**UNITEDSTATES**

**SECURITIESAND 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 June 30, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT 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)

Indicateby check mark whether the registrant has (1) has filed all reports required tobe filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x   No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated 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

AtAugust 14, 2007, the registrant had no outstanding shares of common stock. Theregistrant is wholly owned by the Seneca Nation of Indians.

 

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**TABLE OF CONTENTS**
|                                                 | ** ** | ** **                                                                                                           | ** ** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|------------|
| **PART  I.   FINANCIAL  INFORMATION** |       |                                                                                                                 |
| Item  1.                                        |       | Financial  Statements                                                                                                |       | 1          |
|                                            |       | Consolidated  Balance Sheets as of June 30, 2007 (Unaudited) and September 30, 2006                                  |       | 1          |
|                                            |       | Consolidated Statements of Operations for the three  months and nine months ended June 30, 2007 and 2006 (Unaudited) |       | 2          |
|                                            |       | Consolidated Statements of Cash Flows for the nine  months ended June 30, 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                          |       | 9          |
| Item 3.                                         |       | Quantitative and Qualitative Disclosures About Market  Risk                                                          |       | 24         |
| Item 4.                                         |       | Controls and Procedures                                                                                              |       | 24         |
|                                            |       |                                                                                                                 |       |       |
| **PART  II.   OTHER INFORMATION**     |       | 25                                                                                                                   |
| Item  1.                                        |       | Legal  Proceedings                                                                                                   |       | 25         |
| Item 1A.                                        |       | Risk Factors                                                                                                         |       | 27         |
| Item 2.                                         |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                         |       | 28         |
| Item 3.                                         |       | Defaults Upon Senior Securities                                                                                      |       | 28         |
| Item 4.                                         |       | Submission of Matters to a Vote of Security Holders                                                                  |       | 28         |
| Item  5.                                        |       | Other  Information                                                                                                   |       | 29         |
| Item 6.                                         |       | Exhibits                                                                                                             |       | 29         |
|                                            |       | Signatures                                                                                                           |       |       |

 

ii

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**PART I. FINANCIAL INFORMATION**

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

**SENECAGAMING CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**
| ** **                         | ** ** | **June 30,**                    | ** ** | **September 30,** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|------------------------|------------|
| ** **                         | ** ** | **2007**                             | ** ** | **2006**               | ** ** |
| ** **                         | ** ** | **(Dollars in Thousands)** | ** ** |
| **Assets**                         |       |                                 |       |                   |       |
| Current assets:                    |       |                                 |       |                   |       |
| Cash and cash  equivalents         |       | $                                    | 54,605     |                   | $          | 78,195 |   |
| Short-term  investments            |       | 19,600                               |       | 62,300                 |       |
| Receivables from  affiliates       |       | 116                                  |       | 410                    |       |
| Other  receivables, net            |       | 2,308                                |       | 2,139                  |       |
| Inventories                        |       | 3,753                                |       | 2,734                  |       |
| Other current  assets              |       | 7,968                                |       | 6,268                  |       |
| Total current  assets              |       | 88,350                               |       | 152,046                |       |
|                               |       |                                 |       |                   |       |
| Property and equipment,  net       |       | 689,102                              |       | 615,207                |       |
| Restricted cash                    |       | 14,579                               |       | 25,800                 |       |
| Other long-term assets             |       | 58,192                               |       | 47,323                 |       |
|                               |       |                                 |       |                   |       |
| Total assets                       |       | 850,223                              |       | $                      | 840,376    |   |
|                               |       |                                 |       |                   |       |
| **Liabilities and Capital**        | ** ** | ** **                           | ** ** | ** **             | ** ** |
| Current liabilities:               |       |                                 |       |                   |       |
| Trade payables                     |       | 7,627                                |       | 4,939                  |       |
| Construction  payables — SCMC |       | 15,990                               |       | 52,489                 |       |
| Distributions  payable to Nation   |       | 12,000                               |       | 24,000                 |       |
| Exclusivity fees  payable          |       | 9,082                                |       | 7,263                  |       |
| Accrued interest                   |       | 6,042                                |       | 15,104                 |       |
| Customer point liability           |       | 9,909                                |       | 11,632                 |       |
| Accrued regulatory expenses        |       | 18,494                               |       | 14,700                 |       |
| Other current  liabilities         |       | 25,567                               |       | 26,271                 |       |
| Total current  liabilities         |       | 104,711                              |       | 156,398                |       |
|                               |       |                                 |       |                   |       |
| Long-term debt                     |       | 495,097                              |       | 494,347                |       |
|                               |       |                                 |       |                   |       |
| Total  liabilities                 |       | 599,808                              |       | 650,745                |       |
|                               |       |                                 |       |                   |       |
| Capital:                           |       |                                 |       |                   |       |
| Retained earnings                  |       | 250,415                              |       | 189,631                |       |
|                               |       |                                 |       |                   |       |
| Total liabilities and  capital     |       | $                                    | 850,223    |                   | $          | 840,376 |   |

 

See accompanyingnotes to consolidated financial statements.

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**SENECA GAMING CORPORATION**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Unaudited)**
| ** **                               | ** ** | **Three Months Ended**     | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **June 30,**                    | ** ** | **June 30,**               | ** ** |
| ** **                               | ** ** | **2007**                             | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| **Revenues**                             | ** ** | ** **                           | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **                           | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                   |       | $                                    | 149,528    |                            | $          | 134,549 |   | $ | 429,205 |   | $ | 371,203 |   |
| Food and  beverage                       |       | 14,360                               |       | 13,012                          |       | 40,388 |   | 35,358 |   |
| Lodging                                  |       | 6,555                                |       | 3,470                           |       | 15,800 |   | 5,052 |   |
| Retail,  entertainment and other         |       | 4,848                                |       | 4,953                           |       | 14,446 |   | 14,465 |   |
| Less:  Promotional allowances            |       | (26,088                              | )          | (21,677                         | )          | (74,583 | ) | (53,599 | ) |
| Net revenues                             |       | 149,203                              |       | 134,307                         |       | 425,256 |   | 372,479 |   |
|                                     |       |                                 |       |                            |       |   |   |   |   |
| **Expenses**                             |       |                                 |       |                            |       |   |   |   |   |
|                                     |       |                                 |       |                            |       |   |   |   |   |
| Gaming                                   |       | 40,332                               |       | 33,341                          |       | 109,752 |   | 94,240 |   |
| Food and  beverage                       |       | 12,448                               |       | 11,325                          |       | 34,594 |   | 31,700 |   |
| Lodging                                  |       | 3,347                                |       | 2,168                           |       | 7,943 |   | 3,658 |   |
| Retail,  entertainment and other         |       | 3,116                                |       | 2,747                           |       | 8,928 |   | 8,522 |   |
| Advertising,  general and administrative |       | 37,548                               |       | 33,420                          |       | 109,676 |   | 97,268 |   |
| Pre-opening  costs                       |       | 4,636                                |       | 2,369                           |       | 15,218 |   | 7,301 |   |
| Depreciation and  amortization           |       | 13,503                               |       | 13,026                          |       | 36,113 |   | 28,389 |   |
|                                     |       |                                 |       |                            |       |   |   |   |   |
| Total operating  expenses                |       | 114,930                              |       | 98,396                          |       | 322,224 |   | 271,078 |   |
|                                     |       |                                 |       |                            |       |   |   |   |   |
| Operating income                         |       | 34,273                               |       | 35,911                          |       | 103,032 |   | 101,401 |   |
| Other  non-operating income, net         |       | 4,006                                |       | —                          |       | 3,720 |   | — |   |
| Interest income                          |       | 565                                  |       | 1,420                           |       | 3,056 |   | 4,248 |   |
| Interest expense                         |       | (9,502                               | )          | (9,073                          | )          | (26,024 | ) | (23,979 | ) |
|                                     |       |                                 |       |                            |       |   |   |   |   |
| Net income                               |       | $                                    | 29,342     |                            | $          | 28,258 |   | $ | 83,784 |   | $ | 81,670 |   |

 

See accompanyingnotes to consolidatedfinancial statements.

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**SENECAGAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| ** **                                                                         | ** ** | **Nine Months Ended**      | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **June 30,**                    | ** ** |
| ** **                                                                         | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| ** **                                                                         | ** ** | **(Dollars in Thousands)** | ** ** |
| **Cash  flows relating to operating activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                    | 83,784     |   | $ | 81,670 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                      |       | 36,113                               |       | 28,389 |   |
| Amortization of deferred financing costs and debt  discount                        |       | 2,424                                |       | 2,389 |   |
| Other                                                                              |       | 737                                  |       | 297 |   |
|                                                                               |       |                                 |       |   |   |
| Change in  operating assets and liabilities:                                       |       |                                 |       |   |   |
| Current assets                                                                     |       | (2,594                               | )          | (245 | ) |
| Current liabilities                                                                |       | (3,188                               | )          | 2,018 |   |
|                                                                               |       |                                 |       |   |   |
| Net cash  provided by operating activities                                         |       | 117,276                              |       | 114,518 |   |
|                                                                               |       |                                 |       |   |   |
| **Cash  flows relating to investing activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                               |       | (143,441                             | )          | (156,804 | ) |
| Land acquisition  costs                                                            |       | (17,852                              | )          | (16,773 | ) |
| Decrease/(increase)  in collateral for letter of credit                            |       | 11,221                               |       | (33,500 | ) |
| Sales of  short-term investments, net                                              |       | 42,700                               |       | 43,791 |   |
|                                                                               |       |                                 |       |   |   |
| Net cash used in  investing activities                                             |       | (107,372                             | )          | (163,286 | ) |
|                                                                               |       |                                 |       |   |   |
| **Cash  flows relating to financing activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Payment of  deferred financing costs                                               |       | —                               |       | (682 | ) |
| Capital  contribution from Nation                                                  |       | 3,198                                |       | — |   |
| Distributions  paid to the Nation                                                  |       | (36,692                              | )          | (9,747 | ) |
|                                                                               |       |                                 |       |   |   |
| Net cash used in  financing activities                                             |       | (33,494                              | )          | (10,429 | ) |
|                                                                               |       |                                 |       |   |   |
| Net decrease in  cash                                                              |       | (23,590                              | )          | (59,197 | ) |
|                                                                               |       |                                 |       |   |   |
| Cash balances:                                                                     |       |                                 |       |   |   |
| Beginning of period                                                                |       | 78,195                               |       | 142,467 |   |
| End of period                                                                      |       | $                                    | 54,605     |   | $ | 83,270 |   |

