**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D. C.  20549**

 

**FORM10-Q**

 

**(MarkOne)**

**x****  QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF**

**THESECURITIES EXCHANGE ACT OF 1934.**

 

**For thequarterly period ended September 30, 2007**

 

**OR**

 

**o****  TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF**

**THESECURITIES 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 East**

**Geyserville,California 95441**

**(707)857-2777**

(Address, including zipcode, and telephone number, 

including area code, ofregistrant’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 the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes   x     No   o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   o   LargeAccelerated - Filer   o   Accelerated- Filer     x  NonAccelerated Filer

 

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

Yes   o     No   x

 

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEX TOFORM 10-Q**

 
| **Item**       | ** **                                                                                                                                                                     | **Description**                                                                             | ** ** |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|------------|
|           |                                                                                                                                                                           |                                                                                        |
|           | **PART  I – FINANCIAL INFORMATION**                                                                                                                                       | ** **                                                                                  |
|           |                                                                                                                                                                           |                                                                                        |
| 1.             | Condensed  Financial Statements (unaudited)                                                                                                                                    |                                                                                        |
|           | Condensed  Balance Sheets-September 30, 2007 and December 31, 2006                                                                                                             |                                                                                        |
|           | Condensed Statements of  Revenues, Expenses and Changes in Fund Deficit-Three-Months ended September 30,  2007 and 2006 and Nine-Months ended September 30, 2007 and 2006 |                                                                                        |
|           | Condensed  Statements of Cash Flows-Nine-Months ended September 30, 2007 and 2006                                                                                              |                                                                                        |
|           | Notes to  unaudited Condensed Financial Statements                                                                                                                             |                                                                                        |
| 2.             |                                                                                                                                                                           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       |
| 3.             |                                                                                                                                                                           | Quantitative  and Qualitative Disclosures About Market Risk                                 |       |
| 4.             |                                                                                                                                                                           | Controls and  Procedures                                                                    |       |
|           |                                                                                                                                                                           |                                                                                        |
|           | **PART  II – OTHER INFORMATION**                                                                                                                                          | ** **                                                                                  |
|           |                                                                                                                                                                           |                                                                                        |
| 1.             |                                                                                                                                                                           | Legal  Proceedings                                                                          |       |
| 1A.            |                                                                                                                                                                           | Risk  Factors                                                                               |       |
| 5.             |                                                                                                                                                                           | Other Information                                                                           |       |
| 6.             |                                                                                                                                                                           | Exhibits  and Reports on Form 8-K                                                           |       |
|           |                                                                                                                                                                           |                                                                                        |
| Signatures     |                                                                                                                                                                           |                                                                                        |       |
|           |                                                                                                                                                                           |                                                                                        |
| Exhibit  Index |                                                                                                                                                                           |                                                                                        |       |
|                |                                                                                                                                                                                |                                                                                             |            |  |

 

2

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**CAUTIONARYSTATEMENT**

 

*Exceptfor the historical financial information contained herein, the mattersdiscussed in this report on Form 10-Q (as well as documents incorporated hereinby reference) may be considered forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934, as amended. Such forward-lookingstatements are based upon current expectations that involve risks anduncertainties and include declarations regarding the intent, belief or currentexpectations of us and our management and may be signified by the words “believes,”“anticipates,” “plans,” “expects,” “intends” and similar expressions. Ouractual results and the timing of certain events may differ significantly fromthe results discussed in the forward-looking statements. All forward-lookingstatements in this document are based on information available to us as of thedate hereof, and we assume no obligation to update any such forward-lookingstatements, whether as a result of new information, future events, orotherwise. All discussion in this report should be read in conjunction with ourfinancial statements and the accompanying notes contained in this report.*

 

*Referencesin this Form 10-Q to the “Authority” and the “Tribe” are to the River RockEntertainment Authority and the Dry Creek Rancheria Band of Pomo Indians,respectively. The terms “we,” “us” and “our” refer to the Authority.*

 

