Table ofContents

 

 

 

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D. C.  20549**

 

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**FORM 10-Q**

**(Mark One)**

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

 

**For thequarterly period ended June 30, 2009**

 

**OR**

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

 

**For thetransition period from            to           **

 

**CommissionFile Number: 333-115186**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exact name of registrantas specified in its charter)

 

| **Not  Applicable**              | ** ** | **68-0490898**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**3250Highway 128 EastGeyserville, California 95441(707) 857-2777**

(Address, including zipcode, and telephone number,including area code, of registrant’s principal executive offices)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporatewebsite, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  o Yes o No

 

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

 

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

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No x

 

 

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEX TOFORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                                   | ** ** |
|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|               |       |                                                                                                                                              |       |
| ** **         | ** ** | **PART I  — FINANCIAL INFORMATION**                                                                                                     |       |
|               |       |                                                                                                                                              |       |
| 1.                 |       | Unaudited  Condensed Financial Statements                                                                                                         | 4          |
|               |       | Condensed Balance Sheets-June 30, 2009  (unaudited) and December 31, 2008                                                               | 4          |
|               |       | Unaudited  Condensed Statements of Revenues, Expenses and Changes in Net Assets  (Deficit)-Three and Six-Months ended June 30, 2009 and 2008 | 5          |
|               |       | Unaudited Condensed Statements of Cash  Flows-Six-Months ended June 30, 2009 and 2008                                                        | 6          |
|               |       | Notes to Unaudited Condensed Financial Statements                                                                                                 | 8          |
| 2.                 |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                       | 18         |
| 3.                 |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                       | 24         |
| 4T.                |       | Controls and  Procedures                                                                                                                          | 24         |
|               |       |                                                                                                                                              |       |
| ** **         | ** ** | **PART II  – OTHER INFORMATION**                                                                                                        |       |
|               |       |                                                                                                                                              |       |
| 1.                 |       | Legal Proceedings                                                                                                                                 | 24         |
| 1A.                |       | Risk  Factors                                                                                                                                     | 25         |
| 6.                 |       | Exhibits                                                                                                                                          | 27         |
|               |       |                                                                                                                                              |       |
| Signatures         |       |                                                                                                                                              | 28         |
|               |       |                                                                                                                                              |       |
| Exhibit Index |       |                                                                                                                                              | 28         |

 

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**CAUTIONARYSTATEMENT**

 

*Except for the historical financialinformation contained herein, the matters discussed in this report on Form 10-Q(as well as documents incorporated herein by reference) may be consideredforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”).  Such forward-looking statements are basedupon current expectations that involve risks and uncertainties and includedeclarations regarding the intent, belief or current expectations of us and ourmanagement and may be signified by the words “believes,” “anticipates,” “plans,”“expects,” “intends” and similar expressions. Our actual results and the timingof certain events may differ significantly from the results discussed in theforward-looking statements. All forward-looking statements in this document arebased on information available to us as of the date hereof, and we assume noobligation to update any such forward-looking statements, whether as a resultof new information, future events, or otherwise. All discussion in this reportshould be read in conjunction with our financial statements and theaccompanying notes contained in this report.*

 

*References in this Form 10-Q tothe “Authority” and the “Tribe” are to the River Rock Entertainment Authorityand the Dry Creek Rancheria Band of Pomo Indians, respectively. The terms “we,”“us” and “our” refer to the Authority.*

 

*Our key risks are described in ourannual report on Form 10-K filed with the Securities and ExchangeCommission.*

 

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**PART I. FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS(UNAUDITED)**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

**(AGovernmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)**

** **

**CONDENSED BALANCE SHEETS**

 
| ** **                                      | ** ** | **June 30, 2009** | ** **  | **December 31, 2008** | ** ** |
|-------------------------------------------------|------------|------------------------|-------------|----------------------------|------------|
| ** **                                      | ** ** | **(Unaudited)**        | ** **  | ** **                 | ** ** |
| ** **                                      |       |                   |        |                       |       |
| **ASSETS**                                      |       |                   |        |                       |       |
|                                            |       |                   |        |                       |       |
| CURRENT  ASSETS:                                |       |                   |        |                       |       |
| Cash  and cash equivalents                      |       | $                      | 29,269,883  |                       | $          | 27,348,392 |   |
| Accounts  receivable                            |       | 128,575                |        | 68,486                     |       |
| Inventories                                     |       | 142,971                |        | 169,022                    |       |
| Prepaid  expenses and other current assets      |       | 1,175,599              |        | 1,238,195                  |       |
| Total  current assets                           |       | 30,717,028             |        | 28,824,095                 |       |
| RESTRICTED  CASH                                |       | 7,093,861              |        | 7,090,273                  |       |
|                                            |       |                   |        |                       |       |
| CAPITAL  ASSETS:                                |       |                   |        |                       |       |
| Buildings  and building improvements            |       | 130,389,175            |        | 130,357,841                |       |
| Furniture,  fixtures and equipment              |       | 32,568,125             |        | 34,143,554                 |       |
| Accumulated  depreciation                       |       | (55,386,307            | )           | (54,484,916                | )          |
| Construction  in progress                       |       | 51,863,013             |        | 45,599,195                 |       |
| Capital  assets-net                             |       | 159,434,006            |        | 155,615,674                |       |
| DEPOSITS  AND OTHER ASSETS                      |       | 2,721,130              |        | 3,039,529                  |       |
|                                            |       |                   |        |                       |       |
| TOTAL  ASSETS                                   |       | $                      | 199,966,025 |                       | $          | 194,569,571 |   |
|                                            |       |                   |        |                       |       |
| **LIABILITIES AND NET ASSETS (DEFICIT)**        |       |                   |        |                       |       |
|                                            |       |                   |        |                       |       |
| CURRENT  LIABILITIES:                           |       |                   |        |                       |       |
| Accounts  payable                               |       | $                      | 1,926,573   |                       | $          | 3,045,712 |   |
| Accrued  liabilities                            |       | 8,497,273              |        | 8,102,078                  |       |
| Current  maturities of long-term debt           |       | 10,274                 |        | 45,011                     |       |
| Total  current liabilities                      |       | 10,434,120             |        | 11,192,801                 |       |
| LONG-TERM  DEBT - net of current maturities     |       | 199,213,087            |        | 199,045,924                |       |
| COMMITMENTS  AND CONTINGENCIES                  |       |                   |        |                       |       |
| NET  ASSETS (DEFICIT):                          |       |                   |        |                       |       |
| Invested  in capital assets-net of related debt |       | (39,789,355            | )           | (43,475,261                | )          |
| Restricted  for capital projects                |       | 7,093,861              |        | 7,090,273                  |       |
| Unrestricted                                    |       | 23,014,312             |        | 20,715,834                 |       |
|                                            |       |                   |        |                       |       |
| Total  net assets (deficit)                     |       | (9,681,182             | )           | (15,669,154                | )          |
|                                            |       |                   |        |                       |       |
| TOTAL  LIABILITIES AND NET ASSETS (DEFICIT)     |       | $                      | 199,966,025 |                       | $          | 194,569,571 |   |

 

The accompanying notes are an integral part of these unaudited interimfinancial statements.  The condensedbalance sheet as of December 31, 2008 has been derived from auditedfinancial statements.

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**(AGovernmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)**

 

**CONDENSED STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)**

**(Unaudited)**

 
| ** **                                  | ** ** | **Three-Month**   | ** ** | **Six-Month**     | ** ** |
|---------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                  | ** ** | **Period Ended**  | ** ** | **Period Ended**  | ** ** |
| ** **                                  | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                  | ** ** | **2009**          | ** ** | **2008**          | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                        |       |              |       |              |       |   |   |   |   |
| OPERATING  REVENUES:                        |       |              |       |              |       |   |   |   |   |
|                                        |       |              |       |              |       |   |   |   |   |
| Casino                                      |       | $                 | 29,469,018 |              | $          | 31,727,550 |   | $ | 59,421,534 |   | $ | 63,601,860 |   |
| Food,  beverage and retail                  |       | 1,480,986         |       | 1,873,939         |       | 2,906,872 |   | 3,193,124 |   |
| Other                                       |       | 333,529           |       | 154,114           |       | 462,365 |   | 302,666 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| Gross  revenues                             |       | 31,283,533        |       | 33,755,603        |       | 62,790,771 |   | 67,097,650 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| Promotional  allowances                     |       | (172,730          | )          | (97,419           | )          | (218,472 | ) | (267,258 | ) |
|                                        |       |              |       |              |       |   |   |   |   |
| Net  revenues                               |       | 31,110,803        |       | 33,658,184        |       | 62,572,299 |   | 66,830,392 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |              |       |              |       |   |   |   |   |
| Casino                                      |       | 3,924,507         |       | 4,861,926         |       | 8,097,389 |   | 9,900,336 |   |
| Food,  beverage and retail                  |       | 1,702,607         |       | 2,505,019         |       | 3,764,985 |   | 4,229,610 |   |
| Selling,  general and administrative        |       | 10,107,849        |       | 11,780,781        |       | 20,366,913 |   | 22,199,136 |   |
| Depreciation                                |       | 2,381,411         |       | 2,410,403         |       | 4,756,021 |   | 5,350,259 |   |
| Gaming  commission and surveillance expense |       | 1,050,373         |       | 853,757           |       | 1,915,874 |   | 1,855,900 |   |
| Compact  revenue sharing trust fund         |       | 333,750           |       | 333,750           |       | 667,500 |   | 667,500 |   |
| Gain  on sale of assets                     |       | (33,000           | )          | —            |       | (33,000 | ) | — |   |
|                                        |       |              |       |              |       |   |   |   |   |
| Total  operating expenses                   |       | 19,467,497        |       | 22,745,636        |       | 39,535,682 |   | 44,202,741 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| INCOME  FROM OPERATIONS                     |       | 11,643,306        |       | 10,912,548        |       | 23,036,617 |   | 22,627,651 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| NON-OPERATING  EXPENSE-Net                  |       |              |       |              |       |   |   |   |   |
| Interest  expense                           |       | (5,214,986        | )          | (5,216,674        | )          | (10,430,486 | ) | (10,433,465 | ) |
| Interest  income                            |       | 23,362            |       | 266,145           |       | 31,800 |   | 754,621 |   |
| Other  income (expense) - net               |       | —            |       | (508              | )          | — |   | (9,175 | ) |
|                                        |       |              |       |              |       |   |   |   |   |
| Non-operating  expense-net                  |       | (5,191,624        | )          | (4,951,037        | )          | (10,398,686 | ) | (9,688,019 | ) |
|                                        |       |              |       |              |       |   |   |   |   |
| INCOME  BEFORE DISTRIBUTIONS TO TRIBE       |       | 6,451,682         |       | 5,961,511         |       | 12,637,931 |   | 12,939,632 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| DISTRIBUTIONS  TO TRIBE                     |       | (3,324,980        | )          | (4,263,688        | )          | (6,649,959 | ) | (7,386,088 | ) |
|                                        |       |              |       |              |       |   |   |   |   |
| NET  INCOME AFTER DISTRIBUTIONS TO TRIBE    |       | 3,126,702         |       | 1,697,823         |       | 5,987,972 |   | 5,553,544 |   |
|                                        |       |              |       |              |       |   |   |   |   |
| NET  ASSETS (DEFICIT)-Beginning of period   |       | (12,807,884       | )          | (22,197,198       | )          | (15,669,154 | ) | (26,052,919 | ) |
|                                        |       |              |       |              |       |   |   |   |   |
| NET  ASSETS (DEFICIT)-End of period         |       | $                 | (9,681,182 | )                 | $          | (20,499,375 | ) | $ | (9,681,182 | ) | $ | (20,499,375 | ) |

 

The accompanying notes are an integral part of these unaudited interimfinancial statements.