 

Seeaccompanying notes to consolidated 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 nine months and three months ended June 30,2007 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 and 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 gamingactivities on the Nation’s territories pursuant to the Indian Gaming RegulatoryAct of 1988, or IGRA.  Under IGRA,federally recognized Indian tribes are permitted to conduct full-scale casinogaming operations on tribal land, subject to, among other things, thenegotiation of a compact with the affected state.  Pursuant to IGRA, the Nation entered into theNation-State Gaming Compact with the State of New York in August 2002, or theCompact, which has been approved by the Federal Bureau of Indian Affairs,Department of the Interior.  The Compactexpires in December 2016 and automatically renews for an additional seven yearperiod unless either the Nation or the State of New York objects in writing, inwhich case 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 own, develop andoperate the three sites authorized by the Compact for Class III gaming. Inaddition, the SGC Board of Directors hired the senior management of SGC,including the President and Chief Executive Officer, to execute thecorporations’ development and business plans, and to oversee and manage theiroperations. The subsidiary corporations are as follows:

·              Seneca Niagara Falls Gaming Corporation,or SNFGC

·              Seneca Territory Gaming Corporation, orSTGC

·              Seneca Erie Gaming Corporation, or SEGC

4

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SNFGC was formed on August 1, 2002 to own, developand operate the Nation’s Class III gaming activities in Niagara Falls, NewYork.  Operations at SNFGC’s casino, orSeneca Niagara 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,including a penthouse floor featuring one and two bedroom suites with butlerservice, were officially opened, along with a full-service spa, salon, fitnesscenter 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.

On July 18, 2007, the Lewiston Golf CourseCorporation, or LGCC, was formed by the Nation’s Council as a new wholly-ownedsubsidiary of SNFGC to own, develop and operate the SNFGC’s planned golf coursein Lewiston, New York. The golf course under development is a Robert TrentJones, Jr. designed course in the town of Lewiston, New York and is to includea related clubhouse, retail, and food and beverage operations.

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, commencedMay 1, 2004.  On December 28, 2006,a permanent 92,000 square feet gaming facility was opened, providing 37,000square feet more gaming space than the original 55,000 square feet gamingfacility.  This expansion project wascompleted on March 30, 2007, with the opening of a 212-room resort hotel, twofine dining restaurants, a 24 hour casual restaurant, a spa and fitness center,and retail and other amenities.  Theentire complex, including the Seneca Allegany Casino and resort hotel, isreferred to as the Seneca Allegany 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.  SEGC commenced construction ofits Seneca Buffalo Creek Casino on those nine acres on December 8, 2005,and on July 3, 2007, commenced Class III gaming on such property, in atemporary facility, in fulfillment of the requirement set forth in the Nation’sCompact with the State of New York. The Nation’s exclusive right, under theCompact, to establish and operate a third Class III gaming facility inErie County, New York may have terminated if the Nation or SEGC had failed tocommence Class III gaming operations in Erie County by December 9,2007.

**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, SGCissued an additional $200.0 million in 71⁄4% senior notes due 2012, Series B, orthe 2005 senior notes.  The 2004 and 2005 senior notes are guaranteed bySNFGC, STGC and SEGC.  The 2005 senior notes are treated as a single classwith the 2004 senior notes and are identical to the 2004 senior notes, exceptfor certain tax attributes and prior to November 1, 2005 the amount of interestaccrued thereon.   Interest on the 2004 and 2005 senior notes ispayable semi-annually on May 1 and November 1.  The 2004 and 2005 seniornotes are unsecured and rank equally.  As of June 30, 2007, aggregateaccrued interest on the 2004 and 2005 senior notes was $6.0 million. Thesenior notes, which mature on May 1, 2012, are redeemable at SGC’s option inwhole or in part at any time after May 1, 2008, at the redemption prices setforth in SGC’s Indenture, are subject to redemption requirements imposed bygaming laws and regulations and are required to be repurchased by SGC at theoption of holders upon certain change of control events.

The Indenture governing the 2004 and 2005 senior notescontains certain financial and non-financial covenants.  The financialcovenants include limitations on restricted payments, the incurrence ofindebtedness and affiliate

5

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transactions, while the non-financial covenantsinclude reporting obligations and compliance with laws and regulations. As of June 30, 2007, SGC was in compliance with all covenants in the Indenture.

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

**Land Leases from the Nation**

The Nation has entered into operating lease agreements(each a Head Lease) with each of SNFGC, STGC and SEGC.  Due to the related party nature of theseleases, which can be effectively modified by the Nation, SGC records monthlylease expense equal to the required payment amount for the respectivemonth.  Lease payment increases under theHead Leases are restricted under the terms of the Indenture governing thesenior notes.  These leases contain norenewal 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 including structures formerlyknown as the Niagara Falls Convention Center and Lackey Plaza.  As of October 1, 2005, monthly lease paymentsunder the SNFGC Head Lease were $1,287,500. On December 11, 2006, the lease payments were increased by 3% effectiveOctober 1, 2006, to $1,326,125 per month, as approved by the board of directorsof SGC and SNFGC.  The lease payments maybe further increased by up to 3% each October 1, subject to approval by theboard of directors of SNFGC, compliance with the terms of the Indenturegoverning SGC’s senior notes and compliance with the Distribution Agreement.  Lease payments under the SNFGC Head Lease arepayable only to the extent that sufficient funds are available, measured on anannual basis, from the net proceeds derived from the operation of the casino facilitiesand other related operations.  If on anannual basis sufficient funds are not available, any shortfall in the rentamount does not accumulate.

The STGC (effective as of May 1, 2004) and SEGC(effective as of April 1, 2006) Head Leases were formerly oral agreements,which were memorialized in writing on March 2, 2007.  Both of these Head Leases cover use of theland which is currently being used or is expected to be used in operating theSeneca Allegany Casino and Hotel and Seneca Buffalo Creek Casino,respectively.  The STGC and SEGC HeadLeases are effective until the date 21 years after the commencement of theNation’s Class III gaming operations under the Compact.  With respect to the STGC Head Lease, as ofOctober 1, 2005, monthly lease payments 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 STGC.  Withrespect 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.

6

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Lease expense resulting from the above agreements wereas follows for the three and nine month periods ended June 30, 2007 and 2006:
|            | ** ** | **Three Months Ended**            | ** ** | **Nine Months Ended** | ** ** |
|------------|------------|---------------------------------------------|------------|---------------------------------|------------|
| ** ** | ** ** | **June 30,**                           | ** ** | **June 30,**               | ** ** |
| ** ** | ** ** | **2007**                                    | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** ** | ** ** | **(In Millions of Dollars)** | ** ** |
| SNFGC      |       | $                                           | 4.0        |                            | $          | 3.9 |   | $ | 11.9 |   | $ | 11.6 |   |
|       |       |                                        |       |                            |       |   |   |   |   |
| STGC       |       | 4.0                                         |       | 3.9                             |       | 11.9 |   | 11.6 |   |
|       |       |                                        |       |                            |       |   |   |   |   |
| SEGC       |       | 3.8                                         |       | 1.6                             |       | 11.3 |   | 1.6 |   |
|       |       | $                                           | 11.8       |                            | $          | 9.4 |   | $ | 35.1 |   | $ | 24.8 |   |

 

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.  Subsequent to opening thetemporary facility, this lease cost will be recorded as a component ofadvertising, general and administrative costs.

**Other Related Party Transactions**

SNFGC, STGC andSEGC have each entered into construction management agreements with SenecaConstruction Management Corporation, or SCMC, for certain renovations andcapital improvements 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 nine-month period ended June 30, 2007,SNFGC, STGC and SEGC have collectively made payments to SCMC for constructionmanagement fees and other related costs of $0.9 million and $3.5 million,respectively.

SNFGC and STGClease space within both Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively, for operation of poker rooms by SenecaGaming & Entertainment, a Class II business enterprise of the Nation.  For the three-month periods ended June 30,2007 and 2006, SGC recorded $0.1 million and $0.2 million of poker room rentalincome and fees, respectively, and for the nine-month periods ended June 30,2007 and 2006, SGC recorded $0.5 million and $0.6 million of rental income andfees, respectively.  At June 30, 2007 andSeptember 30, 2006, SGC has recorded $0.1 million and $0.4 million,respectively, as a receivable from the Nation relating to poker room rentalsand 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 nine months endedJune 30, 2007, SGC paid cash distributions of $32.0 million to the Nationpursuant to the foregoing distribution declarations. The remaining declaredcash distributions of $12.0 million which are payable on future payment datesare shown as ‘Distributions payable to Nation’ on the accompanying  consolidated balance sheets.  In addition to the declared cashdistributions, SGC distributed $1.7 million under its Distribution Agreement,dated April 27, 2007, for the Seneca Nation of Indians Capital ImprovementsAuthority special obligation bonds, and $3.0 million for wastewater treatmentimprovements, for nine months ended June 30, 2007.

OnJuly 14, 2007 SGC declared an additional cash distribution of $5.0 million, tobe paid to the Nation on or before July 31, 2007.  The distribution was paid to the Nation onJuly 30, 2007.

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Duringthe nine months ended June 30, 2007 and 2006, SGC distributed to the Nation acquiredreal property of $1.5 million and $4.9 million, respectively for use in itscasino and other related entertainment operations.  Such distribution amounts were based on theacquisition cost of the real property.

OnJune 14, 2007, the Nation paid SEGC $3.2 million for the value of landpurchased for the development of the Seneca Buffalo Creek Casino.

Inaddition, SGC has recorded approximately $47.0 million in land and relatedacquisition costs as ‘Other long-term assets’ in the accompanying balancesheets as of June 30, 2007, which are expected to be transferred to the Nation.