*Our keyrisks are described in our annual report on Form 10-K filed with the Securitiesand Exchange Commission.*

 

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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**

**(Unaudited)**

 

**BALANCE SHEETS**

 
| ** **                                      | ** ** | **September 30, 2007** | ** **  | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      |       |                             |        |                            |       |
| ** **                                      |       |                             |        |                            |       |
| CURRENT ASSETS:                                 |       |                             |        |                            |       |
| Cash and cash  equivalents                      |       | $                                | 47,874,723  |                            | $          | 32,549,001 |   |
| Restricted  cash-current                        |       | 466,517                          |        | 467,997                         |       |
| Accounts  receivable                            |       | 183,726                          |        | 203,555                         |       |
| Inventories                                     |       | 162,520                          |        | 160,601                         |       |
| Prepaid expenses  and other current assets      |       | 1,465,722                        |        | 1,396,289                       |       |
| Total current  assets                           |       | 50,153,208                       |        | 34,777,443                      |       |
| RESTRICTED CASH  - net of current               |       | 6,847,609                        |        | 6,780,256                       |       |
|                                            |       |                             |        |                            |       |
| PROPERTY AND  EQUIPMENT:                        |       |                             |        |                            |       |
| Buildings and  building improvements            |       | 129,486,172                      |        | 129,245,481                     |       |
| Furniture, fixtures  and equipment              |       | 29,046,053                       |        | 27,110,280                      |       |
|                                            |       | 158,532,225                      |        | 156,355,761                     |       |
|                                            |       |                             |        |                            |       |
| Accumulated  depreciation                       |       | (41,552,427                      | )           | (32,696,126                     | )          |
| Construction in  progress                       |       | 9,510,760                        |        | 4,385,195                       |       |
| Property and  equipment-net                     |       | 126,490,558                      |        | 128,044,830                     |       |
| DEPOSITS AND  OTHER ASSETS                      |       | 4,202,207                        |        | 5,266,658                       |       |
|                                            |       |                             |        |                            |       |
| TOTAL ASSETS                                    |       | $                                | 187,693,582 |                            | $          | 174,869,187 |   |
|                                            |       |                             |        |                            |       |
| **LIABILITIES  AND FUND DEFICIT**               |       |                             |        |                            |       |
|                                            |       |                             |        |                            |       |
| CURRENT  LIABILITIES:                           |       |                             |        |                            |       |
| Accounts  payable:                              |       |                             |        |                            |       |
| Trade                                           |       | $                                | 1,914,042   |                            | $          | 2,500,226 |   |
| Construction                                    |       | 4,542,356                        |        | 467,997                         |       |
| Accrued  liabilities                            |       | 11,448,581                       |        | 7,094,168                       |       |
| Current  maturities of long-term debt           |       | 271,907                          |        | 642,413                         |       |
| Total current  liabilities                      |       | 18,176,886                       |        | 10,704,804                      |       |
| LONG-TERM DEBT -  net of current maturities     |       | 198,681,544                      |        | 198,500,275                     |       |
| Total long-term  liabilities                    |       | 198,681,544                      |        | 198,500,275                     |       |
| COMMITMENTS AND  CONTINGENCIES                  |       |                             |        |                            |       |
| FUND DEFICIT:                                   |       |                             |        |                            |       |
| Invested in  capital assets-net of related debt |       | (72,462,893                      | )           | (71,097,858                     | )          |
| Restricted for  capital projects                |       | 7,314,126                        |        | 7,248,253                       |       |
| Unrestricted                                    |       | 35,983,919                       |        | 29,513,713                      |       |
|                                            |       |                             |        |                            |       |
| Total fund  deficit                             |       | (29,164,848                      | )           | (34,335,892                     | )          |
|                                            |       |                             |        |                            |       |
| TOTAL  LIABILITIES AND FUND DEFICIT             |       | $                                | 187,693,582 |                            | $          | 174,869,187 |   |

 

The accompanying notesare an integral part of these unaudited financial 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 INFUND DEFICIT**

