians, the Seneca Nation of Indians Capital  Improvements Authority, Seneca Gaming Corporation and Wells Fargo Bank,  National Association, as Trustee (incorporated by reference to Exhibit 10.1  to SGC’s Current Report on Form 8-K filed on May 1, 2007). |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
|  31.1   |       | Certification of E. Brian Hansberry, Principal  Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities  Exchange Act of 1934 (filed herewith).                                                                                                                                                                                |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
|  31.2   |       | Certification of Patrick M. Fox, Principal Financial  Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of  1934 (filed herewith).                                                                                                                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
|  32.1   |       | Certification of E. Brian Hansberry, Principal  Executive Officer and Patrick M. Fox, Principal Financial Officer, pursuant  to 18 U.S.C. Section 1350, as adopted 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.

DatedMay 15, 2007
|  /s/ E. Brian Hansberry                  |   |
|-----------------------------------------------|--------|
| E. Brian Hansberry                            |   |
| Interim President and Chief Executive Officer |   |
| (Principal Executive Officer)                 |   |
|                                          |   |
|                                          |   |
|  /s/ Patrick M. Fox                      |   |
| Patrick M. Fox                                |   |
| Chief Financial Officer                       |   |
| (Principal Financial and Accounting Officer)  |   |

 

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