SGCis charged by the Nation for SGA costs, which are incurred by the Nation.  SGA costs charged to SGC were approximately$2.7 million  and $2.5 million for boththe three months ended June 30, 2007 and 2006, respectively and $7.7 millionand $7.4 million for the nine months ended June 30, 2007 and 2006,respectively.  SGC also incurs costs,which are passed through to the Nation for New York State gaming regulatoryservices, New York State Police and Cattaraugus County Sheriff Departmentservices.  SGC has recorded costs ofapproximately $2.0 million and $1.7 million for the three-month periods endedJune 30, 2007 and 2006, respectively, and $6.1 million and $5.3 million for thenine months ended June 30, 2007 and 2006, respectively, in connection withthese services.  At June 30, 2007 andSeptember 30, 2006, approximately $18.5 million and $14.7 million,respectively, of SGA, other regulatory, and police costs were recorded ascurrent 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 June 30, 2007 and 2006, such lease expense totaled $61,000 and$60,000, respectively, and for the nine month period ended June 30, 2007 and2006, such lease expense totaled $184,000 and $179,000, respectively.

SNFGC, STGC, andSEGC, through a competitive bidding process, have purchased goods and servicesfrom DRJ Enterprises, which is owned by David Jimerson, brother-in-law of theSGC Chairman.  Payments to DRJEnterprises for the three-month and nine-month periods ended June 30, 2007totaled $259,000 and $789,000, respectively.

**4.**                                      Commitments and 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 on 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 annualbasis.  Thereafter, the exclusivity feeis 22.0% for years 5-7 (through December 31, 2009), payable on a semi-annualbasis and 25.0% for years 8-14 (through December 31, 2016) payable on aquarterly basis.

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 June 30, 2007 and 2006, total exclusivity fees were $27.2million and $20.5 million, respectively. Of the $27.2 million exclusivity fee for the three months ended June 30,2007, $18.8 million was attributable to SNFGC and $8.4 million was attributableto STGC. For the nine months ended June 30, 2007 and 2006, total exclusivityfees were $73.0 million and $56.2 million, respectively.  Of the $73.0 million exclusivity fee for thenine months ended June 30, 2007, $51.7 million was attributable to SNFGC and$21.3 million was attributable to STGC.

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**Permanent Buffalo Casino andOther 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 permanent full service Seneca Buffalo Creek Casino on theNation’s Buffalo Creek Territory, as well as additional construction underwayand planned at the Seneca Allegany Casino and Hotel, will require significantcapital outlays.  The amount and timingof these capital expenditures are dependent on various factors includingcertain Nation and other governmental approvals, the effects of legal and/oradministrative proceedings, construction timelines, the performance of SGC’scasinos and with regard to the planned permanent Seneca Buffalo Creek Casino,financing availability.

**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.  The Distribution Agreement obligatesSGC, subject to any contractual restrictions applicable to SGC (including, butnot limited to, those contained in the Indenture governing SGC’s 2004 and 2005senior notes), to make monthly distributions to the Nation at the times and inthe amounts necessary to enable the Authority to pay the debt service on the2007 Bonds as required under the Authority’s indenture.  At the directionof the Nation and the Authority, SGC will pay such distributions directly tothe Trustee.  The Authority’s debt service commences on June 1,2007.  For the period from June 1, 2007 through December 1, 2007, theAuthority’s debt service averages approximately $0.9 million per month. For theperiod from January 1, 2008 through December 1, 2013, the Authority’s debtservice averages approximately $1.8 million per month. For the period from June1, 2014 through December 1, 2023, the Authority’s debt service averagesapproximately $1.2 million per month. The foregoing debt service averagesare based on scheduled payments of interest and principal under the Authority’sindenture and bonds and do not address the effects of any earlier call forredemption, by acceleration or otherwise.  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.  For the three months endedJune 30, 2007, SGC distributed to the Nation $1.7 million for the Authority’sdebt service on the special obligation bonds.

**Item 2.**                                                           Management’sDiscussion and Analysis 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 their respectivedates.  We undertake no obligation toupdate 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 rooms,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 gamingfacility, Seneca Allegany Casino and Hotel (then Seneca Allegany Casino), onthe Nation’s Territory in the City of Salamanca, New York.  This facility features Class III slotmachines and table games.  This facilityis operated by our wholly owned subsidiary, STGC.  On December 28, 2006, we officially openedour permanent gaming floor at Seneca Allegany Casino and Hotel, and on March30, 2007 we officially opened our new 212-room resort hotel with itsrestaurants and other amenities.  On July3, 2007, we opened our third Class III gaming facility, the Seneca BuffaloCreek Casino, on the Nation’s Territory in the city of Buffalo, New York, infulfillment of the requirement set forth in Nation’s Compact with the State ofNew York.  This facility features 124Class III slot machines and no table games. This facility is operated by our wholly-owned subsidiary, SEGC.

See “Executive Summary — Seneca Buffalo Creek Casino”and “Part II. Item 1. — Legal Proceedings” for information regarding the statusof, and litigation related to, our Seneca Buffalo Creek Casino.

**Executive Summary**

*Our Current Operations.*    We currently operate two full service Class IIIgaming facilities, Seneca Niagara Casino and Hotel, on Nation territory locatedin the City of Niagara Falls, New York, Seneca Allegany Casino and Hotel, onthe Nation’s Allegany territory located near the City of Salamanca, New York.Our operations include gaming, dining, lodging, entertainment and retail.  For the three and nine months ended June 30,2007, approximately 93% and 94%, respectively, of our net revenue was derivedfrom our gaming activities.

On July 3, 2007 we opened a third Class III gamingfacility, which is housed in a temporary structure, located on Nation territoryin the City of Buffalo, New York.  Thisfacility, Seneca Buffalo Creek Casino, is operated by SEGC.

*Key Performance Indicators.*    Our operating results are dependent on thevolume of patrons at our casinos and our ability to attract them for repeatvisits.

*Seneca Niagara Casino andHotel. *  Seneca Niagara Casino and Hotel continues to rely primarily on drive-in and buspatrons from the Buffalo, Niagara Falls, and Rochester areas in New York andsecondarily from the Erie, Pennsylvania area, Ohio and other parts of NewYork.  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 increased higher-endpatron volume, gaming activity and length of stay, and extended our geographicpenetration, and have appealed to a more diverse demographic base.  The total cost to construct and equip theluxury hotel was approximately $234.0 million.

*Seneca Allegany Casino and Hotel.*    Since opening on May 1, 2004, SenecaAllegany Casino and Hotel has experienced steady growth in its patron base, netrevenue, and profitability.  SenecaAllegany Casino and Hotel has attracted patrons from the southern portion ofWestern New York, Erie and Pittsburgh, Pennsylvania, and Ohio.  From opening through June 30, 2007,approximately 69% of the casino’s patron base has come from outside of theState of New York.

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On March 30, 2007 we opened a 212-room resort hotel,including two fine dining restaurants, a 24-hour casual restaurant and certainamenities, at Seneca Allegany Casino and Hotel. On December 28, 2006, we officially opened the new permanent gamingfloor.  We expect that the total cost toconstruct and equip the resort hotel and permanent casino will be approximately$169.0 million.  As of  June 30, 2007, we have capitalizedapproximately $158.3 million of costs related to this expansion project. We areconverting the former approximate 120,000 square foot temporary casinostructure into an events center with a seating capacity for 1,700 people, alongwith additional administrative and support space.  We estimate that the cost of this conversion,including extensive landscaping and façade enhancements, will be approximately$40 million. We plan to fund this additional construction with cash flows fromoperations and cash on hand.  We estimatethat the conversion of the temporary casino structure (excluding landscape andfacade enhancements) will be completed by mid-February 2008.  We believe the new resort hotel, permanentcasino and events center will provide a first-class gaming experience for ourpatrons, increase their length of stay and maintain the competitive position ofthis facility in light of competition in Pennsylvania, consisting principallyof a new gaming facility that opened in late February 2007 in Erie,Pennsylvania (Presque Isle Downs), approximately  80 miles from the Seneca Allegany Casino andHotel and 120 miles from the Seneca Niagara Casino and Hotel.

As the next phase of development at Seneca Allegany Casinoand Hotel, we intend to commence design, development and construction of anadditional 179 to 204 room hotel tower, up to 31,000 square feet of additionalgaming space and related amenities, for an estimated cost of up to $130million. The completion date for this phase of construction is estimated to be mid-2009.

*Seneca Buffalo Creek Casino.    *On October 3, 2005,the Nation acquired approximately nine acres of land in the inner-harbordistrict of Buffalo, New York. Initially, the nine acre parcel was bisected by a two-block section of astreet owned by the City of Buffalo (Fulton Street).  In November 2006, we acquired the two-blocksection of Fulton Street from the City of Buffalo for a purchase price of $0.6million.  In order to meet therequirements of the Compact, on December 8, 2005 we began construction of atemporary Class III gaming facility on the Seneca Buffalo Creek Territory.  On July 3, 2007 we began operating thetemporary Class III gaming facility. This temporary facility is approximately 6,000 square feet, and features124 slot machines and a snack bar.  Thetotal cost to construct and equip the temporary facility was $4.2 million.

In addition, we continue to finalize our plans for apermanent 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 diningrestaurants, a conference and meeting room space, a 2,500-space parking garageand retail and other amenities.  Weintend to operate the permanent Seneca Buffalo Creek Casino in a manner thatwill complement both Seneca Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel.

Our ability to operate the temporary Seneca BuffaloCreek Casino, and our ability to complete the permanent gaming facility, aswell as the timing of the opening of the permanent Seneca Buffalo Creek Casino,will depend 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.

*Marketing.    *We believe we are the premier gaming operator inWestern 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, includingareas of New York outside of the Niagara Falls and Salamanca areas, inPennsylvania, Ohio, and Toronto, Canada and in areas outside the regionincluding Michigan, Massachusetts, and Connecticut.

*Current, Continued and Future Reliance on Cash Flow*.*    *Weintend to fund the maintenance of our facilities and our current expansionprojects on the Allegany Territory from our cash flow and cash on hand.  We currently rely and will continue to relyon our ability to generate cash flow from operations to meet our debt and otherobligations.

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*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.

*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, the planning for our permanent facility at SenecaBuffalo Creek Casino, and the design and development of our new hotel tower andrelated amenities at the Seneca Allegany Casino and Hotel.