**(Unaudited)**

 
| ** **                                  | ** ** | **Three-Month Period Ended September 30,** | ** ** | **Nine-Month Period Ended September 30,** | ** **  |
|---------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|-------------|
| ** **                                  | ** ** | **2007**                                                       | ** ** | **2006**                                                      | ** **  | **2007** | ** ** | **2006** | ** ** |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| REVENUES:                                   |       |                                                           |       |                                                          |        |   |   |   |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Casino                                      |       | $                                                              | 36,577,971 |                                                          | $           | 35,703,993 |   | $ | 108,252,489 |   | $ | 100,576,568 |   |
| Food, beverage  & retail                |       | 1,967,390                                                      |       | 1,656,494                                                     |        | 5,482,233 |   | 4,637,500 |   |
| Other                                       |       | 150,498                                                        |       | 155,625                                                       |        | 471,159 |   | 453,362 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Gross revenues                              |       | 38,695,859                                                     |       | 37,516,112                                                    |        | 114,205,881 |   | 105,667,430 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Promotional  allowances                     |       | (3,670,682                                                     | )          | (3,954,185                                                    | )           | (10,304,071 | ) | (9,420,322 | ) |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Net revenues                                |       | 35,025,177                                                     |       | 33,561,927                                                    |        | 103,901,810 |   | 96,247,108 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Casino                                      |       | 5,311,847                                                      |       | 5,191,608                                                     |        | 15,487,406 |   | 15,200,955 |   |
| Food, beverage  & retail                |       | 1,270,307                                                      |       | 1,570,259                                                     |        | 4,126,602 |   | 4,555,220 |   |
| Selling, general  and administrative        |       | 10,966,765                                                     |       | 9,532,708                                                     |        | 31,898,972 |   | 30,531,375 |   |
| Depreciation                                |       | 2,967,851                                                      |       | 2,883,783                                                     |        | 8,892,616 |   | 8,615,732 |   |
| Credit  enhancement fee                     |       | —                                                         |       | 2,312,920                                                     |        | 11,348,897 |   | 5,774,547 |   |
| Gaming  commission and surveillance expense |       | 747,961                                                        |       | 672,799                                                       |        | 2,243,759 |   | 2,121,531 |   |
| Compact revenue  sharing trust fund         |       | 333,750                                                        |       | 333,750                                                       |        | 1,001,250 |   | 1,001,250 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Total Operating  Expenses                   |       | 21,598,481                                                     |       | 22,497,827                                                    |        | 74,999,502 |   | 67,800,610 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 13,426,696                                                     |       | 11,064,100                                                    |        | 28,902,308 |   | 28,446,498 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| OTHER  EXPENSE-Net                          |       |                                                           |       |                                                          |        |   |   |   |   |
| Interest expense                            |       | (5,218,477                                                     | )          | (5,219,617                                                    | )           | (15,654,376 | ) | (15,665,102 | ) |
| Interest income                             |       | 503,964                                                        |       | 301,451                                                       |        | 1,222,251 |   | 704,428 |   |
| Gain (Loss) on  sale of assets              |       | —                                                         |       | (85,301                                                       | )           | 4,547 |   | (126,394 | ) |
| Other income  (Expense) - net               |       | 1,857                                                          |       | (429                                                          | )           | 1,114 |   | (542 | ) |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| Other  expense-net                          |       | (4,712,656                                                     | )          | (5,003,896                                                    | )           | (14,426,464 | ) | (15,087,610 | ) |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| INCOME BEFORE  DISTRIBUTIONS TO TRIBE       |       | 8,714,040                                                      |       | 6,060,204                                                     |        | 14,475,844 |   | 13,358,888 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| DISTRIBUTIONS TO  TRIBE                     |       | (3,122,400                                                     | )          | (5,020,000                                                    | )           | (9,304,800 | ) | (11,080,000 | ) |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| NET INCOME AFTER  DISTRIBUTIONS TO TRIBE    |       | 5,591,640                                                      |       | 1,040,204                                                     |        | 5,171,044 |   | 2,278,888 |   |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| FUND  DEFICIT-Beginning of period           |       | (34,756,488                                                    | )          | (39,186,370                                                   | )           | (34,335,892 | ) | (40,425,054 | ) |
|                                        |       |                                                           |       |                                                          |        |   |   |   |   |
| FUND DEFICIT-End  of period                 |       | (29,164,848                                                    | )          | $                                                             | (38,146,166 | ) | $ | (29,164,848 | ) | $ | (38,146,166 | ) |
|                                             |            |                                                                |            |                                                               |             |  |  |  |  |  |  |  |  |