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality of the Dry CreekRancheria Band of Pomo Indians)**

** **

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                    | ** ** | **Six Month**     | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                    | ** ** | **Period Ended**  | ** ** |
| ** **                                                    | ** ** | **June 30,** | ** ** |
| ** **                                                    | ** ** | **2009**          | ** ** | **2008** | ** ** |
|                                                          |       |              |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                         |       |              |       |   |   |
| Cash received from gaming winnings and concessions            |       | $                 | 62,595,543 |   | $ | 66,718,760 |   |
| Cash paid for salaries and benefits                           |       | (14,469,975       | )          | (15,359,495 | ) |
| Cash paid to suppliers                                        |       | (20,552,084       | )          | (22,678,247 | ) |
| Cash paid for compact revenue sharing trust fund              |       | (667,500          | )          | (667,500 | ) |
|                                                          |       |              |       |   |   |
| Net cash provided by operating activities                     |       | 26,905,984        |       | 28,013,518 |   |
|                                                          |       |              |       |   |   |
| CASH FLOWS USED IN CAPITAL AND RELATED FINANCING  ACTIVITIES: |       |              |       |   |   |
| Payments of long-term debt                                    |       | (70,379           | )          | (56,042 | ) |
| Purchases of capital assets                                   |       | (2,356,908        | )          | (3,969,925 | ) |
| Transfers to Tribe for development costs                      |       | (6,217,445        | )          | (9,577,678 | ) |
| Change in restricted cash                                     |       | (3,588            | )          | (28,872 | ) |
| Interest paid                                                 |       | (9,751,014        | )          | (9,753,995 | ) |
| Proceeds from sale of assets                                  |       | 33,000            |       | — |   |
| Other                                                         |       | —            |       | (255,031 | ) |
|                                                          |       |              |       |   |   |
| Net cash used in capital and related financing  activities    |       | (18,366,334       | )          | (23,641,543 | ) |
|                                                          |       |              |       |   |   |
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:                  |       |              |       |   |   |
| Interest Income                                               |       | 31,800            |       | 754,621 |   |
|                                                          |       |              |       |   |   |
| CASH FLOWS USED IN NON-CAPITAL FINANCING  ACTIVITIES:         |       |              |       |   |   |
| Distributions to Tribe                                        |       | (6,649,959        | )          | (7,386,088 | ) |
|                                                          |       |              |       |   |   |
| CHANGE IN CASH AND CASH EQUIVALENTS                           |       | 1,921,491         |       | (2,259,492 | ) |
|                                                          |       |              |       |   |   |
| CASH AND CASH EQUIVALENTS, Beginning of the period            |       | 27,348,392        |       | 46,533,389 |   |
|                                                          |       |              |       |   |   |
| CASH AND CASH EQUIVALENTS, End of the period                  |       | $                 | 29,269,883 |   | $ | 44,273,897 |   |

 

The accompanying notes are an integral part of these unaudited interimfinancial statements.

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality of the Dry CreekRancheria Band of Pomo Indians)**

** **

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                | ** ** | **Six Month**     | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                | ** ** | **Period Ended**  | ** ** |
| ** **                                                                                                | ** ** | **June 30,** | ** ** |
| ** **                                                                                                | ** ** | **2009**          | ** ** | **2008** | ** ** |
|                                                                                                      | ** ** | ** **        | ** ** | ** ** | ** ** |
| RECONCILIATION OF INCOME BEFORE DISTRIBUTIONS TO  TRIBE****TO NET CASH PROVIDED BY  OPERATING ACTIVITIES: | ** ** | ** **        | ** ** | ** ** | ** ** |
|                                                                                                      |       |              |       |   |   |
| Income before Distributions to Tribe                                                                      |       | $                 | 12,637,931 |   | $ | 12,939,632 |   |
|                                                                                                      |       |              |       |   |   |
| Adjustments to reconcile operating income to net  cash provided by operating activities:                  |       |              |       |   |   |
| Depreciation                                                                                              |       | 4,756,021         |       | 5,350,259 |   |
| Interest expense                                                                                          |       | 10,430,486        |       | 10,433,465 |   |
| Interest income                                                                                           |       | (31,800           | )          | (754,621 | ) |
| Gain on sale of assets                                                                                    |       | (33,000           | )          | — |   |
| Changes in operating assets and liabilities:                                                              |       |              |       |   |   |
| Accounts receivable                                                                                       |       | (60,089           | )          | (111,632 | ) |
| Inventories                                                                                               |       | 26,051            |       | (34,298 | ) |
| Prepaid expenses and other assets                                                                         |       | (129,852          | )          | 56,198 |   |
| Accounts payable                                                                                          |       | (1,119,139        | )          | (360,736 | ) |
| Accrued liabilities                                                                                       |       | 429,375           |       | 495,251 |   |
| Total adjustments                                                                                         |       | 14,268,053        |       | 15,073,886 |   |
|                                                                                                      |       |              |       |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                 |       | $                 | 26,905,984 |   | $ | 28,013,518 |   |

 

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**NOTESTO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

**1.****         ****DESCRIPTION OF BUSINESS**

 

River Rock Entertainment Authority (the “Authority”)is a governmental instrumentality of the Dry Creek Rancheria Band of PomoIndians (the “Tribe”), a federally recognized Indian tribe. The Authority ownsand operates River Rock Casino (the “Casino”). The Casino offers Class IIIgaming (as defined by the Indian Gaming Regulatory Act of 1988, as amended) ontribal land located in Geyserville, California. At June 30, 2009, theCasino was operating 1,197 slot and video poker gaming machines.  The legal authority for slot machines andtable games is provided by the Tribe’s gaming compact with the State ofCalifornia (the “Compact”), which was entered into in September 1999 andbecame effective upon approval by the Secretary of Interior on May 5,2000.  The Compact expires on December 31, 2020.

 

The Authority was formed as an unincorporated instrumentalityof the Tribe on November 5, 2003 pursuant to a reorganization whereby theTribe’s gaming business became owned and operated by the Authority. Thisreorganization was accounted for as a reorganization of entities under commoncontrol. Accordingly, after the reorganization, the assets and liabilities ofthe Casino’s operating property were presented by the Authority on ahistorical-cost basis.

 

The Authority operates as a separate, wholly ownedoperating unit of the Tribe (i.e., a separate enterprise fund of the Tribe) andis not a separate legal entity. These financial statements reflect thefinancial position and activity of only the Authority and do not purport torepresent the financial position and activity of the Tribe.

 

**2.****         ****BASIS OF PRESENTATION, UNAUDITEDINTERIM FINANCIAL STATEMENTS**

 

The unaudited condensedfinancial statements of the Authority, presented herein are presented on thesame basis and can be compared to the audited financial statements reported inthe Authority’s annual information in the Authority’s 2008 Annual Report on Form 10-K,filed with the SEC. The accompanying condensed balance sheet as of December 31,2008 has been derived from the audited financial statements included in theAuthority’s Annual Report on Form 10-K for the year ended December 31,2008.

 

River Rock EntertainmentAuthority has made its disclosures in accordance with accounting principlesgenerally accepted in the United States of America as they apply to interimreporting, but condensed or omitted certain information and disclosuresnormally included in notes to financial statements in accordance with theSecurities and Exchange Commission’s rules and regulations. The unauditedcondensed financial statements should be read in conjunction with the financialstatements and the notes thereto in River Rock Entertainment Authority’s AnnualReport on Form 10-K for the year ended December 31, 2008.

 

In the opinion of theAuthority’s management, the accompanying unaudited interim condensed financialstatements contain all adjustments (consisting of normal recurring adjustments)to fairly present  the Authority’scondensed financial position as of June 30, 2009 and the condensedstatements of revenues, expenses and changes in net assets (deficit) for thethree and six month periods ending June 30, 2009 and 2008, and condensedstatements of cash flows for the six months ended June 30, 2009 and 2008,as applicable. The condensed statements of revenues, expenses and changes innet assets (deficit) and condensed cash flows for all periods presented are notnecessarily indicative of the results of operations or cash flows expected forthe year or any other period.

 

**3.****         ****SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Accounting Standards*—The Authority prepares its financialstatements in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”). The financial statements presented areprepared on the accrual basis of accounting from the accounts and financialtransactions of the Authority. GAAP requires the Authority to apply allapplicable pronouncements of the Governmental Accounting Standards Board (“GASB”).The Authority is also required to follow Financial Accounting Standards Board (“FASB”)Statements and Interpretations, Accounting Principles Board Opinions andAccounting Research Bulletins issued on or before November 30, 1989,unless those pronouncements conflict with or contradict GASBpronouncements.  The Authority is given the option whether to apply allFASB Statements and Interpretations issued after November 30, 1989, exceptfor those that conflict with or contradict GASB pronouncements. Accordingly,the Authority has elected to implement non-conflicting FASB Statements andInterpretations issued after November 30, 1989.

 

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There are differences between financial statementsprepared in accordance with GASB pronouncements and those prepared inaccordance with FASB pronouncements. The statements of revenues, expenses andchanges in net assets (deficit) are a combined statement under GASBpronouncements. FASB pronouncements allow a statement of income or operationsand a separate statement of owners’ or shareholders’ (deficit) equity, which iswhere distributions to owners would be presented under FASBpronouncements.  The amount shown as income before distributions to Tribewould be the most comparable amount to net income computed under FASB pronouncements.The Authority is a separate enterprise fund of the Tribe, a governmentalentity, and as such there is no owners’ or shareholders’ (deficit) equity astraditionally represented under FASB pronouncements.  The most comparablemeasure of owners’ (deficit) equity is presented on the Authority’s balancesheet as net assets (deficit).

 

The Authority adopted the required provisions of theFinancial Accounting Standards Board’s FSP FAS No. 107-1 and APB 28-1 “*Interim Disclosures about Fair Value of Financial Instruments*”(FSP FAS No. 107-1) as of the interim period ending June 30,2009.  This FSP amends FASB Statement No. 107,“*Disclosures about Fair Value of FinancialInstruments*”, to require an entity to provide disclosures about fairvalue of financial instruments in interim financial information.  This FSP also amends APB Opinion No. 28,“*Interim Financial Reporting,*” to requirethose disclosures in summarized financial information at interim reportingperiods.  Under this FSP, a publiclytraded company shall include disclosures about the fair value of its financialinstruments whenever it issues summarized financial information for interimreporting periods.  In addition, anentity shall disclose in the body or in the accompanying notes of its summarizedfinancial information for interim reporting periods and in its financialstatements for annual reporting periods the fair value of all financialinstruments for which it is practicable to estimate that value, whetherrecognized or not recognized in the statement of financial position, asrequired by Statement 107.  FSP 107-1 andAPB 28-1 is effective for interim periods ending after June 15, 2009.

 

The Financial AccountingStandards Board (FASB) has issued FASB Statement No. 165, “*Subsequent Events*”. Statement 165 establishes general standards of accounting and disclosureof events that occur after the balance sheet date but before financialstatements are issued or are available to be issued.  Specifically, Statement 165 provides theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements; the circumstances underwhich an entity should recognize events or transactions occurring after thebalance sheet date in its financial statements; and the disclosures that anentity should make about events or transactions that occurred after the balancesheet date.  Statement 165 is effectivefor interim or annual financial periods ending after June 15, 2009, andshall be applied prospectively.

 

In April 2009, the FASBissued FSP FAS 157-4, “*Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly,*”provides guidelines for making fair value measurements more consistent with theprinciples presented in FASB Statement No. 157, “*Fair ValueMeasurements*.”  FSP FAS 157-4must be applied prospectively.  FSP FAS157-4 is effective for interim and annual periods ending after June 15,2009.

 

The adoption of these newstandards has no effect on the Casino’s financial position or result ofoperations.

 

*Use ofEstimates*—Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of revenuesand expenses during the reporting period. On an ongoing basis, we evaluatethose estimates, including those related to asset impairment, accruals for ourpromotional slot club, compensation and related benefits, revenue recognition,allowance for doubtful accounts, contingencies and litigation. Actual resultscould differ from these estimates.

 

*Cashand Cash Equivalents*—TheAuthority considers all highly liquid investments with a maturity of threemonths or less at date of purchase as cash equivalents. The carrying amount ofcash and cash equivalents approximates its fair value. Cash and cashequivalents include cash on hand, cash on deposit with banks and highly liquidinvestments.  The Federal DepositInsurance Corporation (“FDIC”) has insured $250,000 of the cash on deposit witheach bank. The Authority believes that there is little risk of loss regardingthe uninsured amounts of cash and cash equivalents on deposit with the banks.

 

*Inventories*—Inventories, consisting principally ofgaming supplies and food and beverage items, are stated at the lower of cost(first-in, first-out) or market value.