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 widergeographic area and attract higher-end gaming patrons, providing us with acompetitive advantage.

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 June 30, 2007 Compared to the Three Months Ended June 30,2006**

*OperatingResults*
|                                          | ** ** | **Three Months Ended**                     | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **June 30,**                                    | ** ** |
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                     |       |                                                 |       |   |   |
| Net revenue                              |       | $                                                    | 149,203    |   | $ | 134,307 |   |
| ** **                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Operating  expenses:                     |       |                                                 |       |   |   |
| Gaming                                   |       | 40,332                                               |       | 33,341 |   |
| Food and  beverage                       |       | 12,448                                               |       | 11,325 |   |
| Lodging                                  |       | 3,347                                                |       | 2,168 |   |
| Retail, entertainment  and other         |       | 3,116                                                |       | 2,747 |   |
| Advertising,  general and administrative |       | 37,548                                               |       | 33,420 |   |
| Pre-opening  costs                       |       | 4,636                                                |       | 2,369 |   |
| Depreciation                             |       | 13,503                                               |       | 13,026 |   |
|                                     |       |                                                 |       |   |   |
| Operating income                         |       | $                                                    | 34,273     |   | $ | 35,911 |   |

 

The most important factors and trends contributing toour operating performance during the three months ended June 30, 2007 and 2006were:

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*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 at SenecaAllegany Casino and Hotel, the December 28, 2006 opening of the new permanentgaming floor and the March 30, 2007 opening of our 212 room hotel tower.

·                  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.

·                  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.

*Negativefactors and trends*

·                  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**                     | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **June 30,**                                    | ** ** |
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
| ** **                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Gaming revenue:                          |       |                                                 |       |   |   |
| Slots                                    |       | $                                                    | 130,311    |   | $ | 118,447 |   |
| Table games                              |       | 19,100                                               |       | 15,973 |   |
| Keno                                     |       | 118                                                  |       | 129 |   |
|                                     |       |                                                 |       |   |   |
| Gaming revenue                           |       | 149,528                                              |       | 134,549 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming  revenue:                     |       |                                                 |       |   |   |
| Food and  beverage                       |       | 14,360                                               |       | 13,012 |   |
| Lodging                                  |       | 6,555                                                |       | 3,470 |   |
| Retail,  entertainment and other         |       | 4,848                                                |       | 4,953 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming  revenue                      |       | 25,763                                               |       | 21,435 |   |
| Less promotional  allowances and credits |       | (26,088                                              | )          | (21,677 | ) |
|                                     |       |                                                 |       |   |   |
| Net revenue                              |       | $                                                    | 149,203    |   | $ | 134,307 |   |

 

Our gaming revenue for the three months ended June 30,2007 increased relative to the comparable period in the prior year, due to (a)higher number of occupied rooms for the three months ended June 30, 2007compared to the same period ended June 30, 2006, (b) expansion of our SenecaAllegany Casino and Hotel gaming floor on December 28, 2006 and hotel openingon March 30, 2007, (c) additional marketing programs to attract more higher

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level gaming patrons, and (d) continued growth of ourplayer database.  As of June 30, 2007,our gaming operations featured an aggregate 143 table games and 6,490 slotmachines, representing a net increase of 19 table games and an increase of 213slot machines from June 30, 2006.  Duringthese periods, the number of patrons enrolled in our Seneca Player’s Clubprogram has steadily increased.  As ofJune 30, 2007, we had approximately 1.3 million patrons enrolled compared to1.1 million patrons enrolled at June 30, 2006, and increase of 0.2 million or 18%.

Our net gaming revenue, which excludes promotionalslot credits of $10.2 million and $8.7 million in the quarters ended June 30,2007 and 2006, respectively, increased $13.5 million, or 11%.  During the three months ended June 30, 2007,Seneca Niagara Casino and Hotel’s net gaming revenue increased $8.7 million, or10%, principally attributable to the casino expansion and supported by the newluxury hotel and amenities.  Thisincrease reflected an $8.1 million increase in net slot revenue, and a $0.6million increase in net table games revenue, attributable to higher volumes inrelation to the comparable quarter in the prior year.  The $1.5 million increase in promotional slotcredits was principally due to increased slot play, along with substantiallyhigher redemptions resulting from our *“Great Exchange”*marketing promotion which alternated between our two casinos each month duringthe three months ended June 30, 2007, and allowed patrons to exchange a portionof Seneca Player’s Club points for promotional slot credits.  Seneca Allegany Casino and Hotel’s net gamingrevenue for the quarter ended June 30, 2007 was $42.6 million, an increase of$4.7 million, or 12%, from the quarter ended June 30, 2006.  This was due to a $2.3 million increase innet slot revenue driven by higher slot volume, and a $2.4 million increase innet table games revenue, due to a higher table games hold percentage during the2007 quarter.

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 players’ point redemptions.

For the three months ended June 30, 2007 and 2006, 57%and 59%, respectively, of our food and beverage revenue and 81% and 87% of ourretail revenue, respectively, represented players’ point redemptions.  For the three months ended June 30, 2007, ourconsolidated food and beverage revenue increased $1.3 million, or 10% over thesame period in 2006, to $14.4 million.

Seneca Niagara Casino and Hotel’s food and beveragerevenue for the quarter ended June 30, 2007 increased $0.3 million, or 3%, inrelation to the comparable prior year period.  Seneca Allegany Casino and Hotel’s food and beverage revenue for thequarter ended June 30, 2007 increased $1.1 million, or 33% compared to the sameperiod in 2006, reflecting the opening of two fine dining restaurants and atwenty-four hour casual restaurant on March 30, 2007.

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, and includes revenue from the resorthotel at Seneca Allegany Casino and Hotel, which officially opened on March 30,2007**. **Forthe three months ended June 30, 2007 and 2006, 79% and 65%, respectively, ofour lodging revenue represented complimentary revenue.

For the three months ended June 30, 2007, our retail,entertainment and other revenue decreased by $0.1 million in relation tothe comparable 2006 period.  Thisdecrease was primarily attributable to lower retail revenue of $0.4 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.

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*DetailedOperating Expenses Information*
|                                          | ** ** | **Three Months Ended**                     | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **June 30,**                                    | ** ** |
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
| ** **                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Operating  expenses:                     |       |                                                 |       |   |   |
| Gaming                                   |       | $                                                    | 40,332     |   | $ | 33,341 |   |
| Food and  beverage                       |       | 12,448                                               |       | 11,325 |   |
| Lodging                                  |       | 3,347                                                |       | 2,168 |   |
| Retail,  entertainment and other         |       | 3,116                                                |       | 2,747 |   |
| Advertising,  general and administrative |       | 37,548                                               |       | 33,420 |   |
| Pre-opening  costs                       |       | 4,636                                                |       | 2,369 |   |
| Depreciation and  amortization           |       | 13,503                                               |       | 13,026 |   |
| Total Operating  expenses                |       | $                                                    | 114,930    |   | $ | 98,396 |   |

 

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 $6.7million from $20.5 million for the three months ended June 30, 2006 to$27.2 million for the three months ended June 30, 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 $4.9 million of the $6.7 million increase in slot exclusivityfees was due to the 4% increase in the rate under the Compact.  Despite the increase in gaming revenues,gaming-related promotional expenses increased only $0.2 million in relation tothe prior year quarter primarily due to the significantly higher redemptions ofSeneca Player’s Club points for promotional slot credits during our *“Great Exchange”* promotions during the third quarter, inwhich a significant amount of Seneca Player’s Club points were converted intofree slot play.

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 June 30,2007, food and beverage product costs increased $0.5 million, in directrelation to the increase in food and beverage revenues.  Food and beverage labor increased $0.6million due to additional outlets opened on March 30, 2007 as part of theresort expansion at Seneca Allegany Casino and Hotel.

Lodging expenses primarily represent our costs tooperate Seneca Niagara Casino and Hotel’s luxury hotel and the newly opened hotel at Seneca Allegany Casino andHotel.  The components of these expensesinclude payroll and other employee benefit expenses, guest amenity supplies,laundry and other expenses.  For thethree months ended June 30, 2007, lodging expenses increased $1.2 million, or 54%.  $0.3 million of the increase is due to higheroccupancy at the hotel in Niagara Falls for the three month period ended June30, 2007 compared to the same period ended June 30, 2006, and $0.9 million ofthe increase in cost is due to the hotel at Seneca Allegany Casino which openedon March 30, 2007.

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 June 30, 2007,these costs increased approximately $0.4 million, or 13%, over the comparable 2006period, due principally to a $0.3 million increase in headline entertainmentcosts in the current year’s quarter at the Seneca Niagara Casino and 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

15

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and energy costs. For the three months ended June 30, 2007 and 2006, such costs were $37.5million and $33.4 million, respectively, an increase of $4.1 million, or12%.  The increase was mainlyattributable to a $0.8 million increase in related payroll and benefits costsprimarily in the facilities and maintenance areas,  $0.7 million in increased advertising costssupporting entertainment and other amenities mostly for the new hotel andrestaurants at Seneca Allegany Casino and Hotel, $0.7 million increase in losson assets related to the closing of the Hush nightclub at Seneca Niagara FallsCasino and Hotel, and $0.6 million in increased regulatory costs and $0.4million increase in energy costs, which are due to the March 30, 2007 openingof the Seneca Allegany resort hotel and related amenities.

Pre-opening expenses are non-recurring costs incurredto support the expected opening of new facilities.  For the three months ended June 30, 2007 and2006, such costs were $4.6 million and $2.4 million, respectively, an increaseof $2.2 million.  The increase was mainlydue to a $1.9 million increase in pre-opening costs at SEGC related to SEGC’s  lease of land on the Seneca Buffalo CreekTerritory for the construction and operation of the Seneca Buffalo CreekCasino, along with higher costs to support the opening of Seneca AlleganyCasino and Hotel’s resort hotel.

For the three months ended June 30, 2007 and 2006,depreciation and amortization expense was $13.5 million and $13.0 million,respectively, an increase of $0.5 million, or 4%.  This increase was attributable to the openingof our permanent gaming floor at Seneca Allegany Casino and Hotel, which wasplaced in service on December 28, 2006 and its new hotel that was placed inservice on March 30, 2007.