 

The accompanying notesare an integral part of these unaudited financial statements.

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                 | ** ** | **Nine-Month**         | ** **  |
|------------------------------------------------------------|------------|------------------------|-------------|
| ** **                                                 | ** ** | **Period Ended**  | ** **  |
| ** **                                                 | ** ** | **September 30,** | ** **  |
| ** **                                                 | ** ** | **2007**               | ** **  | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                     |       |                   |        |   |   |
| Cash received  from gaming winnings and concessions        |       | $                      | 103,921,639 |   | $ | 96,398,480 |   |
| Cash paid for  salaries and benefits                       |       | (21,704,398            | )           | (21,206,224 | ) |
| Cash paid to  suppliers                                    |       | (32,446,281            | )           | (31,632,771 | ) |
| Cash paid for  compact revenue sharing trust fund          |       | (1,001,250             | )           | (1,001,250 | ) |
|                                                       |       |                   |        |   |   |
| Net cash  provided by operating activities                 |       | 48,769,710             |        | 42,558,235 |   |
|                                                       |       |                   |        |   |   |
| CASH FLOWS FROM  CAPITAL AND RELATED FINANCING ACTIVITIES: |       |                   |        |   |   |
| Payments of  long-term debt                                |       | (442,184               | )           | (197,564 | ) |
| Purchases of  property and equipment                       |       | (3,294,353             | )           | (3,835,719 | ) |
| Change in  restricted cash                                 |       | (65,873                | )           | 147,188 |   |
| Interest paid                                              |       | (9,760,167             | )           | (9,770,894 | ) |
| Credit  enhancement fee                                    |       | (12,131,967            | )           | (5,629,375 | ) |
| Proceeds from  sale of assets                              |       | 33,445                 |        | 27,350 |   |
| Other                                                      |       | 298,180                |        | 95,754 |   |
|                                                       |       |                   |        |   |   |
| Net cash used in  capital and related financing activities |       | (25,362,919            | )           | (19,163,260 | ) |
|                                                       |       |                   |        |   |   |
| CASH FLOW FROM  INVESTING ACTIVITIES:                      |       |                   |        |   |   |
| Interest Income                                            |       | 1,222,251              |        | 704,428 |   |
|                                                       |       |                   |        |   |   |
| CASH FLOW FROM  NON-CAPITAL FINANCING ACTIVITIES:          |       |                   |        |   |   |
| Distributions to  Tribe                                    |       | (9,304,800             | )           | (11,080,000 | ) |
|                                                       |       |                   |        |   |   |
| CHANGE IN CASH  AND CASH EQUIVALENTS                       |       | 15,324,242             |        | 13,019,403 |   |
|                                                       |       |                   |        |   |   |
| CASH AND CASH  EQUIVALENTS, Beginning of the period        |       | 32,549,001             |        | 17,649,658 |   |
|                                                       |       |                   |        |   |   |
| CASH AND CASH  EQUIVALENTS, End of the period              |       | $                      | 47,873,243  |   | $ | 30,669,061 |   |

 

The accompanying notesare an integral part of these unaudited financial statements.