 

*RestrictedAssets*— Funds are set aside as restricted assets, and they are not availablefor current expenses, when constraints placed on their use are legallyenforceable due to either:

 

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·      Externally imposedrequirements by creditors (such as through debt covenants), grantors orcontributors.

·      Laws or regulations ofother governments.

·      Constitutional provisionsor enabling legislation.

 

TheAuthority’s policy is to use restricted assets before unrestricted assets forexpenses incurred for which both restricted and unrestricted net assets areavailable.  The Authority’s restricted assets consist of estimatedconstruction expenses for three parking structures, related infrastructureimprovements and construction contingencies. It also includes funds that arereserved for additional construction contingencies and the funds necessary todevelop an approximately 18-acre parcel of land adjacent to the Tribe’sreservation. These funds are held in escrow accounts which are restricted forauthorized construction disbursements. These escrow accounts are invested incertificates of deposit, which generate interest on a monthly basis. The FDIChas insured $250,000 of this balance. The Authority believes that there islittle risk of loss regarding the uninsured amounts of restricted cash held inthe escrow account. Restricted cash was $7,093,861 and $7,090,273 at June 30, 2009 and December 31,2008, respectively.  As of June 30, 2009, restricted cash includesamounts available for construction of $2,770,514 and land development funds of$4,323,347.

 

*Capital Assets*— Capital Assets are stated at cost.Depreciation and amortization are computed using the straight-line method overthe estimated useful lives of the assets as follows:

 
| Buildings and  improvements:        |   | 21 years |   |
|-------------------------------------|--------|----------|--------|
| Furniture, fixtures and  equipment: |   | 5 years  |   |
| Slot machines:                      |   | 5 years  |   |

 

The costs of normal maintenance and repairs that donot add to the value of the asset or materially extend the life of the assetare not capitalized.

 

Major outlays of capital assets and improvements arecapitalized as construction-in-progress as projects are constructed.

 

*Evaluation of Long-Lived Assets* — Accounting pronouncement GASB No. 42,“*Accounting and Financial Reporting for Impairmentof Capital Assets and for Insurance Recoveries,*” was effective forthe Authority for the year ended December 31, 2005.  This Statement established accounting andfinancial reporting standards for impairment of capital assets.  The Authority’s capital assets includebuilding and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired ifboth the decline in service utility of the capital asset is large in magnitudeand the event or change in circumstances is outside the normal life cycle ofthe capital asset.  The Authority isrequired to evaluate prominent events or changes in circumstances affectingcapital assets to determine whether impairment of a capital asset hasoccurred.  Common indicators of impairmentinclude evidence of physical damage where restoration efforts are needed torestore service utility, enactment or approval of laws or regulations settingstandards that the capital asset would not be able to meet, technologicaldevelopment or evidence of obsolescence, a change in the manner or expectedduration of use of a capital asset or construction stoppage.  This Statement will require the Authority toreport the effects of capital asset impairment in its financial statements whenthey occur, rather than as part of the ongoing depreciation expense for thecapital asset or upon disposal of the capital asset, and to account forinsurance recoveries in the same manner. The Authority’s management has determined that no impairment of capitalassets currently exists.

 

*Capitalized interest*—**The interest cost associatedwith major development and construction projects is capitalized and included inthe cost of the asset.  Capitalization ofinterest ceases when the project is substantially complete or when developmentactivity is suspended.  The Authority didnot capitalize any interest for the six months ended June 30, 2009 and2008.

 

*Deposits and Other Assets*— As of June 30, 2009 and December 31,2008, deposits and other assets include $2,386,295 and $2,897,142 in unamortized legal fees and otherissuance costs related to the issuance of the Authority’s 9 3⁄4% Senior Notes due2011 (the “Senior Notes”) under the Indenture, dated November 7, 2003 (the“Indenture”); $310,890 and $126,487 of performance deposits; $15,900 and $15,900 ofrental deposits; and $8,045 and $0 of equipment deposits.  Deferred loancosts are amortized using the effective interest method to interest expenseover the term of the related financial arrangement.

 

*Accrued Liabilities*— Accrued liabilities consist of accruedinterest, accrued payroll and other accrued liabilities.

 

*Compensated absences* — All employees of the Authority earn annual leavethat is paid upon termination or retirement. Annual leave is accrued at current rates of compensation.

 

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*Accrued Progressive Slot Jackpots*— Accrued progressive slot jackpotsconsist of estimates for prizes relating to various games that have accumulatedjackpots. The Authority has recorded the cost of these anticipated payouts as areduction of Casino revenues, and the cost is included as a component ofaccrued liabilities.

 

*Accrued Slot Players Club*— In accordance with Emerging Issues TaskForce Issue No. 00-22, “*Accounting for ‘Points’and Certain Other Time-based or Volume-Based Sales Incentive Offers and Offersfor Free Products or Services to Be Delivered in the Future*,” theAuthority has recorded a liability related to free play, prizes and cashincentives earned by the members of our Players Club. The Authority hasrecorded the cost of the estimated redemption of the liability ascontra-revenue in the accompanying statements of revenues, expenses and changesin net assets (deficit).

 

*Contingencies* — We assess our exposure to loss contingencies,including legal matters, and provide for an exposure if it is judged to beprobable and estimable. If the actual loss from a contingency differs from management’sestimate, operating results could be materially impacted. As of June 30,2009, we have determined that no accruals for claims and legal actions arerequired. If circumstances surrounding claims and legal actions change, theaddition of accruals for such items in future periods may be required, whichaccruals may be material.

 

*Authority net assets*— Invested in capital assets,net of related debt, consists of capital assets, net of accumulateddepreciation, reduced by the outstanding balances of any borrowings used forthe acquisition, construction or improvement of those assets.  Invested in capital assets, net of relateddebt, excludes unspent debt proceeds.

 

Restricted net assetsrepresent amounts that are appropriated or are legally segregated for aspecific purpose.  Authority net assetsare reported as restricted when there are limitations imposed on its use,either through the enabling legislation adopted by the Authority or throughexternal restrictions imposed by creditors, grantors, laws or regulations ofother governments.

 

*Casino Revenues*— In accordance with industry practice,the Authority recognizes as Casino revenue the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots and certainplayer incentives, when earned by the customer

 

*Food, Beverage and Retail Revenues*— The Authority recognizes as food,beverage and retail revenues the proceeds from its food, beverage and gift shopsales. The Authority continues to distribute non-alcoholic beverages withoutcost in the gaming area for playing guests.

 

*Other Revenues*— Other revenues are comprised ofcommissions on ATM machine transactions.

 

*Promotional Allowances*— The retail value of food and beveragesprovided to customers without charge or at a discount is included in food,beverage and retail revenues and then deducted as promotional allowances. Suchamounts that are included in food, beverage, and retail revenues for the threemonths ended June 30, 2009 and 2008 were $172,730 and $97,419,respectively.  The amounts included infood, beverage, and retail revenues for the six months ended June 30, 2009and 2008 were $218,472 and $267,258, respectively.

 

*Food and Beverage Expenses*— Food and beverage expensesinclude cost of goods sold related to providing food and beverage to ourcustomers. The estimated costs of providing complimentary services arereclassified from food, beverage and retail costs to Casino expenses.  The estimated costs of such services for thethree months ended June 30, 2009 and 2008 were $394,835 and $999,600,respectively.  The costs of suchcomplimentary services for the six months ended June 30, 2009 and 2008were $673,876 and $1,915,215, respectively, primarily due to the decrease in complimentary beverages to our guests onthe casino floor.

 

*Advertising Costs*— Advertising costs are expensed thefirst time advertising takes place. Advertising costs included in selling,general and administrative expenses for the three months ended June 30,2009 and 2008 were $1,226,723 and $2,465,937, respectively.  Advertising costs for the six months ended June 30,2009 and 2008 were $2,068,699 and $3,957,138, respectively.

 

*Gaming Commission andSurveillance Expenses*— The Authority pays for various expenses for the Tribal GamingCommission and Surveillance.  Tribal Gaming Commission expenses arereported as Gaming Commission and surveillance expense on the statements ofrevenues, expenses and changes in net assets (deficit).  Gaming Commission and surveillance expensesfor the three months ended June 30, 2009 and 2008 were $1,050,373 and$853,757 respectively.  Gaming

 

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Commission and surveillance expenses for the sixmonths ended June 30, 2009 and 2008 were $1,915,874 and $1,855,900,respectively.

 

*Income Taxes*—As a governmental instrumentality of theTribe, the Authority is a non-taxable entity for purposes of federal and stateincome taxes.

 

*Distributions to Tribe*— Distributions to Tribe are made up ofpayments permitted under the covenants of the Indenture.  They areincluded in the statements of revenues, expenses and changes in net assets(deficit) as distributions to Tribe allowed pursuant to the Indenture. Total distributions to the Tribe for the three months ended June 30, 2009and 2008 were $3,324,980 and $4,263,688, respectively.  Total distributions to the Tribe for the sixmonths ended June 30, 2009 and 2008 were $6,649,959 and $7,386,088,respectively.

 

*Reclassifications*— Certain prior year balances in the condensedstatements of revenues, expenses and changes in net assets (deficit) have beenreclassified to be consistent with current year presentation with no change tonet revenues or net income, including the reclassification of e-coupons andcash incentives from promotional allowances to casino contra-revenues.

 

**4.****         ****PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED**

 

The GASB has issued severalpronouncements that have effective dates that may impact future financialpresentations.  Management has notcurrently determined what, if any, impact implementation of the following statementsmay have on the financial statements of the Authority:

 

·      In July 2007, the GASB issuedStatement No. 51, *Accounting andFinancial Reporting for Intangible Assets*.  This Statementprovides needed guidance regarding how to identify, account for and reportintangible assets.  The new standard characterizes an intangible asset asan asset that lacks physical substance, is nonfinancial in nature and has aninitial useful life extending beyond a single reporting period.  Examplesof intangible assets include easements, computer software, water rights, timberrights, patents and trademarks.  Statement No. 51 requires thatintangible assets be classified as capital assets (except for those explicitlyexcluded from scope of the new standard).  This standard should lead togreater consistency among governmental reporting agencies.  The requirements of Statement No. 51 areeffective for financial statements for periods beginning after June 15,2009.

 

·      In June 2008, the GASBissued Statement No. 53, “*Accounting and FinancialReporting for Derivative Instruments”.*  This Statement addresses the recognition,measurement and disclosure of information regarding derivative instrumentsentered into by governmental reporting agencies.  The objectives, terms and risks of hedgingderivative instruments are required disclosures.  Disclosures also include a summary ofderivative instrument activity that provides an indication of the location offair value amounts reported on the financial statements.  The requirements of Statement No. 53 areeffective for financial statements for periods beginning after June 15,2009.

 

·      In April 2009, the GASB issued Statement No 55,*“The Hierarchy of Generally Accepted AccountingPrinciples for State and Local Governments”.*  The Statement incorporates the hierarchy ofgenerally accepted accounting principles (GAAP) for state and local governmentsinto the GASB’s authoritative literature. This Statement is intended to make it easier for preparers of state andlocal government financial statements to identify and apply the “GAAPhierarchy,” which consists of accounting principles used in the preparation offinancial statements so that they are presented in conformity with GAAP and theframework for selecting those principles. The Statement will improve financial reporting by contributing to theGASB’s efforts to codify all GAAP for state and local governments so that theyderive from a single source.  Therequirements of Statement No. 55 are effective immediately.

 

·      In April 2009, the GASBissued Statement No 56, *“Codification ofAccounting and Financial Reporting Guidance Contained in the AICPA Statementson Auditing Standards”.*  TheStatement incorporates accounting and financial reporting guidance previouslyonly contained in the American Institute of Certified Public Accountants(AICPA) auditing literature into the GASB’s accounting and financial reportingliterature for state and local governments. The Statement 56 guidance addresses three issues from the AICPA’sliterature:  (1) related-partytransactions, (2) going concern considerations and (3) subsequentevents.  Statement No. 56 is part ofthe GASB’s effort to codify all generally accepted accounting principles forstate and local governments so that they derive from a single source.  This is intended to make it easier forpreparers of state and local

 

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government financial statements to identify andapply relevant accounting guidance.  Therequirements of Statement No. 56 are effective immediately.