*Non-Operating Income/Expenses*

We had non-operating income of $4.0 million for thethree months ended June 30, 2007 ($3.6 million in cash and forgiveness of$0.4 million in construction payables) related to our settlement withKlewin Building Company.  See “Part II.Item 1 – Legal Proceedings” for a description of the Klewin settlement.

The following tablesummarizes information related to interest on our long-term debt:
|                  | ** ** | **Three Months Ended**                     | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **June 30,**                                    | ** ** |
| ** **       | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **       | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
| ** **       | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Interest expense |       | $                                                    | 9,502      |   | $ | 9,073 |   |
|                  |            |                                                      |            |  |  |  |  |

 

Our interest expense for the three months ended June30, 2007 increased $0.4 million over the three months ended June 30, 2006.  This increase was primarily attributable to a$0.4 million reduction in the amount of interest capitalized in the quarterended June 30, 2007 in relation to the 2006 quarter.  Capitalized interest relating to constructionprojects for the quarters ended June 30, 2007 and 2006 was $0.4 million and$0.8 million, respectively, and are recorded as components of net property andequipment within the accompanying consolidated balance sheets.

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**Operating Results - Nine Months Ended June 30,2007 Compared to the Nine Months Ended June 30, 2006**

*OperatingResults*
|                                         | ** ** | **Nine Months Ended**                      | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **June 30,**                                    | ** ** |
| ** **                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                              | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
| ** **                              | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net revenue                             |       | $                                                    | 425,256    |   | $ | 372,479 |   |
|                                    |       |                                                 |       |   |   |
| Operating  expenses:                    |       |                                                 |       |   |   |
| Gaming                                  |       | 109,752                                              |       | 94,240 |   |
| Food and beverage                       |       | 34,594                                               |       | 31,700 |   |
| Lodging                                 |       | 7,943                                                |       | 3,658 |   |
| Retail,  entertainment and other        |       | 8,928                                                |       | 8,522 |   |
| Advertising, general and administrative |       | 109,676                                              |       | 97,268 |   |
| Pre-opening costs                       |       | 15,218                                               |       | 7,301 |   |
| Depreciation                            |       | 36,113                                               |       | 28,389 |   |
|                                    |       |                                                 |       |   |   |
| Operating income                        |       | $                                                    | 103,032    |   | $ | 101,401 |   |

 

The most important factors and trends contributing to our operatingperformance during the nine months ended June 30, 2007 and 2006 were similar tothose noted above for the three month periods ended June 30, 2007 and 2006.

*Detailed Revenue Information*
|                                          | ** ** | **Nine Months Ended**                      | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **June 30,**                                    | ** ** |
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                     |       |                                                 |       |   |   |
| Gaming revenue:                          |       |                                                 |       |   |   |
| Slots                                    |       | $                                                    | 372,981    |   | $ | 321,534 |   |
| Table games                              |       | 55,903                                               |       | 49,317 |   |
| Keno                                     |       | 321                                                  |       | 352 |   |
|                                     |       |                                                 |       |   |   |
| Gaming revenue                           |       | 429,205                                              |       | 371,203 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming revenue:                      |       |                                                 |       |   |   |
| Food and beverage                        |       | 40,388                                               |       | 35,358 |   |
| Lodging                                  |       | 15,800                                               |       | 5,052 |   |
| Retail, entertainment and other          |       | 14,446                                               |       | 14,465 |   |
|                                     |       |                                                 |       |   |   |
| Non-gaming  revenue                      |       | 70,634                                               |       | 54,875 |   |
| Less promotional  allowances and credits |       | (74,583                                              | )          | (53,599 | ) |
|                                     |       |                                                 |       |   |   |
| Net revenue                              |       | $                                                    | 425,256    |   | $ | 372,479 |   |

 

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Our gaming revenue for the nine months endedJune 30, 2007 increased relative to the comparable period ending June 30, 2006due to (a) the opening of the additional gaming space at Seneca Niagara Casinoand Hotel on December 15, 2005, which added approximately 950 slot machines and21 table games to our operations, (b) the full nine month impact of thecomplete opening of the luxury hotel at Seneca Niagara Casino on March 31,2006, (c) the addition of 209 slot machines at Seneca Allegany Casino and Hoteldue to our December 2006 gaming floor expansion, (d) the opening of the hotelat Seneca Allegany Casino on March 30, 2007, and (e) continued growth in ourpatron base.  As of June 30, 2007, ourgaming operations featured an aggregate of 143 table games and 6,490 slotmachines available toour patrons, representing a net increase of 19 table games and 213 slotmachines compared to the period ended June 30, 2006.  During these periods, the number of patronsenrolled in our Seneca Player’s Club program has steadily increased.  As of June 30, 2007, we had approximately 1.3million patrons enrolled, an increase of approximately 0.2 million patrons, or 18%over the number of enrolled members at June 30, 2006.

Our net gaming revenue, which excludes promotional credits of $30.2million and $20.6 million in the nine month periods ended June 30, 2007 and2006, respectively, increased $48.3 million, or 14%, for the nine months endedJune 30, 2007 relative to the comparable nine month period ended June 30,2006.  During the nine months ended June30, 2007, Seneca Niagara Casino and Hotel’s net gaming revenue increased $42.7million, or 18% over the nine months ended June 30, 2006, principallyattributable to the casino expansion and supported by the new luxury hotel andits amenities.  Seneca Allegany Casinoand Hotel’s net gaming revenue for the nine months ended June 30, 2007 was$113.4 million, an increase of $5.7 million or 5% from the nine months endedJune 30, 2006.  This increase reflectsthe financial impact of the opening of the resort hotel with additionalamenities on March 30, 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 retail revenue and our gaming revenue because asignificant portion of this revenue is generated from players’ pointredemptions.  For the nine months endedJune 30, 2007, and 2006, 58% and 60%, respectively, of our food and beveragerevenue and 83% and 87% of our retail revenue, respectively, represented SenecaPlayer’s Club point redemptions.  For thenine months ended June 30, 2007, food and beverage revenue increased $5.0 million,or 14% to $40.4 million compared to the same period ended June 30, 2006.  For the nine months ended June 30, 2007,Seneca Niagara Casino and Hotel generated an additional $3.7 million in foodand beverage revenue over the comparable period ended June 30, 2006, primarilydue to the addition of three new restaurants and two bars opened in December2005.  Seneca Allegany Casino and Hotel’sfood and beverage revenue for the nine months ended June 30, 2007 increased$1.3 million, or 14%, in relation to the comparable period ended June 30, 2006due to the opening of two fine dining restaurants and a twenty-four hour casualrestaurant in conjunction with the resort hotel opening on March 30, 2007.

Lodging revenue represents rentals of rooms in the luxury hotel inNiagara Falls, which partially opened in December 2005, and completely openedon March 31, 2006,  and revenue generatedby the opening of our resort hotel at Seneca Allegany Casino on March 30, 2007.  For the nine months ended June 30, 2007 and2006, 80% and 69%, respectively, of our lodging revenue represented complimentaryrevenue.

For the nine months ended June 30, 2007, our retail, entertainment andother revenue remained flat  in relation to the comparable 2006period.  This was primarily attributableto a $0.8 million increase in entertainment revenue at our Seneca NiagaraCasino and Hotel due to an increased number and quality of shows at the SenecaEvents Center, and a $0.1 million increase in other revenues at both casinos,offset by a $1.0 million decrease in retail revenues at both casinos due tolower complimentary retail sales.  Theincrease in other revenues is due to a $0.4 million increase in spa and salonrevenues at Seneca Niagara Casino and Hotel, offset by decreased rental incomefrom our leasing of various offices at our Niagara Falls property and lease tothe Nation of space at our Niagara Falls and Allegany casinos for the conductof its Class II poker rooms.

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*DetailedOperating Expenses Information*
|                                         | ** ** | **Nine Months Ended**                      | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **June 30,**                                    | ** ** |
| ** **                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                              | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                    |       |                                                 |       |   |   |
| Operating expenses                      |       |                                                 |       |   |   |
| Gaming                                  |       | $                                                    | 109,752    |   | $ | 94,240 |   |
| Food and beverage                       |       | 34,594                                               |       | 31,700 |   |
| Lodging                                 |       | 7,943                                                |       | 3,658 |   |
| Retail, entertainment and other         |       | 8,928                                                |       | 8,522 |   |
| Advertising, general and administrative |       | 109,676                                              |       | 97,268 |   |
| Pre-opening costs                       |       | 15,218                                               |       | 7,301 |   |
| Depreciation and amortization           |       | 36,113                                               |       | 28,389 |   |
| Operating expenses                      |       | $                                                    | 322,224    |   | $ | 271,078 |   |

 

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 $16.8million from $56.2 million for the nine months ended June 30, 2006 to$73.0 million for the nine months ended June 30, 2007.  This was due to increased slot revenue, alongwith the four percentage point increase in the slot exclusivity fee effectiveJanuary 1, 2007 pursuant to the Compact. Approximately $9.5 million of the$16.8 million increase in slot exclusivity fees was due to the 4% increase inthe rate under the Compact.   Inaddition, gaming-related payroll and benefits costs increased $0.6 million inrelation to the prior year nine month period primarily due to the addition ofthe expanded gaming floor at Seneca Niagara Casino and Hotel, which openedDecember 2005, and the expansion of the Seneca Allegany Casino gaming floorwhich opened on December 28, 2006.  Theseincreases were partially offset by a $3.0 million decrease in patron incentivepoints expense due to the expansion of our *“Great Exchange”*promotion in 2007, pursuant to which a significant number of Seneca Player’sClub points were converted into free slot play during each month of fiscal2007.  Gaming expenses increased $11.9million, or 18% at Seneca Niagara Casino and Hotel, while Seneca AlleganyCasino and Hotel increased $3.6 million, or 12% for the nine months ended June30, 2007 compared to the same period ended June 30, 2006.

Food and beverage expenses are costs incurred for theoperation of our restaurants, snack bars and beverage outlets.  The primary components of these expenses arethe cost of food and beverages and related payroll and employee benefitexpenses.  For the nine months ended June30, 2007, food and beverage product cost increased $0.9 million associated withour revenue increase, and food and beverage payroll and benefits increased $1.8million in relation to the nine months ended June 30, 2006, due to theincreased staffing related to the opening of three additional restaurants andtwo additional bars, in conjunction with the luxury hotel expansion at SenecaNiagara Casino and Hotel and the additional staffing for the three newrestaurants at the Seneca Allegany Casino and Hotel property, opened on March30, 2007.

Lodging expenses primarily represent our costs tooperate Seneca Niagara Casino’s luxury hotel, which completely opened on March31, 2006 and the addition of the hotel at Seneca Allegany Casino which openedon March 30, 2007.  The components ofthese expenses include payroll and other employee benefit expenses, guestamenity supplies, utilities and laundry and other expenses.   The increase in lodging expenses of $4.3million or 117% for the nine months ended June 30, 2007 in relation to thecomparable prior year period is due to operating the full hotel at at SenecaNiagara for all nine months in the 2007 period, and operating the SenecaAllegany Casino’s hotel for the three month period ending June 30, 2007.

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 

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for sale in our retail outlets, and contract costs forentertainers.  For the nine months endedJune 30, 2007 in relation to the same period in 2006, these costs increased$0.4 million due to increased contract entertainment costs offset by a decreasein retail cost of goods from lower retail complimentary revenue.

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 nine months endedJune 30, 2007 and 2006, such costs were $109.7 million and $97.3 million,respectively, a $12.4 million increase, or 13%. The increase was attributable to a $5.0 million increase in labor andrelated costs, a $2.5 million increase in advertising costs in support ofincreased entertainment and other amenities at both casinos, a $1.5 millionincrease in energy costs reflecting the full nine month impact of the expandedfacilities at Seneca Niagara Casino and Hotel and the opening of the hotel atSeneca Allegany on March 30, 2007, $1.1 million in property operations insupport of expanded facilities at both casinos, a $1.0 million increase inregulatory costs in the nine months ended June 30, 2007 over the same period in2006, a $0.7 million increase in loss on disposal of assets due to the Hushnightclub closing, and $0.6 million increase in property taxes for landacquisitions for SNFGC which have not yet been transferred to the Nation.  $2.3 million of Seneca Allegany Casino andHotel’s $4.4 million increase in advertising, general and administrativeexpenses for the nine months ended June 30, 2007 compared to the same periodended June 30, 2006 were from the third quarter and due to the opening of thehotel, three restaurants, and related amenities on March 30, 2007.

*Non-OperatingIncome/Expenses*

We had net non-operating income of $3.7 millionfor the nine months ended June 30, 2007, primarily related to oursettlement with Klewin Building Company ($3.6 million in cash andforgiveness of $0.4 million of construction payables).

Thefollowing table summarizes information related to interest on our long-termdebt:
|                  | ** ** | **Nine Months Ended**                      | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **June 30,**                                    | ** ** |
| ** **       | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **       | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|             |       |                                                 |       |   |   |
| Interest expense |       | $                                                    | 26,024     |   | $ | 23,979 |   |
|                  |            |                                                      |            |  |  |  |  |

 

Our interest expense forthe nine months ended June 30, 2007 increased $2.0 million over the nine monthsended June 30, 2006.  This increase wasprimarily attributable to lower capitalized interest related to our construction of the hotel atSeneca Niagara Casino and the hotel at Seneca Allegany Casino during the ninemonths ended June 30, 2007 and 2006, which totaled $3.6 million and $5.1million, respectively, and are recorded as components of net propertyand equipment within the accompanying consolidated balance sheets.

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**Liquidityand Capital Resources**

*Cash Flows*
|                                                         | ** ** | **Nine Months Ended**                      | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **June 30,**                                    | ** ** |
| ** **                                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | **(Unaudited, Dollars in Thousands)** | ** ** |
|                                                    |       |                                                 |       |   |   |
| Net cash  provided by operations                        |       | $                                                    | 117,276    |   | $ | 114,518 |   |
|                                                    |       |                                                 |       |   |   |
| Cash flows  relating to investing activities:           |       |                                                 |       |   |   |
| Capital expenditures                                    |       | (143,441                                             | )          | (156,804 | ) |
| Payments for land acquisitions                          |       | (17,852                                              | )          | (16,773 | ) |
| Decrease/(increase) in collateral for letter of  credit |       | 11,221                                               |       | (33,500 | ) |
| Sales of short-term investments, net                    |       | 42,700                                               |       | 43,791 |   |
| Net cash used in investing activities                   |       | (107,372                                             | )          | (163,286 | ) |
|                                                    |       |                                                 |       |   |   |
| Cash flows  relating to financing activities:           |       |                                                 |       |   |   |
| Payment of deferred financing costs                     |       | —                                               |       | (682 | ) |
| Capital Contribution from Nation                        |       | 3,198                                                |       | — |   |
| Distributions paid to the Nation                        |       | (36,692                                              | )          | (9,747 | ) |
| Net cash used in financing activities                   |       | (33,494                                              | )          | (10,429 | ) |
|                                                    |       |                                                 |       |   |   |
| Net decrease in cash  and cash equivalents              |       | $                                                    | (23,590    | ) | $ | (59,197 | ) |

 

*CashFlows—Operating Activities.*    The $2.8 million increase in cash flows fromoperations during the nine months ended June 30, 2007 compared to the sameperiod in 2006 resulted principally from a $2.1 million increase in net incomeover the prior year, principally due to the positive financial impact of theluxury hotel and expanded gaming and amenities at Seneca Niagara Casino andHotel.

*CashFlows—Investing Activities.*    Our capital expenditures of $143.4 millionduring the nine months ended June 30, 2007 were mainly comprised of $89.6million of costs associated with the construction and equipping of the resorthotel and permanent gaming floor and amenities at the Seneca Allegany Casinoand Hotel, $13.4 million related to final construction close-out of the luxuryhotel at Seneca Niagara Casino, and $4.2 million for the construction of thetemporary Seneca Buffalo Creek gaming facility in Buffalo, New York.  The remaining $36.2 million in capitalexpenditures were principally for the acquisition of equipment for existingcasino operations and the construction of an additional parking lot at SenecaNiagara Casino and Hotel.  Sales andpurchases of short-term investments represent transactions in short-terminvestments of excess cash in instruments having a maturity of more than 90days.

The Compact designatesapproximately 50 acres of land in the City of Niagara Falls, New York, forownership by the Nation.  Except forcertain streets owned by the City of Niagara Falls, New York, and a bike pathowned by the New York State Department of Transportation, the acquisition ofwhich is ongoing, SNFGC has acquired (for purposes of sale and transfer to theNation), either through direct negotiated purchase from the owner(s) or throughcondemnation proceedings with the assistance of the Empire State DevelopmentCorporation, or ESDC, substantially all of the land designated in Appendix I ofthe Compact for potential acquisition by the Nation. Under the Compact, theNation is required to fund the acquisition of this property, including allrelated costs and expenses.  As initialsecurity for the Nation’s obligations to pay site acquisition costs and infurtherance of ongoing condemnation proceedings, we were required to deliver tothe ESDC, and delivered, to the Empire State Development Corporation, or ESDC,a letter of credit in the amount of $33.5 million, representing 150% of thethen 

21

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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 the ESDC, provide a supplemental cashescrow amount.  In July 2006, we acquiredthrough condemnation approximately 18 acres of land and related trade fixturesfrom Fallsite, LLC or Fallsite, and Fallsville, LLC for an aggregate initialadvance payment of $18.0 million.  Inconjunction with the Fallsite acquisition referenced above, in July 2006, $7.7million was drawn under the letter of credit as partial funding of the purchaseand the balance was paid from our operating cash.  In March 2007, an additional $11.5 millionwas drawn under the letter of credit to fund the acquisition of 18 additionalparcels of land and certain improvements.   As a result of the events discussed below, the current required letterof credit amount has been reduced to approximately $14.3 million. Thisoutstanding letter of credit is 100% collateralized by a cash deposit in aninterest-bearing restricted account with a bank.

The amounts paid tocondemnees from whom we have acquired property are deemed to be advancepayments. Pursuant to the New York State Eminent Domain Procedure Law, the NewYork state courts will determine the final purchase price to be paid to suchcondemnees.   In July 2006, each ofFallsite and Fallsville filed notice of claims seeking $40 million and $35million, 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 advance 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 the differenceand potentially also responsible for certain additional costs and payments tothe applicable condemnee(s), such as their attorney fees. The additional landwe recently acquired has not yet been transferred to the Nation. We can provideno assurance that, upon transfer of such land to the Nation, restricted feestatus for such land will be sought by the Nation or, if sought, approved.

*Cash Flows—Financing Activities.*     Effective September 1, 2006, SGC declared acash distribution of $26.0 million to the Nation, payable in thirteen equalinstallments of $2.0 million, beginning in September 2006.  Effective December 11, 2006, SGC declared anadditional cash distribution of $20.0 million to the Nation, payable in tenequal installments of $2.0 million, beginning in December 2006.  On July 14, 2007 SGC declared an additionalcash distribution of $5.0 million to the Nation, payable by July 31, 2007,which was paid on July 30, 2007.  During the nine months ended June 30, 2007and 2006, SGC distributed to the Nation acquired real property of $1.5 millionand $4.9 million, respectively for use in its casino and other relatedentertainment operations.  Suchdistribution amounts were based on the acquisition cost of the realproperty.  On June 14, 2007, the Nationpaid SEGC $3.2 million for the value of land purchased for the development ofthe Seneca Buffalo Creek Casino.

*PrincipalDebt Arrangements.*    As of June 30, 2007, our long-term debtconsists of $300.0 million in 2004 senior notes and $200.0 million in 2005senior notes.  The senior notes carry afixed annual interest rate of 71⁄4% and semi-annual interest payments are due onMay 1 and November 1.

The 2004 and 2005 seniornotes are unsecured and rank equally.  Asof June 30, 2007 aggregate accrued interest on the 2004 and 2005 senior noteswas $6.0 million.  The senior notesmature on May 1, 2012, are redeemable at our option in whole or in part at anytime after May 1, 2008, at the redemption prices set forth in our Indenture,are subject to redemption requirements imposed by gaming laws and regulationsand are required to be repurchased by us at the of holders upon certain changeof control events.