 

**5.****         ****CERTAIN RISKS AND UNCERTAINTIES**

 

The Authority’s operations are dependent on thecontinued licensing and qualification of the Authority by the Tribal GamingCommission. Such licensing and qualification are reviewed periodically by theTribal Gaming Commission and regulatory agencies of the State of California.The Authority believes that no events or circumstances have arisen that wouldhave an adverse effect on the Casino’s ability to continue its licensing andqualification by the Tribal Gaming Commission or regulatory agencies of theState of California to operate the Authority.

 

**6.****         ****RELATED PARTIES**

 

The Casino has been constructed on federal landbeneficially owned by the Tribe. The Authority does not pay the Tribe for theuse of the land.

 

The Authority pays for various expenses for thefollowing departments operated by the Tribe: Tribal Gaming Commission, surveillance, plant operations, humanresources and warehouse.  These departmentalexpenses include but are not limited to payroll and related expenses, legal,and other operational expenses.

 

Total amounts billed by the Tribe to the Casino forthese departments, excluding Tribal Gaming Commission and surveillance, for thethree months ended June 30, 2009 and 2008 were $978,798 and $923,941,respectively. They are recorded as a component of selling, general andadministrative expenses.  Total expensesfor these departments for the six months end June 30, 2009 and 2008 were$1,857,782 and $1,746,567, respectively.

 

The Authority pays for various expenses for the TribalGaming Commission and surveillance. Tribal Gaming Commission andsurveillance expenses are recorded in Gaming Commission and surveillanceexpenses on the statements of revenues, expenses and changes in net assets(deficit).  Gaming Commission and surveillance expenses for the threemonths ended June 30, 2009 and 2008 were $1,050,373 and $853,757,respectively.  Gaming Commission andsurveillance expenses for the six months ended June 30, 2009 and 2008 were$1,915,874 and $1,855,900, respectively.

 

The Tribe has incurred expenses on behalf of theAuthority that relate to the master planning for the proposed resort and Tribalinfrastructure that benefit the Casino. During the three months ended June 30, 2009, the Authorityauthorized reimbursement of $4,267,445 to the Tribe for these expenses.  During the six months ended June 30,2009, the Authority authorized reimbursement of $6,217,445.  These expenses were capitalized and arereflected in construction-in-progress. The reimbursed costs consist primarilyof engineering and design costs related to the proposed master plandevelopment, including electrical, HVAC, landscaping, interior design servicesand consulting fees for legal, branding, feasibility and public relationsservices. While the Tribe has not made any additional request to the Authorityfor reimbursement, it may request additional reimbursements from the Authorityin the future. While the Authority has no obligation to pay such amounts whenrequested, and any such reimbursement would need to be approved by managementand the Board of Directors of the Authority, there is a possibility that suchrequest for reimbursement may be made by the Tribe. Prior to making anyreimbursement payment, the Authority will consider various factors, including,but not limited to, whether the costs incurred were actually related to themaster planning, whether such costs are beneficial to the gaming business andexpansion plans of the Authority, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture.

 

On April 16, 2008,in a joint effort with the Tribe, the Authority pledged a cash gift toHealthcare Foundation, a local hospital. This pledge was in the amount of $1.8 million over the course offive years, at a monthly rate of $30,000 commencing May 2008.  This cash donation is a gift and not part ofany revenue sharing agreement with any state or local government.

 

The Authority reserved 50recreational vehicle spaces and 10 campsite spaces at Alexander RV Park andCampground for casino guests.  AlexanderRV Park and Campground is a wholly owned subsidiary of the Tribe.  The cost of reserving the parking spaces andcampsite spaces for the three months ended June 30, 2009 was $66,150compared to $63,000 for the same prior year period.

 

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**7.****         ****CASH AND CASH EQUIVALENTS AND RESTRICTED CASH**

 

Cash and cash equivalents and restricted cashconsisted of the following as of June 30, 2009 and December 31, 2008:

 
| ** **                                           | ** ** | **June 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                           | ** ** | **(Unaudited)**        | ** ** | ** **                 | ** ** |
|                                                 |       |                   |       |                       |       |
| Operating  accounts                                  |       | $                      | 16,220,556 |                       | $          | 9,221,163 |   |
| Money  market accounts                               |       | 8,734,987              |       | 12,157,902                 |       |
| Cash  on hand                                        |       | 4,314,340              |       | 5,969,327                  |       |
|                                                 |       |                   |       |                       |       |
| Cash  and cash equivalents                           |       | 29,269,883             |       | 27,348,392                 |       |
| Restricted  cash                                     |       | 7,093,861              |       | 7,090,273                  |       |
|                                                 |       |                   |       |                       |       |
| Total  cash and cash equivalents and restricted cash |       | $                      | 36,363,744 |                       | $          | 34,438,665 |   |

 

Custodial credit risk fordeposits is the risk that, in event of the failure of a depository financialinstitution, “a governmental entity” will not be able to recover its depositsor will not be able to recover collateral securities that are in the possessionof an outside party.  The California Codeand the Authority’s investment policy authorize these types ofinvestments.  The deposits were insuredby the FDIC up to $100,000 per bank.  On October 3,2008, Congress temporarily increased FDIC deposit insurance from $100,000 to$250,000 per depositor through December 31, 2009.  The Authority’s operating cash and restrictedcash accounts are FDIC insured up to $250,000 each.

 

**8.****         ****FAIR VALUE MEASUREMENTS**

 

The following table summarizes the basis used tomeasure certain assets and liabilities at fair value on a recurring basis,under the applicable provisions of SFAS No. 157:

 
| ** **                | ** ** | ** **        | ** ** | **Fair Value Measurements at Reporting Date, Using:** | ** ** |
|---------------------------|------------|-------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | ** **        | ** ** | **Quoted Prices**                                                              | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **        | ** ** | **in Active**                                                                  | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **                | ** ** | ** **        | ** ** | **Markets for**                                                                | ** ** | **Observable** | ** ** | **Observable** | ** ** |
| ** **                | ** ** | **June 30,** | ** ** | **Identical Items**                                                            | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| ** **                | ** ** | **2009**          | ** ** | **(Level 1)**                                                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Financial  Assets:        |       |              |       |                                                                                |       |   |   |   |   |
| Money Market  Instruments |       | $                 | 8,734,987  |                                                                                | $          | 8,734,987 |   | $ | — |   | $ | — |   |
|                           |            |                   |            |                                                                                     |            |  |  |  |  |  |  |  |  |

 

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**9.****         ****CAPITAL ASSETS**

 

Capital Assets at December 31,2008 and June 30, 2009 consisted of the following:

 
| ** **                         | ** ** | **Balance, as of**    | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance, as of** | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|--------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **June 30,**  | ** ** |
| ** **                         | ** ** | **2008**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2009**           | ** ** |
| Buildings  and improvements        |       | $                     | 130,357,841 |          | $          | 31,334           |       | $                  | —     |   | $ | 130,389,175 |   |
| Furniture,  fixtures and equipment |       | 34,143,554            |        | 2,279,201     |       | (3,854,630       | )          | 32,568,125         |       |
| Less  accumulated depreciation     |       | (54,484,916           | )           | (4,756,021    | )          | 3,854,630        |       | (55,386,307        | )          |
|                               |       | 110,016,479           |        | (2,445,486    | )          | —           |       | 107,570,993        |       |
| Construction  in progress          |       | 45,599,195            |        | 6,263,818     |       | —           |       | 51,863,013         |       |
| Capital  assets — net         |       | $                     | 155,615,674 |          | $          | 3,818,332        |       | $                  | —     |   | $ | 159,434,006 |   |

 

Constructionin progress consists of payments to various vendors through reimbursements tothe Tribe related to the Authority’s master plan development and landimprovements.  Substantially all of theAuthority’s personal property is pledged as collateral to secure its debt.

 

**10.****      ****ACCRUED LIABILITIES**

 

Accrued liabilities consisted of the following as of June 30,2009 and December 31, 2008:

 
| ** **                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| ** **                                  | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
|                                        |       |              |       |                  |       |
| Accrued  in-house progressive slot jackpots |       | $                 | 1,538,146  |                  | $          | 1,531,747 |   |
| Accrued  payroll and related benefits       |       | 2,610,810         |       | 2,285,481             |       |
| Accrued  interest                           |       | 3,250,000         |       | 3,250,000             |       |
| Accrued  other expenses                     |       | 1,098,317         |       | 1,034,850             |       |
| Total  accrued liabilities                  |       | $                 | 8,497,273  |                  | $          | 8,102,078 |   |

 

**11.****      ****LONG-TERM DEBT**

 

Long-term debt consisted of the following as of June 30,2009 and December 31, 2008:

 
| ** **                                                                                                 | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2009**          | ** **  | **2008**              | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| ** **                                                                                                 | ** ** | ** **        | ** **  | ** **            | ** ** |
| 9-3/4%  Senior Notes, net of unamortized issue discount of $786,913 and $955,538. Due  November 2011. |       | $                 | 199,213,087 |                  | $          | 199,044,462 |   |
| Vehicles  Notes                                                                                            |       | 4,388             |        | 12,291                |       |
| Lease  obligations                                                                                         |       | 5,886             |        | 34,182                |       |
| Total  Long-Term Debt                                                                                      |       | 199,223,361       |        | 199,090,935           |       |
| Less:  current portion                                                                                     |       | (10,274           | )           | (45,011               | )          |
|                                                                                                       |       |              |        |                  |       |
| Total  long-term debt - net of current maturities                                                          |       | $                 | 199,213,087 |                  | $          | 199,045,924 |   |

 

On November 7, 2003, the Authority issued theSenior Notes. The proceeds were utilized to fund an expansion project, whichincluded three parking structures, related infrastructure improvements, repaymentof various debt and advances and fund payment of various accruals and payables,as well as to increase cash on hand. The proceeds were also utilized to fund a

 

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land purchase and settle litigation.  The SeniorNotes are collateralized by a first priority pledge of the Authority’s revenueand substantially all of the existing and future tangible and intangiblepersonal property. The Authority may redeem the Senior Notes, in whole or inpart, at a redemption price that is at a premium to the principal amount of theSenior Notes (expressed as percentages of principal amount), plus accrued andunpaid interest.  Interest on the seniornotes is due semi-annually in May and November.

 

The Authority’s long-term debt is recorded at anamortized historical cost basis.  The fair value of the Senior Notes wasapproximately $146.0 million as of June 30, 2009 based on level oneinputs, quoted prices in active markets.

 

**12.****      ****LEASES**

 

On May 30, 2002, the Authority entered into anoperating lease for a sprung structure. The lease expired on August 17, 2007.  Upon expiration, the Authority continued on amonth-to-month basis.  On June 12,2009, the Authority amended the agreement to lease the sprung structure forthree years.  The monthly lease fee is$25,395.

 

On February 21, 2007, the Authority entered intoa one year operating lease for office and promotional space commencing February 21,2007 and expiring February 20, 2008. The monthly lease fee was $600 per month.  On February 21, 2008, the Authorityextended the lease for three years, commencing on February 21, 2008 andexpiring on February 20, 2011.  Theextended lease fee was $625 per month for the first year (through February 2009)and $712 per month for the second year (March 2009 through February 2010),with adjustments for the Consumer Price Index, and property taxes in the thirdyear.  Commencing May 2009, theAuthority subleased the entire office and promotional space at a monthly rateof $500.

 

On August 30, 2007, the Authority entered into afive year operating lease agreement for office and showroom space commencing October 1,2007 and expiring on September 30, 2012. The monthly lease fee for the initial year was $16,630.  As of October 1, 2008, the monthly leasefee increased to $17,129.

 

On September 1, 2004, the Authority entered intoa five year capital lease to purchase two licenses to operate three-card pokertables in the amount of $120,000.  The capital lease is at 7.20% interestwith monthly lease fees of $2,390 and a $1 buyout at the end of the lease term,expiring August 31, 2009.

 

On April 25, 2006, the Authority entered into athirty six month capital lease to purchase 5 Deck Mate Poker shufflers in theamount of $61,827.  The capital lease is at 7.92% interest with monthlylease fees of $1,937 and a $1 buyout at the end of the lease term, expiring April 30,2009.

 

On August 1, 2006 the Authority entered into athirty six month capital lease to purchase 2 licenses to operate Pai Gow pokertables in the amount of $38,800.  Thecapital lease is at 4.20% interest with monthly lease fees of $1,150 and a $1buyout at the end of the lease term, expiring July 31, 2009.