We expect cash generatedfrom our operations, available cash and cash equivalents and short-terminvestments as of June 30, 2007 will be sufficient to fund our expansion planson the Allegany Territory described below, service our debt, and meet ourworking capital requirements and other commitments and obligations for at leastthe next 12 months.  However, our abilityto fund our operations, make planned capital expenditures, service our debt andmeet our other commitments and obligations depends on our future operatingperformance and cash flow (and may be impacted by any cash distributions to ourowner, the Nation, in excess of those to be paid pursuant to existingcommitments and obligations, such as distributions to pay or reimburse certainoperating expenses, to pay declared distributions payable on future paymentdates and to meet our obligations under the Distribution Agreement), which 

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are in turn subject toprevailing economic conditions, and to financial, business and other factors,some of which are beyond our control. Additionally, unlike traditional corporations, we are prohibited by lawfrom 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 leveragedand have significant interest payment requirements on our 2004 and 2005 seniornotes as well as other commitments and obligations.  As such, limitations on our capital resourcescould force us to delay or abandon capital projects as well as the constructionand development of new properties.

*Expansion Plans. *During the next18 months, we plan to make substantial capital investments in our gamingfacilities.

We recently completedconstruction of the permanent gaming floor at the Seneca Allegany Casino and a212-room resort hotel and other amenities at this property.  The permanent casino floor was officiallyopened on December 28, 2006 and the resort hotel and related amenities opened onMarch 30, 2007.  We estimate the totalcost to complete the resort hotel and permanent casino to be approximately$169.0 million. We continue to proceed with development at the SenecaAllegany Casino and Hotel, with the conversion of the former original casinointo an approximate 1,700 seat events center with additional administrative andsupport space, and certain exterior improvements to the original casino, andthe hotel and parking garage, including landscaping and other cosmetic improvements,at a total estimated cost of up to $40 million. We estimate completion of the interior components of the original casinorenovation by mid-February 2008.

We now plan to proceedwith the next phase of development at the Seneca Allegany Casino and Hotel,which will involve the design, development and construction of an additional179 to 204 room hotel tower, and up to 31,000 square feet of additional gamingspace and related amenities, for an estimated cost of up to $130 million.The completion date for this phase of construction is estimated to be mid-2009.

We commenced constructionof our Seneca Buffalo Creek Casino on December 8, 2005.  The permanent facility is planned toinitially feature 1,900 to 2,200 slot machines, 30 to 50 table games, two finedining restaurants, a 24-hour casual dining restaurant, a bar, conference andmeeting space, a retail store and a 2,500-space parking garage. As previouslynoted, we planned to open, and have opened, on July 3, 2007, a temporaryClass III gaming facility on the Seneca Buffalo Creek Territory, whichfulfills the Nation’s obligation under the Compact to open a Class III gamingfacility in Erie County, New York by December 31, 2007.  Reference is made to our Annual Report onForm 10-K for the year ended September 30, 2006 for a description of certainlegal proceedings relating to our planned Seneca Buffalo Creek Casino.  See also “Part II. Item 1 – Legal Proceedings”for material developments regarding certain of these proceedings.

*Distribution AgreementObligations*

On April 27, 2007, weentered into a Distribution Agreement among the Nation, the Seneca Nation ofIndians Capital Improvements Authority, or the Authority, us and Wells FargoBank, as Trustee, in connection with the Authority’s issuance in two series(one tax exempt and the other taxable) of an aggregate principal amount of$159,495,000 special obligation bonds, or the 2007 Bonds.  The Distribution Agreement obligates us,subject to any contractual restrictions applicable to us (including, but notlimited to, the Indenture governing our 2004 and 2005 senior notes) to makemonthly distributions to the Nation at the times and in the amounts necessaryto enable the Authority to pay the debt service on the 2007 Bonds as requiredunder the Authority’s indenture. At the direction of the Nation and theAuthority, we will pay such distributions directly to the Trustee. TheAuthority’s debt service commenced on June 1, 2007.  For the period from June 1, 2007 throughDecember 1, 2007, the Authority’s debt service averages approximately$0.9 million per month. For the period from January 1, 2008 throughDecember 1, 2013, the Authority’s debt service averages approximately$1.8 million per month. For the period from June 1, 2014 through December1, 2023, the Authority’s debt service averages approximately $1.2 millionper month. The foregoing debt service averages are based on scheduled paymentsof interest 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 we fail to comply with our distributionobligations.   Reference is made to ourCurrent Report on Form 8-K filed with 

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the SEC on May 1, 2007for a description of the payment terms, including maturity dates and redemptionterms, of the 2007 Bonds, and certain material terms of the DistributionAgreement.

**Regulation**

Our operations areregulated by Nation laws, the Compact and federal statutes, most notably theIndian Gaming Regulatory Act, or IGRA. Several bills have been proposed during recent sessions of Congress thatwould have affected Indian gaming.  Mostnotably, in the most recent session of Congress, Senator McCain’s S. 2078, theIndian Gaming Regulatory Act Amendments of 2006 and Congressman Pombo’s (R-CA)H. 4893, Restricting Indian Gaming to Homelands of Tribes Act of 2006, proposedadditional regulations for tribes and more restrictions on “off-reservation”gaming.  These bills contained provisionsthat would have grandfathered existing Indian gaming operations such as SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel.  Neither bill was passed by either the Houseor Senate.  Also, the administration haspublished proposed regulations relative to off-reservation gaming.  Certain of such bills and regulations, ifenacted, could impair the ability of the Nation and SGC to expand its gamingoperations and adversely impact the future growth of the Nation’s revenuebase.  In addition, from time to time,various government officials have proposed taxing Indian casino gaming orotherwise limiting or restricting the conduct of gaming operations by Indiantribes.  No assurance can be given thatsuch legislation, if and when enacted by Congress, would not have a materialadverse effect on the operations of SGC. If Congress were to enact comprehensive amendments to the IGRA, suchlegislation could have a material adverse effect on our operations.

Under federal law, gamingon the Nation’s lands may be dependent upon the permissibility under New Yorklaw of certain forms of gaming or similar activities.  If New York State were to make various formsof gaming illegal or against public policy (or the courts were to similarly rule),or otherwise to take a legal position adverse to us, such actions could affectthe ability of the Nation to conduct those forms of gaming under the Compact,which could have a material adverse effect on our ability to conduct gamingoperations as currently conducted.

**New Accounting Pronouncements**

There are no accountingstandards that have not yet been adopted which are expected to have a materialimpact on our financial reporting.

**Item 3.**   Quantitative and Qualitative Disclosures AboutMarket Risk

Reference is made to our2006 Annual Report on Form 10-K for a complete discussion of our marketrisk.  This market risk information hasnot materially changed in the interim period.

**Item 4.**  Controlsand Procedures

**Evaluation of Disclosure Controlsand Procedures**

We maintain disclosurecontrols and procedures (as that term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) thatare designed to ensure that information required to be disclosed in our ExchangeAct reports is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms, and that such information isaccumulated and communicated to our management, including our interim Presidentand Chief Executive Officer and Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, have inherent limitationsdue to cost issues, the possibility of human error, judgments and assumptionsregarding the likelihood of future events, and the circumvention and overridingof the controls and procedures.  Accordingly, even effective disclosure of controls and procedures canprovide only reasonable assurance of achieving the desired control objectives.

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SGC’s management, underthe supervision and with participation of our Interim President and ChiefExecutive Officer and Chief Financial Officer (as our principal executiveofficer and principal financial officer, respectively), has evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures.  Based on that evaluation,our Interim President and Chief Executive Officer and Chief Financial Officerhave concluded that the design and operation of our disclosure controls andprocedures as of June 30, 2007 provided reasonable assurance that thedisclosure controls and procedures are effective to accomplish theirobjectives.

**Changes in Internal Control over Financial Reporting**

There has not been anychange in our internal control over financial reporting identified inconnection with the evaluation required by Exchange Act Rules 13a-15 or 15d-15or otherwise that occurred during the quarter ended June 30, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

**Part II.     OTHER INFORMATION**

**Item 1.**                                                           LegalProceedings

***In the Matter of Seneca Niagara Falls Gaming Corporation andSeneca Territory Gaming Corporation, Claimants, and Klewin Building Company,Inc. and C.R. Klewin Gaming & Hospitality, Inc., Respondents (AmericanArbitration Association No. 15 110 00691 05; Arbitration before the ArbitrationPanel of James W. Gresens, Robert A. Dean, and S. Thomas Aiston)***.

Consistent withinformation previously reported in our Annual Report on Form 10-K for thefiscal year ended September 30, 2006, our Quarterly Reports for the three monthsended December 31, 2006 and March 31, 2007, and our Current Report on Form 8-Kfiled on June 12, 2007, respectively, on October 15, 2003, SNFGC and KlewinBuilding Company, Inc. (or Klewin) entered into an Owner-Design/BuilderAgreement whereby Klewin agreed to design and build a hotel, casino and spa forSNFGC in Niagara Falls, New York for a guaranteed maximum price of$153,048,497.  On August 10, 2005, SNFGC provided Klewin with a notice ofdefault 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.

On May 7, 2007, theparties were to have commenced the arbitration hearing before the panel ofarbitrators. Commencement of such hearing was adjourned in anticipation of anexpected global settlement of this matter and related litigation between us andboth Klewin and T.D. Banknorth, N.A. (Banknorth) (which litigation is describedin our 2006 Form 10-K and Quarterly Report on Form 10-Q for the quarter endedDecember 31, 2006).

On June 6, 2007, wereached formal resolution with each of Klewin and Banknorth, the collectiveterms of which provide for the following: (a) Klewin’s stipulation to anarbitration award in our favor in the amount of approximately $14.5 million;(b) Klewin’s consent to release to us in satisfaction of the arbitrationaward approximately $3.6 million, which is the balance remaining from theapproximately $14.5 million that we deposited into a Banknorth account inAugust 2005 for the benefit of the architect and the subcontractors on our NiagaraFalls hotel project and other construction projects; (c) our agreement tocontinue to satisfy all valid subcontractor and vendor claims in conjunctionwith the above construction projects arising after June 30, 2005;(d) Klewin’s agreement to provide us with copies of monthly internallyprepared financial statements for 2007, as well as copies of tax returns fortax years 2006 and 2007 when filed, with the understanding that should Klewinbe found within 2007 to be in possession of any unencumbered assets or revenuesnot previously disclosed by Klewin during the litigation, such unencumberedassets or revenues will be used to satisfy the above $14.5 million arbitrationaward; (e) agreements between the parties to voluntarily discontinue allpending legal actions between them as soon as practicable, and no more thanthirty (30) days after we receive the $3.6 million sum described above; and (f)the exchange of mutual releases among SNFGC, STGC, Klewin and Banknorth.

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

Consistent withinformation previously reported in our Form 10-K for the year endedSeptember 30, 2006,  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,the National 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 Gaming Regulatory Act (IGRA) 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.

On January 12, 2007, theDistrict Court granted the defendant’s motion to dismiss for lack of subjectmatter jurisdiction, holding that, notwithstanding the U.S. Department ofInterior’s prior determination that the Seneca Nation’s Buffalo Creek Territoryin Erie County, New York, constitutes “Indian Lands” within the meaning of theIGRA, the National Indian Gaming Commission, or NIGC, must make its owndetermination of whether the Nation’s Buffalo Creek Territory constitutes “IndianLands” upon which Class III casino gaming may be conducted.  The DistrictCourt further 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 material developmentfor the quarter ended June 30, 2007, on April 20, 2007, the Court denied theU.S. Department of Justice’s motion for reconsideration, holding that thedefendants had not established any clear error in the Court’s earlier analysisor conclusion.

On June 14, 2007,Plaintiffs appealed the January 12, 2007 decision and order of the DistrictCourt (as amended by the April 20, 2007 decision and order) to the SecondCircuit Court of Appeals.

On July 2, 2007, theSeneca Nation received correspondence from the NIGC approving the Nation’s ClassIII Gaming Ordinance for its Buffalo Creek Territory and concluding that suchlands are eligible for Indian gaming.  On the basis of the NIGC’s positive“Indian Lands” determination, on July 3, 2007, SEGC commenced Class III gamingon the Nation’s Buffalo Creek Territory in fulfillment of the requirement setforth in Nation’s Compact with the State of New York, which provides that theNation’s exclusive right, under the Compact, to establish and operate a thirdClass III gaming facility in Western New York may terminate if the Nation orSEGC had failed to commence Class III gaming operations in Erie County, NewYork, by December 9, 2007.

Consistent withinformation previously disclosed by SGC, the Nation is not a party to thisaction, and as such, neither it nor SGC has the ability to direct or controlany aspect of this litigation, including ongoing appeals from the Court’sdecisions and orders.  SGC intends to continue with plans for, andconstruction of, a permanent Seneca Buffalo Creek Casino, but such plans andconstruction may be delayed and SGC may be unable to continue to conduct ClassIII gaming on the Seneca Buffalo Creek Territory based upon the status andoutcome of the above appeal, and any subsequent appeals.

***Citizens Against Casino Gamblingin Erie County, et al. v. Hogen (1:07-cv-00451-WMS (WDNY)).***

On July 12, 2007, variousplaintiffs brought suit against against Philip N. Hogen, in his capacity asChairman of the National Indian Gaming Commission and Dirk Kempthorne, in hiscapacity as the Secretary of Interior seeking declaratory and injunctive reliefunder the federal Administrative Procedure Act, federal Declaratory JudgmentsAct, 

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Rule 57 of the FederalRules of Civil Procedure and the IGRA, which challenges the decisions andactions of the defendants in approving the Nation’s June 9, 2007 Buffalo Creekgaming ordinance, including the defendants’ determination that Nation’s BuffaloTerritory constitutes “Indian Lands” as defined in IGRA, and defendants’determination that such lands are otherwise gaming-eligible.  Plaintiffs allege that the actions of thedefendants are arbitrary and capricious and an abuse of discretion, and requestinjunctive relief that would enjoin defendants from proceeding with anydecision or action permitting the construction and operation of a casino on theNation’s Buffalo Creek Territory. Because the substance of the plaintiffs’claims is substantially similar to that set forth in the above describedaction, *Citizens Against Casino Gambling v. Kempthorne(1:06-cv-00001-WMS (WDNY)) (formerly Citizens Against Casino Gambling v.Norton)*, plaintiffs have moved for an expedited briefing andargument schedule.

As with the abovelitigation, *Citizens Against Casino Gambling in Erie County v.Kempthorne*, the Nation is not a party to this action, and as such,neither it nor SGC has the ability to direct or control any aspect of thislitigation.  SGC intends to continue with plans for, and construction of,a permanent Seneca Buffalo Creek Casino, but such plans and construction may bedelayed and SGC may be unable to continue to conduct Class III gaming on theSeneca Buffalo Creek Territory based upon the status and outcome of thislitigation, and any appeals from such litigation.

**Item 1A.**                                                  RiskFactors

Our 2006 Form 10-K includesa detailed discussion of our risk factors. Set forth below and elsewhere inthis Quarterly Report on Form 10-Q are material updates to certain risk factorsincluded in our 2006 Form 10-K, and a new risk factor.

The two risk factors below update and restate riskfactors disclosed in our 2006 Form 10-K.

**If we are unable to retain our keypersonnel, our ability to execute our business strategy could be impaired.**

The continued services ofour key operating and executive personnel are important to our future success.The loss of the services of such key operating and executive personnel couldhave an adverse impact on us.  There can be no assurance that the servicesof such personnel will continue to be made available to us.  We do notmaintain key person life insurance policies on any of our executives.  Aspreviously disclosed in Current Reports on Form 8-K, effective February 7,2007, John Pasqualoni, our President and Chief Executive Officer, and Joseph D’Amato,our Chief Operating Officer, resigned for personal reasons.  BrianHansberry, our former General Manager of the Seneca Niagara Casino and Hotelhas been appointed as Interim President and Chief Executive Officer. OnFebruary 13, 2007, Michael Speller, our Senior Vice President of GamingOperations, delivered written notice of voluntary termination pursuant to hisemployment agreement, with such termination effective June 12, 2007.

**We may not be able to generate enoughcash flow to complete our current and future expansion projects.**

We intend to fund aportion of our current and future expansion projects with cash flows fromoperations. There can be no assurance that we will be able to generate therequired amount of cash from our operations to complete any or all of theseprojects. In addition, distributions to, and investments in, the Nation and itsaffiliates, as well as our obligation to make the distributions required by theDistribution Agreement, will result in our cash flow being diverted from ourexpansion projects.  If we are not able to generate enough cash to pay forour expansion projects, our projects may be delayed and we may need to findadditional sources of funds, which may not be available on terms acceptable tous, if at all. Further, if we incur additional debt to cover the cost of ourexpansion projects, risks related to our indebtedness could intensify. If wecannot generate enough cash or find alternative sources of funding to expandour operations, our business, financial condition and results of operationscould be materially adversely affected and we may not be able to make paymentson our senior notes or to meet our distribution obligations under theDistribution Agreement.

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The following is an addition to the risk factorsdescribed in our 2006 Form 10-K.

**The current review by the NIGC of theNation’s use of gaming revenues could materially adversely affect SGC’soperations.**

In December 2006, theNIGC notified the Nation that it would be commencing a review of the Nation’suse of gaming revenues starting in January 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 the Nation that the NIGC clarify the scope ofdocuments its inspection team is reviewing, the NIGC issued a subpoena toobtain certain documents needed to complete their review.  On March 8,2007, Nation and SGC staff met with the NIGC inspection team to obtainclarification on the scope of the review and the documents being sought. The Nation has been cooperating with the NIGC inspection team and has madeNation and SGC staff available to answer questions that have arisen during thecourse of the inspection team’s review.  As of August 14, 2007, the NIGC’sreview of the Nation’s use of net gaming revenues is ongoing.  The IGRAand NIGC’s implementing regulations do not provide a timeline within which theNIGC must complete its review.

Under IGRA, net revenuesfrom tribal gaming operations may only be used for the following purposes: (i)to fund tribal government operations or programs; (ii) to provide for thegeneral welfare 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 memberdistributions of net gaming revenues may only be made pursuant to a revenueallocation plan approved by the Bureau of Indian Affairs, Department of theInterior, or DOI. The Nation makes tribal member distributions from revenues itreceives from SGC’s operating lease payments. If the NIGC or DOI determinesthat the tribal member distributions from the operating lease payments aredistributions of net gaming revenues subject to IGRA’s requirements, it mayattempt to take enforcement actions against the Nation.

IGRA provides for civilpenalties for a violation of the provisions of IGRA or the regulationspromulgated by the NIGC. Such civil enforcement actions include withoutlimitation: notices of violation, issuance of temporary or permanent closureorders, and assessment of civil fines of up to $25,000 per violation. IGRA alsoprovides for an opportunity for an appeal and hearing before the NIGC withrespect to any civil penalty imposed. Judicial review also remains available.We cannot predict the outcome of the NIGC’s current review of the Nation’s useof net gaming revenues. If the NIGC determines that the Nation has violatedIGRA and takes enforcement actions against the Nation, such actions may have amaterial adverse effect on SGC’s ability to conduct its gaming operations ascurrently conducted.

Reference is made to “PartII. Item 1. — Legal Proceedings” of this Quarterly Report for material updatesto litigation described in our 2006 Form 10-K risk factor — **“If our ability to operate Class III gamingfacilities on land held in restricted fee were successfully challenged, itwould have a material adverse effect on our ability to conduct gamingoperations in Niagara Falls and Erie County pursuant to the Compact.”**

**Item 2.**                                                           UnregisteredSales of Equity Securities and Use of Proceeds

Not applicable.

**Item 3.**                                                           DefaultsUpon Senior Securities

Not applicable.

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

Not applicable.

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**Item 5.**                                                           OtherInformation

Not applicable.

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

 
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                |
|--------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.1         |       | 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).                                                                                     |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.2         |       | 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).                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.3         |       | 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**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

DatedAugust 14, 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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