 

**13.****      ****LEGAL MATTERS AND SUBSEQUENT EVENTS**

 

*RunyanLitigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed a wrongfultermination suit against the Authority, the Casino and Mr. Harvey Hopkins,the Chairman of the Tribe and a member of the Authority’s Board, in the SonomaCounty Superior Court.  We believed thecase lacked merit and moved to dismiss. On October 17, 2008, the Court issued an Order dismissing thelawsuit.  On December 3, 2008, the Court entered an Order grantingour motion and dismissed the case.

 

On January 14, 2009,Mr. Runyan filed a Petition for Order Compelling Arbitration with theSonoma County Superior Court, and on January 30, 2009, he filed a Motionfor Order Compelling Arbitration.  In both the Petition and the Motion, Mr. Runyansought to have the Court issue an order compelling arbitration of the claimsasserted in the complaint that was dismissed by the court in December 2008. The Authority believed, based on fact that Mr. Runyan entered into aSeverance Agreement and General Release with the Authority, the Casino, andother released parties, that there was no basis for Mr. Runyan to seekarbitration.  On April 13, 2009, the Authority, the Casino, and Mr. Hopkinsfiled a hybrid motion to quash summons and dismiss the Petition andMotion.  On June 1, 2009, the Court granted the motion in itsentirety, holding that the Court lacked personal and subject matterjurisdiction, that Mr. Runyan terminated and extinguished his purportedemployment agreement (which contained the arbitration clause he relied on) andthat he waived any right to arbitration he

 

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might have had bysettling and releasing all claims. Finally, the Court held that all respondents have tribal sovereignimmunity from service of process.

 

Mr. Runyan fileda Notice of Appeal of the Court’s Order on July 27,2009.  The time for filing his opening appellate brief will depend onwhich method he uses to compile the record from the Superior Court, but weexpect that his opening brief will be filed in the First District Court ofAppeal in October.  The Authority’s and the other parties’respondents’ brief will be due 30 days after Mr. Runyan’s openingbrief.  Mr. Runyan will then have 20 days to reply to the Authority’sbrief and the case will then be set for oral argument.  The Authoritycontinues to believe that there was no basis for Mr. Runyan to seekarbitration and will argue vigorously in favor of upholding the Superior Court’sOrder granting the motion to quash summons and dismissing Mr. Runyan’spetition and motion for an order compelling arbitration.

 

*OtherLegal Matters*

 

The Authority is involvedin other litigation and disputes from time to time in the ordinary course ofbusiness with vendors and patrons. The Authority believes that the aggregateliability, if any, arising from such litigation or disputes will not have amaterial adverse effect on its results of operations, financial condition orcash flows.

 

**14.****      ****COMPACT REVENUE SHARING TRUST FUND**

 

The Compact requires the Authority to pay a quarterlyfee to the State of California’s revenue sharing trust fund, based on thenumber of licensed gaming devices operated by the Tribe. Revenue sharing trustfund fees assessed were $333,750 and $333,750 for the three months ended June 30,2009 and 2008, respectively.

 

**15.****      ****COMMITMENTS AND CONTINGENCIES**

 

The Authority is an unincorporated instrumentality ofthe Tribe formed pursuant to an adopted law of the Tribe. While the Authorityis not a separate corporation or other legal entity distinct from the Tribe,this tribal law allows the Authority to own and operate its business. Thistribal law also provides that the Authority’s obligations and other liabilitiesare not those of the Tribe and that the obligations and liabilities of theTribe are not those of the Authority. This law is untested and generally has nodirect counterpart in other areas of the law. If this law should prove to beineffective at limiting the Authority’s liability, the Authority’s business andassets could become subject to claims asserted against the Tribe or its assets.Similarly, the Authority would be liable for such claims if the Tribe waivedits sovereign immunity to an extent that allowed enforcement of such claimsagainst the Authority’s business or assets.

 

On March 18, 2008, the Tribe and the SonomaCounty Board of Supervisors entered into a memorandum of agreement (“MOA”) thatis expected to settle several long-standing legal disputes between SonomaCounty and the Tribe and provide a binding framework for resolving futuredisputes.  Pursuant to the MOA, the Tribe has agreed to pay the County$75.0 million in mitigation fees over the next 12 years, subject to adjustmentunder certain circumstances described in the MOA, to offset the potentiallosses and impacts to the County resulting from the Tribe’s various ongoingprojects and to support the services being provided by the County.  TheTribe paid $3.0 million on April 17, 2008, $4.5 million on September 20,2008 and $2.8 million on June 26, 2009.  Future payments arescheduled to take place as follows: $5.0 million upon the earlier of March 18,2011 or the opening of phase one of the resort project; $5.0 million on July 1 of thesubsequent year but no later than July 1, 2011; and $5.0 million plus 4%compounded annually on July 1 of each subsequent year until the entire$75.0 million has been paid.  In addition to the mitigation fees, theTribe will pay a fee in lieu of the County’s Transient Occupancy Tax in theamount of 9% of the rental collected on occupied hotel rooms, to be paidquarterly and continuing for five years after the later to occur of thetermination of the MOA, as may be extended, or the Tribe’s Compact with theState (which is now terminable in 2020 at the earliest), which fees may beapplied to programs and services that serve to promote tourism in theCounty.  Such in lieu fees could total asmuch as $25 million during the term of the MOA.

 

The Authority is not aparty to the agreement with the Sonoma County Board of Supervisors and is notobligated to pay any fees pursuant to the MOA. It is expected that the Tribe will make payments to Sonoma Countypursuant to the MOA from distributions made by the Authority to the Tribe.

 

**16.****      ****SUBSEQUENT EVENTS**

 

In accordance with SFAS No. 165,we have evaluated subsequent events through August 14, 2009, the date ofissuance of the unaudited condensed financial statements.  During this period we did not have anymaterial recognizable subsequent events to recognize or disclose.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS.**

 

The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with theaccompanying unaudited condensed financial statements and related notesincluded in Item 1 of this report.

 

**Overview**

 

We are an unincorporated governmental instrumentalityof the Tribe that owns and operates the Casino. We offer Class III slot and video poker gaming machines, housebanked table games (including Blackjack, Three card poker, Mini-baccarat andPai Gow poker), Poker, featuring Texas Hold’em, comprehensive food and beverageofferings and goods for sale in our gift shop.

 

**Critical Accounting Policies andEstimates**

 

We have identified certain critical accountingpolicies and estimates that affect our more significant judgments and estimatesused in the preparation of our financial statements. The preparation of ourfinancial statements, in conformity with GAAP, requires that we make estimatesand judgments that affect the reported amounts of assets and liabilities,revenues and expenses, and related disclosures of contingent assets andliabilities. On an ongoing basis, we evaluate those estimates, including thoserelated to asset impairment, accruals for our promotional slot club,compensation and related benefits, revenue recognition, allowance for doubtfulaccounts, contingencies and litigation. These estimates are based on theinformation that is currently available to us and on various other assumptionsthat we believe to be reasonable under the circumstances. Actual results couldvary from those estimates under different assumptions or conditions. We believethat the following critical accounting policies affect significant judgmentsand estimates used in the preparation of our financial statements:

 

·                  *Casino Revenues*— In accordance with industry practice,the Authority recognizes as Casino revenue the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots and certainplayer incentives, when earned by the customer.

 

·                  Capital Assets — Capital assets are stated at cost. Depreciation andamortization are computed using the straight-line method over the estimateduseful lives of the assets as follows:

 
| Buildings and  improvements:        |   | 21 years |   |
|-------------------------------------|--------|----------|--------|
| Furniture, fixtures and  equipment: |   | 5 years  |   |
| Slot machines                       |   | 5 years  |   |

 

·                  We evaluate our capital assets for impairment in accordance with theAccounting pronouncement GASB No. 42, “*Accounting and FinancialReporting for Impairment of Capital Assets and for Insurance Recoveries*”.  This Statement establishes accounting andfinancial reporting standards for impairment of capital assets.  The Authority’s capital assets includebuilding and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired ifboth the decline in service utility of the capital asset is large in magnitudeand the event or change in circumstances is outside the normal life cycle ofthe capital asset.  The Authority isrequired to evaluate prominent events or changes in circumstances affectingcapital assets to determine whether impairment of a capital asset hasoccurred.  Common indicators ofimpairment include evidence of physical damage where restoration efforts areneeded to restore service utility, enactment or approval of laws or regulationssetting standards that the capital asset would not be able to meet,technological development or evidence of obsolescence, a change in the manneror expected duration of use of a capital asset or construction stoppage.  This Statement will require the Authority toreport the effects of capital asset impairment in its financial statements whenthey occur, rather than as part of the ongoing depreciation expense for thecapital asset or upon disposal of the capital asset, and to account forinsurance recoveries in the same manner.

 

·                  Accrued Progressive Slot Jackpots —Accrued progressive slot jackpots consist of estimates for prizes relating tovarious games that have accumulated jackpots. We have recorded the cost ofthese anticipated payouts as a reduction of casino revenues and the cost isincluded as a component of accrued liabilities.

 

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·                  Contingencies — We assess our exposure toloss contingencies, including legal matters, and provide for an exposure if itis judged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of June 30, 2009, we have determined that no accruals forclaims and legal actions are required. If circumstances surrounding claims andlegal actions change, the addition of accruals for such items in future periodsmay be required, which accruals may be material.

 

Accounting Standards — There are differences betweenfinancial statements prepared in accordance with GASB pronouncements and thoseprepared in accordance with FASB pronouncements. The statements of revenues,expenses and changes in net asset (deficit) are a combined statement under GASBpronouncements. FASB pronouncements allow a statement of income or operationsand a statement of owners’ or shareholders’ (deficit) equity, which is wheredistributions to owners would be presented under FASB pronouncements. Theamount shown on our statements of revenues, expenses and changes in net asset(deficit) as income before distributions to the Tribe would be the mostcomparable amount to net income computed under FASB pronouncements. We are anunincorporated instrumentality created by tribal law and accounted for as aseparate fund of the Tribe.  As such,there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements. The most comparable measure of owners’equity presented on our balance sheet would be net assets (deficit).

 

Reclassifications— Certain prioryear balances in the statements of revenues, expenses and changes in net assets(deficit) have been reclassified to be consistent with current yearpresentation with no change to net revenues or net income, including thereclassification of e-coupons and cash incentives from promotional allowancesto casino contra-revenues.

 

**Results of Operations**

 

**Comparison of the three months ended June 30,2009 and 2008**

 

*Net revenues*. Net revenues for the three months endedJune 30, 2009 decreased by $2.5 million to $31.1 million, from $33.7million, for the three months ended June 30, 2008.  The decrease innet revenues is attributable to the continuing industry-wide slow down in thegaming and entertainment industry during 2009. Approximately 94.7% of our net revenues were from our gaming activitiesin the second quarter of 2009. We generated $26.4 million or 84.8% of our netrevenues from gaming devices, and $3.1 million, or 9.9% of our net revenuesfrom table games and poker for the three months ended June 30, 2009,compared to $28.1 million from gaming devices or 83.4% of our net revenues, and$3.6 million or 10.8% of net revenues from table games and poker for the threemonths ended June 30, 2008.  Our winper slot machine per day was $209 in the three months ended June 30, 2009,which increased by $16 from $193 for the three months ended June 30,2008.  The increase in net win permachine per day is primarily attributable to the decrease in the average numberof slot machines on the floor.  We havebeen reconfiguring our gaming floor in an effort to enhance our overallappeal.  As part of this effort, we reducedthe average number of slot machines to 1,385 for the three  months ended June 30, 2009, compared to1,572 for the three months ended June 30, 2008.

 

We generated $1.3 million, net of promotionalallowance of $0.2 million, in food, beverage and retail sales for the threemonths ended June 30, 2009, compared to $1.8 million, net of promotionalallowances of $0.1 million, in food, beverage and retail sales for the threemonths ended June 30, 2008.

 

*Promotional allowances*. Promotional allowances for the threemonths ended June 30, 2009 were $0.2 million, or 0.6% of net revenues, comparedto $0.1 million, or 0.3% of net revenues, for the three months ended June 30,2008.

 

*Operating expenses*. Operating expenses for the three monthsended June 30, 2009 were $19.5 million, or 62.6% of net revenues, comparedto $22.7 million, or 67.6% of net revenues, for the three months ended June 30,2008.

 

Casino expense includes costs associated with ourgaming operations and the allocation of food and beverage expense related tothe cost of complimentary activities. Casino expense for the three months endedJune 30, 2009 was $3.9 million compared to $4.9 million for the threemonths ended June 30, 2008.  Casinoexpense as a percentage of Casino revenues decreased by 2 percentage pointsfrom 15.3% to 13.3% for the three months ended June 30, 2009.

 

Food, beverage and retail expense for the three monthsended June 30, 2009 was $1.7 million, or 130.1% of food, beverage andretail revenue, net of promotional allowances, compared to $2.5 million, or141.0% of food, beverage and retail revenue, net of promotional allowances forthe three months ended June 30, 2008. Our food, beverage and retail expense ratio is significantly higher thanthe industry average because we have utilized these amenities as an opportunityto build customer loyalty rather than as a source of income.

 

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Selling, general and administrative expense for thethree months ended June 30, 2009 decreased by $1.7 million to $10.1million, or 32.5% of net revenues, from $11.8 million, or 35.0% of netrevenues, for the three months ended June 30, 2008. The decrease inselling, general and administrative expenses is primarily due to a decrease inadvertising expenses.

 

Depreciation expense for the three months ended June 30,2009 was $2.4 million compared to $2.4 million for the three months ended June 30,2008.  Depreciation expense was computedusing the straight-line method over the useful life of property, plant andequipment. Now that the casino is over five years old, much of our originalequipment has been fully depreciated.

 

Gaming Commission and surveillance expense for thethree months ended June 30, 2009 was $1.1 million compared to $0.9 millionfor the three months ended June 30, 2008.

 

The Compact requires us to pay a quarterly fee to theState of California’s revenue sharing trust fund, based on the number oflicensed gaming devices we are allowed to operate. Revenue sharing trust fundfees assessed were $0.3 million for each of the three months ended June 30,2009 and 2008.

 

*Income from operations.* Income from operations for the threemonths ended June 30, 2009 was $11.6 million, or 37.4% of net revenues,compared to $10.9 million, or 32.4% of net revenues, for the three months endedJune 30, 2008.  The increase in income from operations isattributable to the cost saving measures we adopted to adjust for the declinein customer demand.

 

*Non-Operating expense, net.* Non-operating expense, net for the threemonths ended June 30, 2009 was $5.2 million, or 16.7% of net revenues,compared to $5.0 million or 14.7% of net revenues, for the three months ended June 30,2008.  Non-operating expense, net includes $5.2 million of interestexpense for each of the three months ended June 30, 2009 and 2008.  No interest costs were capitalized in thethree months ended June 30, 2009 and 2008; respectively.

 

*Income before distributions to theTribe*. Incomebefore distributions to the Tribe for the three months ended June 30, 2009increased by $0.5 million to $6.5 million, or 20.7% of net revenues, from $6.0million, or 17.7% of net revenues, for the three months ended June 30,2008.

 

*Distributions to the Tribe*. Distributions to the Tribe for thethree months ended June 30, 2009 decreased by $0.9 million to $3.3million, compared to $4.3 million, for the three months ended June 30,2008.  The decrease is due to the prioryear one-time catch up distribution to the Tribe of $1.0 million of servicepayments that could have been previously distributed to the Tribe as permittedby the Indenture.

 

**Comparison of the six months ended June 30,2009 and 2008**

 

*Net revenues*. Net revenues for the six months ended June 30,2009 decreased by $4.3 million to $62.6 million, from $66.8 million, for thesix months ended June 30, 2008.  The decrease in net revenues isattributable to the continuing industry-wide slow down in the gaming andentertainment industry during 2009. Approximately 95.0% of our net revenues were from our gaming activitiesin the six month period ended June 30, 2009. We generated $53.3 million or85.3% of our net revenues from gaming devices, and $6.1 million, or 9.7% of ournet revenues from table games and poker for the six months ended June 30,2009, compared to $56.1 million from gaming devices or 83.9% of our netrevenues, and $7.5 million or 11.3% of net revenues from table games and pokerfor the six months ended June 30, 2008. Our win per slot machine per day was $200 in the six months ended June 30,2009, which increased by $7 from $193 for the six months ended June 30,2008.  The increase in net win permachine per day is primarily attributable to the decrease in the average numberof slot machines on the floor.  We havebeen reconfiguring our gaming floor in an effort to enhance our overallappeal.  As part of this effort, wereduced the average number of slot machines to 1,476 for the six months ended June 30,2009, compared to 1,572 for the six months ended June 30, 2008.

 

We generated $2.7 million, net of promotionalallowance of $0.2 million, in food, beverage and retail sales for the sixmonths ended June 30, 2009, compared to $2.9 million, net of promotionalallowances of $0.3 million, in food, beverage and retail sales for the sixmonths ended June 30, 2008.  Thedecrease in promotional allowances was the result of a strategic reduction tonarrow our marketing focus on higher revenue generating players.

 

*Promotional allowances*. Promotional allowances for the sixmonths ended June 30, 2009 were $0.2 million, or 0.3% of net revenues,compared to $0.3 million, or 0.4% of net revenues, for the six months ended June 30,2008.

 

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*Operating expenses*. Operating expenses for the six monthsended June 30, 2009 were $39.5 million, or 63.2% of net revenues, comparedto $44.2 million, or 66.1% of net revenues, for the six months ended June 30,2008.

 

Casino expense includes costs associated with ourgaming operations and the allocation of food and beverage expense related tothe cost of complimentary activities. Casino expense for the six months ended June 30,2009 was $8.1 million compared to $9.9 million for the six months ended June 30,2008.  Casino expense as a percentage ofCasino revenues decreased by 2 percentage points from 15.6% to 13.6% for thesix months ended June 30, 2009.

 

Food, beverage and retail expense for the six monthsended June 30, 2009 was $3.8 million, or 140.0% of food, beverage andretail revenue, net of promotional allowances, compared to $4.2 million, or144.6% of food, beverage and retail revenue, net of promotional allowances forthe six months ended June 30, 2008. Our food, beverage and retail expense ratio is significantly higher thanthe industry average because we have utilized these amenities as an opportunityto build customer loyalty rather than as a source of income.

 

Selling, general and administrative expense for thesix months ended June 30, 2009 decreased by $1.8 million to $20.4 million,or 32.5% of net revenues, from $22.2 million, or 33.2% of net revenues, for thesix months ended June 30, 2008. The decrease in selling, general andadministrative expenses is primarily due to a decrease in advertising expenses.

 

Depreciation expense for the six months ended June 30,2009 was $4.8 million compared to $5.4 million for the six months ended June 30,2008.  Depreciation expense was computedusing the straight-line method over the useful life of property, plant andequipment.  The casino is now over fiveyears old.  Much of our originalequipment became fully depreciated by the second quarter of the prior year.

 

Gaming Commission and surveillance expense for the sixmonths ended June 30, 2009 was $1.9 million compared to $1.9 million forthe six months ended June 30, 2008.

 

The Compact requires us to pay a quarterly fee to theState of California’s revenue sharing trust fund, based on the number oflicensed gaming devices we are allowed to operate. Revenue sharing trust fundfees assessed for each of the six month periods ended June 30, 2009 and2008 were $0.7 million.

 

*Income from operations.* Income from operations for the sixmonths ended June 30, 2009 was $23.0 million, or 36.8% of net revenues,compared to $22.6 million, or 33.9% of net revenues, for the six months ended June 30,2008.  The increase in income from operations is attributable to expensereductions due to the cost saving measures we adopted to adjust for the declinein customer demand.

 

*Non-Operating expense, net.* Non-operating expense, net for the sixmonths ended June 30, 2009 was $10.4 million, or 16.6% of net revenues,compared to $9.7 million, or 14.5% of net revenues, for the six months ended June 30,2008.  Non-operating expense, net includes $10.4 million of interestexpense for each of the six month periods ended June 30, 2009 and2008.  No interest costs were capitalizedin the six month periods ended June 30, 2009 and 2008; respectively.

 

*Income before distributions to theTribe*. Incomebefore distributions to the Tribe for the six months ended June 30, 2009decreased by $0.3 million to $12.6 million, or 20.2% of net revenues, from$12.9 million, or 19.4% of net revenues, for the six months ended June 30,2008.

 

*Distributions to the Tribe*. Distributions to the Tribe for the sixmonths ended June 30, 2009 decreased by $0.7 million to $6.6 million,compared to $7.4 million, for the six months ended June 30, 2008.  The decrease is primarily due to the prioryear second quarter one-time catch up distribution to the Tribe of $1.0 millionof service payments that could have been previously distributed to the Tribe aspermitted by the Indenture.

 

**Liquidity and Capital Resources**

 

Since our inception, we have funded our capital expendituresand working capital requirements primarily through debt financing, gamingequipment supplier financing, other financing, and operating cash flow.

 

For the six months ended June 30, 2009, we spent$11,200 on the development of an approximately 18-acre parcel of land adjacentto the Tribe’s reservation (referred to as the “Dugan Property”) which isexpected to provide an additional access road to our Casino. We have $4.3million remaining in a restricted account funded from the proceeds of ourSenior Notes for the development of the Dugan Property.  The construction of the access road shallcommence concurrently with phase one of the resort construction.

 

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Our capital expenditures for the six months ended June 30,2009 and 2008 were $8.6 million and $13.6 million, respectively.  The capital expenditures for the six monthsended June 30, 2009 consisted primarily of $2.3 million in additions toequipment largely due to slot machine purchases, as well as $6.3 million inadditions to construction-in-progress for the master plan development of ourplanned resort.  We have reflected theexpenditures relating to the master plan development which we reimbursed theTribe as construction-in-progress in our balance sheet.

 

As of June 30, 2009, we had cash and cashequivalents, net of restricted cash of $29.3 million, compared to $27.3million, as of December 31, 2008. We had restricted cash of $7.1 millionas of June 30, 2009 and as of December 31, 2008.  Our principal source of liquidity during thesix months ended June 30, 2009 consisted of cash flow from operatingactivities.

 

Restricted cash consists of net proceeds from theSenior Notes and investment earnings thereon set aside in constructionfinancing accounts for construction costs for the three parking structures,related infrastructure improvements and construction contingencies. It alsoincludes funds that are reserved for additional construction contingencies andthe funds for the development of the Dugan Property.  Our restricted cash is held in escrowaccounts that can only be used for authorized construction disbursements untilthe related projects are completed.  Theconstruction of the three parking structures has been completed and theremaining funds are in the process of being released from the restrictedaccount.

 

Net cash used for capital and related financingactivities for the six months ended June 30, 2009 was $18.4 million,compared to $23.6 million, for the six months ended June 30, 2008. Thisdecrease was primarily attributable to the decrease in purchases of capitalassets.

 

Cash flows provided by investing activities consistingof interest income for the six months ended June 30, 2009 decreased by$0.7 million to $31,800, from $0.8 million, for the six months ended June 30,2008.

 

Cash flows used in non-capital financing activitiesfor the six months ended June 30, 2009 was $6.6 million, a decrease of $0.8million, from $7.4 million, for the six months ended June 30, 2008. Cash flows used in non-capital financing activities consists of distributionsto the Tribe. The decrease is primarily due to the prior year secondquarter one-time catch up distribution to the Tribe of $1.0 million of servicepayments that could have been previously distributed to the Tribe as permittedby the Indenture.

 

We believe the existing cash balances, cash fromoperations, as well as permitted disbursements from our restricted cash escrowaccounts will provide adequate funds for our working capital needs and debtservice requirements for the foreseeable future.  We anticipate that funding for future capitalexpenditures and expansions will derive from additional third party financing.  However, our ability to fund our operations,make capital expenditures, make scheduled debt payments and refinance ourindebtedness depends on our future operating performance and cash flow, which,in turn, are subject to prevailing economic conditions and to financial,business and other factors, some of which are beyond our control. Additionally,the Indenture limits our ability to incur additional indebtedness.

 

The Tribe announced plans to build a destinationresort, which plans are more fully described in our Form 8-K dated June 28,2007, and exhibits listed therein.  Theproposed project includes the construction of a casino, hotel and spa, severalfood and beverage venues, administrative facilities, a garden and terraceplaza, a retail area, and back of house facilities. The proposed projectincludes three above-ground levels and a hotel tower (up to eight levels) andtwo below-ground levels.  We do notcurrently have adequate liquidity or cash flow to finance the project asproposed.  We will consider varioussources of liquidity to finance the first phase of the proposed project, although itcannot be assured that we will be able to obtain financing or that the interestrates on any financings will be favorable.

 

On March 18, 2008, the Tribe and the SonomaCounty Board of Supervisors entered into the MOA that, among other things,settled several long-standing legal disputes between Sonoma County and theTribe, and will provide a binding framework for resolving future disputes.  The MOA enables the Tribe to move forwardwith its proposed resort development project, including a new and expanded “Tuscan-themed”casino and hotel with luxury resort amenities. A copy of the MOA was filed as an exhibit to the Authority’s Form 10-Kfor the fiscal year ending December 31, 2007.  Under the MOA, the County agreed to drop itsopposition to the Tribe’s application for a liquor license and on May 29,2008, the California Department of Alcoholic Beverage Control issued a liquorlicense to our gaming and entertainment facility.  However, the Tribe has agreed to restrict thesale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m.on weekdays, and to stop serving alcohol altogether at midnight except forFriday and Saturday nights and the nights before holidays. The Tribe has alsoagreed not to serve liquor on the Casino floor, although patrons may bringdrinks purchased at the restaurant or bar on to the Casino floor. Therestrictions may be renegotiated following the first to occur of the three yearanniversary of the MOA or the opening of a hotel, which is anticipated to occurwithin the next two to three years.  Inaddition, the MOA commits the County Sheriff’s Department and Fire Marshall toprovide public safety and fire investigation services to the Casino and theTribe’s future gaming projects on the reservation and provides detailedagreements on off-reservation impact

 

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mitigation measures. Pursuant to the MOA, the County withdrew its opposition to the Tribe’sapplication to take the Dugan Property into trust.  Previously, the trust application had beenapproved by the Department of the Interior, which approval had been opposed bythe County.  Pursuant to the MOA, theTribe has agreed to pay the County $75.0 million in mitigation fees over thenext 12 years, subject to adjustment under certain circumstances described inthe MOA, to offset the potential losses and impacts to the County resultingfrom the Tribe’s various ongoing projects and to support the services beingprovided by the County.  The Tribe paid $3.0 million on April 17,2008, $4.5 million on September 20, 2008 and $2.8 million on June 26,2009.  Future payments are scheduled to take place as follows: $5.0million upon the earlier of March 18, 2011 or the opening of phase one ofthe resort project; $5.0 million on July 1 of the subsequent yearbut no later than July 1, 2011; and $5.0 million plus 4% compoundedannually on July 1 of each subsequent year until the entire $75.0 millionhas been paid.  In addition, the Tribe has agreed to pay afee in lieu of the County’s Transient Occupancy Tax in the amount of 9% of therental charges collected on occupied hotel rooms.  Such fees are required to be paid quarterlyuntil five years after the later to occur of the termination of the MOA, as maybe extended, or the Tribe’s Compact with the State.

 

We are not a party to the agreement with the SonomaCounty Board of Supervisors and are not obligated to pay any fees pursuant tothe MOA.  It is expected that the Tribewill make payments to Sonoma County pursuant to the MOA from distributions madeby us to the Tribe.

 

Aspart of the effort to enhance the overall appeal of our product, we have beenreconfiguring our gaming floor.  Thiseffort has resulted in the reduction of approximately 372 slot machines and 2table games.  We will maintain our legalright per the Compact to operate a total of 1,600 slot machines in our Casino.  We considered many factors such as peakperiod demand, per unit productivity, and player comfort in our analysis toensure that the reduction of gaming devices will not adversely impact ourrevenues.  The reduction of gaming unitson the casino floor will ultimately provide us an opportunity to upgradecurrent amenities, establish new amenities, improve player comfort and enhanceentertainment value. We are confident that these improvements, targeted atimproving product appeal, will ultimately open up a greater spectrum ofpotential consumers within our designated market area.  In combination with our continuing effort toimprove operational efficiency, upgrading our gaming technology, and refocusingour marketing efforts, we are confident that we will have set a solidfoundation for improved and sustained cash flows.

 

**Contractual Obligations as of June 30,2009**

 

Contractual obligations and commitment amounts as of June 30,2009 have not materially changed from the prior quarter.

 

**Regulation and Taxes**

 

We are subject to extensive regulation by the Tribe’sGaming Commission, the California Gambling Control Commission and the NationalIndian Gaming Commission. Changes in applicable laws or regulations could havea significant impact on our operations.

 

In May 2008, the California Department ofAlcoholic Beverage Control (“ABC”) issued a liquor license to our gaming andentertainment facility.  However, theTribe has agreed to restrict the sale of alcohol to wine and beer between the hoursof 11 a.m. and 5 p.m. on weekdays, and to stop serving alcoholaltogether at midnight except for Friday and Saturday nights and the nightsbefore holidays. The Tribe has also agreed not to serve liquor on the Casinofloor, although patrons may bring drinks purchased at the restaurant or bar onto the Casino floor. The restrictions may be renegotiated following the firstto occur of the three year anniversary of the MOA or the opening of a hotel,which is anticipated to occur within the next two to three years.

 

Since we are an unincorporated governmentalinstrumentality of the Tribe located on reservation land held in trust by theUnited States of America, we are not subject to federal or state income taxes.Various efforts have been made in Congress over the past several years to enactlegislation that would subject the income of tribal governmental businessentities, such as us, to federal income tax. Although no such legislation hasbeen enacted, similar legislation could be passed in the future. It is notpossible to determine with certainty the likelihood of possible changes in taxlaw or in the administration of such law. Such changes, if adopted, could havea material adverse effect on our operating results and cash flow fromoperations.

 

**Impact of Inflation**

 

Absent changes in competitive and economic conditionsor in specific prices affecting the casino industry, we do not expect thatinflation will have a significant impact on our gaming facility operations.Since many of our patrons drive up from Santa Rosa and San Francisco, changesin specific prices, such as fuel and transportation prices, relative to thegeneral rate of inflation may have a material adverse effect on the casinoindustry in general.

 

**Seasonality**

 

We anticipate that activity at our gaming facility maybe modestly seasonal with stronger results expected during the summer due inpart to the relatively higher levels of tourism during such times of the year.In addition, our operations may be impacted by adverse weather conditions andfluctuations in the tourism business. Accordingly, our results may fluctuatefrom quarter to quarter and the results of one quarter may not be indicative ofresults expected from future quarters.

 

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**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk is the risk of loss arising from adversechanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices.

 

Through June 30, 2009, we had not invested inderivative or foreign currency-based financial instruments.  We primarilyhave invested in money markets.  As such, we do not believe we havematerial exposure to market risk.

 

**ITEM4T.  CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls andProcedures**

 

We maintain disclosure controls and procedures thatare designed to ensure that the information required to be disclosed in our reportsfiled with, or furnished to the Securities Exchange Commission (the “SEC”)pursuant to the Exchange Act, is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules, regulations and forms,and that such information is accumulated and communicated to our management,including our Chief Financial Officer, General Manager and Chief OperationsOfficer, as appropriate, to allow timely decisions regarding requireddisclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) and15d-15(e) of the Exchange Act.

 

Management has performed,with the participation of our Chief Financial Officer, Chief Operations Officerand acting General Manager, an evaluation of the effectiveness of our disclosurecontrols and procedures as defined in Rules 13a-15(e) and 15d-15(e) ofthe Exchange Act.  Based on theevaluation, our General Manager and Chief Financial Officer concluded that, asof  June 30, 2009, our disclosure controls and procedures wereeffective.

 

**Changes to Internal Controls OverFinancial Reporting**

 

We continue to test our internal controls so as tomake improvements to the weaknesses that we have identified and to determinewhether there are other procedures that we can implement to improve ourfinancial reporting processes.  For thethree month period ended June 30, 2009, there have been no changes in theinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

**PART II.             OTHER INFORMATION**

 

**ITEM 1.              LEGAL PROCEEDINGS**

 

*RunyanLitigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed a wrongfultermination suit against the Authority, the Casino and Mr. Harvey Hopkins,the Chairman of the Tribe and a member of the Authority’s Board, in the SonomaCounty Superior Court.  We believed thecase lacked merit and moved to dismiss. On October 17, 2008, the Court issued an Order dismissing thelawsuit.  On December 3, 2008, the Court entered an Order grantingour motion and dismissed the case.

 

On January 14, 2009,Mr. Runyan filed a Petition for Order Compelling Arbitration with theSonoma County Superior Court, and on January 30, 2009, he filed a Motionfor Order Compelling Arbitration.  In both the Petition and the Motion, Mr. Runyansought to have the Court issue an order compelling arbitration of the claimsasserted in the complaint that was dismissed by the court inDecember, 2008.  The Authority believed, based on fact that Mr. Runyanentered into a Severance Agreement and General Release with the Authority, theCasino, and other released parties, that there was no basis for Mr. Runyanto seek arbitration.  On April 13, 2009, the Authority, the Casino,and Mr. Hopkins filed a hybrid motion to quash summons and dismiss thePetition and Motion.  On June 1, 2009, the Court granted the motionin its entirety, holding that the Court lacked personal and subject matterjurisdiction, that Mr. Runyan terminated and extinguished his purportedemployment agreement (which contained the arbitration clause he relied on) andthat he waived any right to arbitration he might have had by settling andreleasing all claims.  Finally, the Courtheld that all respondents have tribal sovereign immunity from service ofprocess.

 

Mr. Runyan fileda Notice of Appeal of the Court’s Order on July 27,2009.  The time for filing his opening appellate brief will depend onwhich method he uses to compile the record from the Superior Court, but weexpect that his opening brief will be filed in the First District Court ofAppeal in October.  The Authority’s and the other parties’respondents’ brief will be due 30 days after Mr. Runyan’s openingbrief.  Mr. Runyan will then have 20 days to reply to the Authority’s

 

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brief and the case willthen be set for oral argument.  The Authority continues to believe thatthere was no basis for Mr. Runyan to seek arbitration and will arguevigorously in favor of upholding the Superior Court’s Order granting the motionto quash summons and dismissing Mr. Runyan’s petition and motion for anorder compelling arbitration.

 

*OtherLegal Matters*

 

The Authority is involvedin other litigation and disputes from time to time in the ordinary course ofbusiness with vendors and patrons. The Authority believes that the aggregateliability, if any, arising from such litigation or disputes will not have amaterial adverse effect on its results of operations, financial condition orcash flows.

 

**ITEM 1A.           RISK FACTORS**

 

There have been no material changes from the riskfactors previously disclosed in our most recent Form 10-K other than thefollowing:

 

***We face competitionfrom other California Indian casinos, casinos located in Nevada and elsewhereand other forms of gaming.***

 

The gaming industry is very competitive. We face orwill face competition from existing and proposed California Indian gamingfacilities in the surrounding area, and elsewhere in California, and withcasino gaming in Nevada, including gaming facilities that could be locatedcloser to the San Francisco Bay area. We also compete with card rooms locatedin the surrounding area, and other forms of gaming that are legal inCalifornia, including on and off-track wagering and the California StateLottery, as well as with non-gaming leisure activities. The availability ofsuch alternative gaming and non-gaming activities may increase in the future.Many of our competitors have substantially greater resources and namerecognition than our Casino. In addition, we may also face competition in ourmarket from new facilities that may be built by other Indian tribes in thefuture.

 

Federal and California law currently permits Class IIIcasino gaming only on federally recognized tribal lands pursuant to compactsnegotiated with the State of California and approved by the U.S. Secretary ofthe Interior. Class II gaming for tribes is permitted only on federallyrecognized tribal lands. There are currently 55 tribes operating 56 compactedgaming facilities in the State of California. The closest existing competitorsare the Hopland Sho-ka-wah Casino, located approximately 35 miles and 40 minutesnorth of the Tribe’s reservation; the Konocti Vista Casino, locatedapproximately 45 miles and one hour and ten minutes northeast of the Tribe’sreservation; the Thunder Valley Casino, located approximately 124 miles and twohours and forty-five minutes east of the Tribe’s reservation; and Cache CreekIndian Casino and Bingo, located approximately 95 miles and two hours andfifteen minutes east of the Tribe’s reservation. In addition, several potentialcompetitors are attempting to develop and open casinos near our Casino.

 

The greatest competition may come from the proposedGraton Rancheria casino. In April 2003, the Federated Indians of theGraton Rancheria, also known as the Coast Miwoks, announced plans to purchaseland in Sonoma County near Highway 37 and Lakeville Highway, approximately 20miles south of our gaming facility and closer to San Francisco than ourreservation. The proposed location would lie directly between our Casino andthe majority of the 7 million population base of the San Francisco Bay area.The announced plans include construction of a casino-hotel complex that will bemanaged by Station Casinos, Inc. based in Las Vegas, Nevada. The proposedfacility would house approximately 2,000 slot machines, 120 card tables andbingo, as well as a 300-room hotel, five restaurants and a theater with up to2,000 seats. As a result of environmental opposition to the development of suchlocation, the Federated Indians of the Graton Rancheria announced plans to movethe proposed casino-hotel complex to a site near Rohnert Park, California. TheRohnert Park City Council has approved an agreement with the Federated Indiansof the Graton Rancheria to share revenues with Rohnert Park and variouscommunity groups, approximately $200.0 million over 20 years, to offset theimpact of the proposed project.

 

In May 2008, the U.S. Department of Interiorpublished in the Federal Register a notice to take the proposed Rohnert Parksite into federal trust on behalf of the Graton Rancheria. This represents a significantstep towards the development of a casino at Rohnert Park, as do the separateagreements negotiated between the Graton Rancheria and Sonoma County and MarinCounty, whereby the counties pledged to not challenge the land-into-trustdecision and the Graton Rancheria agreed not to build any additional casinos inSonoma or Marin counties. The U.S. Department of Interior’s land-into-trustdecision has, however, been challenged by citizens group opposed to a casino inRohnert Park. The federal district court dismissed the citizens group’s lawsuiton April 21, 2009, but the group has appealed the decision to the NinthCircuit Court of Appeals.  The Departmentof the Interior has agreed to withhold action on taking the land into trustpending the appeal.  A spokesperson forthe citizen’s group has also stated publicly that the group will challenge theadequacy of the environmental impact statement for the proposed Graton casino,which was issued in February 2009. Another obstacle facing the proposed Graton Rancheria casino is theability to obtain financing for the project. In addition, the Graton 

 

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Rancheria will also need to enter into a tribal-statecompact with the State of California before it can operate Class IIIgaming at the Rohnert Park site.

 

The Hopland Sho-ka-wah Casino is located several mileseast of Highway 101 on Route 175. The facility features a 40,000 square footcasino offering 570 slot machines and nine table games. Recently, the facilitysuspended its poker games.  The facilitycontains a Mexican food taqueria, a small cafe-type food and beverage area, afine-dining steak house and a bar. Hopland operates a small bus program butdoes not operate a hotel.

 

East of the Sho-ka-wah Casino is the Konocti Casino inLakeport, California. Lakeport is located approximately 37 miles fromCloverdale with access off Highway 20. The casino currently houses 349 slot machines and 6 table games. Thefacility also offers an 80-room hotel and marina with small pool as well as a74-space recreational vehicle park. The food and beverage program includes asmall restaurant, buffet and a new full-service restaurant serving liquor.

 

The Thunder Valley Casino opened in June 2003 andis located at the intersection of Highway 65 and Interstate 80 just outside ofSacramento, California. The Nevada-style property offers over 2,400 slotmachines and 98 table games that include blackjack, baccarat, and a variety ofpoker games including Let It Ride and Pai Gow. The facility features a salon,private dining rooms, bars and butler service. In addition, it houses a500-seat buffet and various fast food options. The facility also features anightclub, and live entertainment is offered every two weeks.  In 2008, the Thunder Valley Casino announcedplans to build a new 650-room, 23-story hotel featuring a spa, family centerand other amenities.  Thunder Valley also planned to construct a3,000-seat performing arts center, and to expand the casino to include threenew restaurants, more gaming space and new poker room, and a parking structurecapable of holding 5,000 cars.  ThunderValley obtained financing for the expansion, which began in July 2008 butwas halted in November 2008.  In May 2009,the casino resumed work on the expansion, but the project has been scaled downto include a 15-story hotel with 300-400 rooms; a 700-seat, 10,000-square-feetmultipurpose entertainment center in place of the performing arts center; and a7-story parking structure with approximately 3,500 spaces.

 

The Cache Creek Casino is located approximately 50miles west of Sacramento. The Cache Creek Casino offers 2,900 slot machines.The casino recently added a 28-table poker room and houses over 140 table gamesincluding blackjack, Texas Hold’em, Pai Gow and Caribbean Stud. The facilityalso includes a 200-room luxury hotel, 8 restaurant outlets, an entertainmentpavilion with seating for 600, a spa and outdoor pool, an 18-hole golf courseand a 1,883 spot parking structure. The facility is in the process of expandingits restaurant offerings, and has recently announced plans to add more shopsand parking and expand its gaming floor, and to add more than 500 slotmachines, a 10-story hotel tower with 467 rooms, and a 62,500 square-footconvention center capable of seating 2,300 people.

 

The Lytton Band of Pomo Indians currently operate a70,000 square-foot casino with 1,050 Class II electronic bingo machines ona 9-acre site in a card room in San Pablo, near Oakland, California, on landthat was placed in trust for the tribe through congressional legislation. TheLytton Band signed a compact with Governor Arnold Schwarzenegger for operating Class IIIcasino gaming on the San Pablo site, but the state legislature withheld itsapproval. In May 2007, legislation was introduced in the U.S. Senate,which has the support of the Lytton Band, that would require the Lytton Band toforego any Class III machines at the San Pablo site and instead limititself to operating its existing Class II machines. This legislation waspassed by the Senate in November 2007 and referred to the Committee onNatural Resources of the U.S. House of Representatives, but no further actionwas taken.  The legislation was againintroduced in the U.S. Senate in January 2009, and the Senate passed thebill on March 12, 2009.

 

The Twin Pine Casino and Hotel, owned and operated bythe Middletown Rancheria of Pomo Indians, is located approximately 4 miles offHighway 29 in Napa County, approximately 34 miles from our gaming andentertainment facility. The Middletown Rancheria has recently completed anexpansion of the Twin Pine Casino and Hotel which includes a 60-room hotel,three food areas and a wine tasting room, as well as 50,000 square feet ofgaming space with approximately 520 slot machines and 12 table games.

 

There are a number of other Indian tribes, includingthe Scotts Valley Band of Pomo Indians and the Guidiville Band of Pomo Indians,that have announced preliminary plans to develop gaming projects in the SanFrancisco Bay area.

 

The Guidiville Band hopes to have transferred to itland at the former Point Molate Naval Base in Richmond, California on which ithopes to operate a casino along with two hotels, a convention center, retailshops and two parking structures, but the project is still in its early stagesas the land transfer has not been approved and environmental reviews must becompleted.  In January 2009, twoenvironmental groups filed a lawsuit against the City of Richmond, theGuidiville Band and its financial backer and developer in an effort to stop thetransfer of the land.  In July 2009,the Guidiville Band released the draft environmental impact study for theproposed project.

 

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The Scotts Valley Band hopes to build a 225,000square-foot casino complex and five-story parking garage on a 29.87-acre sitein Contra Costa County, near Richmond, California.  In March 2008,the Bureau of Indian Affairs announced the filing of the Final EnvironmentalImpact Statement for the proposed project. In August 2008, the Contra Costa County Superior Court struck downa municipal services agreement between the City of Richmond and the ScottsValley Band on the ground that the City failed to conduct the properenvironmental reviews before signing the agreement.

 

The Cloverdale Rancheria has announced preliminaryplans to build a 596,00 square-foot hotel/spa and casino resort some ten milesnorth of our Casino on U.S. Highway 101, and they and their financial backershave purchased approximately 79 acres for the proposed facility. Theenvironmental review process for the proposed Cloverdale Rancheria projectbegan in July 2008.

 

Each of these proposed projects face numerousobstacles in addition to environmental approvals, including the negotiation andapproval of a compact with the State of California, approval from the U.S.Department of Interior to take the land on which the project would be locatedinto federal trust on behalf of the tribe, and determinations from appropriatefederal agencies that the tribes may conduct gaming on these lands pursuant tothe Indian Gaming Regulatory Act.

 

We also compete with other forms of gaming such asstatewide lotteries, live and simulcast pari-mutuel wagering and card rooms.

 

In May 2007, Governor Schwarzenegger proposedthat the California State Lottery be leased to a private concessionaire toincrease its revenue and efficiency. Part of the Governor’s proposalincludes authorizing the use of instant lottery video terminals that resembleand operate like slot machines at locations including horse racing tracks and cardrooms. Approval of this proposal would require a two-thirds affirmative vote ofthe state legislature and could require a constitutional amendment to theConstitution of the State of California. While it is uncertain whether or whenthis proposal will be approved, its implementation could adversely affect ourand other Indian casinos’ competitive positions.

 

Other initiativesexpanding competitive forms of gaming have been approved and may, from time totime, be approved by state or local authorities. Examples include the passagein California of recent legislation expanding off-site betting on horse racesthrough expanded advance deposit wagering and increased satellite wageringsites, and a legislative proposal in the California Assembly in February 2007to amend the California Penal Code to expand permitted bingo games bycharitable organizations to include electronic bingo cards.

 

The discussion under theheading “**Management’s Discussion and Analysisof the Financial Condition and Results of Operations-Risk Factors**”in the 2008 Annual Report on Form 10-K under the captions “**We have a substantial amount of indebtedness thatcould adversely affect our financial condition and prevent us from fulfillingour obligations under the Outstanding Notes**” and “**We will require a significant amount of cash toservice our indebtedness and fund our gaming operations. Our ability togenerate cash depends on many factors beyond our control**” is updatedas follows to reflect the recent events in the financial markets:

 

Our ability to makescheduled principal and interest payments, refinance debt, and fund operations,and make planned capital expenditures, depends on the levels of our operatingcash flow and access to the capital markets. Like many companies, we rely on the capital markets to fund significantcapital expenditure plans with long-term debt. Our ability to access thecapital markets and the costs and terms of available financing depend on manyfactors, including changes in our credit ratings, changes in the federal orstate regulatory environment, and general economic and market conditions.  The recent financial distress experienced atmajor financial institutions has caused significant disruption in the capitalmarkets, particularly in the commercial paper market where short-term rateshave increased significantly and access generally has contracted.  Long-term debt rates on bond issuances alsohave increased significantly since mid-September and the volume of bondissuances has decreased.  The longer suchconditions persist, the more significant the implications become for us,including the potential that adequate capital is not available to fund ourcapital expansion plans and other planned capital expenditures.  If we are unable, in part or in whole, tofund our planned capital expenditures or obtain financing to refinance ourdebt, there could be a material adverse effect on our results of operations,cash flows and financial condition.

 

**ITEM 6.              EXHIBITS**

 

The Exhibit Indexfiled herewith is incorporated herein by reference.

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| Dated: August 13, 2009 | RIVER ROCK ENTERTAINMENT AUTHORITY |
|-----------------------------|------------------------------------|
|                        | (Registrant)                       |
|                        |                               |   |
|                        | By:                           | /s/ John Cirrincione |
|                        |                               | John Cirrincione, |
|                        |                               | Chief  Operations Officer and Acting General Manager |

 

**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                                                            |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification by John Cirrincione, Chief  Operations Officer and Acting General Manager, pursuant to Exchange Act  Rules 13a-14(a) and 15d-14(a) (filed herewith)                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                   |
| 31.2                 |       | Certification by Joseph R. Callahan, Chief Financial  Officer, pursuant to Exchange Act Rules 13a-14(a) and  15d-14(a) (filed herewith)                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                   |
| 32*                  |       | Certification by John Cirrincione, Chief  Operations Officer and Acting General Manager, and by Joseph R. Callahan, Chief Financial  Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) |

 

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*               This certification is being furnishedsolely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350,and is not being filed for purposes of Section 18 of the Exchange Act andis not to be incorporated by reference into any filing of River RockEntertainment Authority whether made before or after the date hereof,regardless of any general incorporation language in such filing.

 

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