 

6

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| RECONCILIATION  OF INCOME BEFORE DISTRIBUTIONS TO TRIBE                                                           |   |       |       |       |   |
|-------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| TO NET CASH  PROVIDED BY OPERATING ACTIVITIES:                                                                    |   |       |       |       |   |
| Income before  Distributions to Tribe                                                                             |   | $          | 14,475,844 |       | $      | 13,358,885 |   |
|                                                                                                              |   |       |       |       |   |
| Adjustments to  reconcile income before distributions to the Tribe to net cash provided by  operating activities: |   |       |       |       |   |
| Depreciation                                                                                                      |   | 8,892,616  |       | 8,615,732  |   |
| Interest expense                                                                                                  |   | 15,654,376 |       | 15,665,102 |   |
| Interest income                                                                                                   |   | (1,222,251 | )          | (704,428   | )      |
| Credit  enhancement fee                                                                                           |   | 11,348,897 |       | 5,774,547  |   |
| Loss (Gain) on  sale of assets                                                                                    |   | (4,547     | )          | 126,394    |   |
| Changes in  operating assets and liabilities:                                                                     |   |       |       |       |   |
| Accounts  receivable                                                                                              |   | 19,829     |       | (292,909   | )      |
| Inventories                                                                                                       |   | (1,919     | )          | 2,559      |   |
| Prepaid expenses  and other current assets                                                                        |   | (69,433    | )          | (103,488   | )      |
| Accounts payable                                                                                                  |   | (586,184   | )          | (490,461   | )      |
| Accrued  liabilities                                                                                              |   | 262,482    |       | 606,301    |   |
| Total  adjustments                                                                                                |   | 34,293,866 |       | 29,199,349 |   |
|                                                                                                              |   |       |       |       |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                                        |   | $          | 48,769,710 |       | $      | 42,558,234 |   |
|                                                                                                              |   |       |       |       |   |
| SUPPLEMENTARY SCHEDULE OF NONCASH CAPITAL AND  RELATED FINANCING ACTIVITIES:                                      |   |       |       |
| Acquisition of  property and equipment through accounts payable construction                                      |   | $          | 4,075,839  |       | $      | — |   |

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

** (A Governmental Instrumentality of the DryCreek Rancheria Band of Pomo Indians)**

 

**NOTES TO UNAUDITED FINANCIAL STATEMENTS**

 

**1.****                             DESCRIPTIONOF BUSINESS**

 

River Rock EntertainmentAuthority (the “Authority”) is a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians (the “Tribe”), a federally recognized Indiantribe. River Rock Casino (the “Casino”) is a governmental development projectof the Authority. The Casino offers Class III gaming (as defined by the IndianGaming Regulatory Act) on tribal land located in Geyserville, California. Thelegal authority for slot machines and table games is provided by the Tribe’sgaming compact with the State of California (the “Compact”), which was enteredinto in September 1999 and became effective upon approval by the Secretary ofInterior on May 5, 2000.  The Compact expires on December 31, 2020.

 

The Authority was formedas an unincorporated instrumentality of the Tribe on November 5, 2003 pursuantto a reorganization whereby the Tribe’s gaming business became owned andoperated by the Authority. This reorganization was accounted for as areorganization of entities under common control. Accordingly, after thereorganization, the assets and liabilities of the Casino’s operating propertywere presented by the Authority on a historical-cost basis.

 

The Authority operates asa separate, wholly owned operating unit of the Tribe and is not a separatelegal entity. These financial statements reflect the financial position andactivity of only the Authority and do not purport to represent the financialposition and activity of the Tribe.

 

**2.****                             SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying unaudited condensed financialstatements have been prepared from the records of the Authority without auditand, in the opinion of management, include all adjustments that are normal andrecurring in nature necessary to present fairly the Authority’s financialposition at September 30, 2007, the interim results of operations for the threeand nine month periods ended September 30, 2007 and 2006, and changes in cashflows for the nine month periods ended September 30, 2007 and 2006. The balancesheet at December 31, 2006, presented herein, has been derived from theaudited financial statements of the Authority for the year then endedDecember 31, 2006.

 

Accounting policies followed by the Authority aredescribed in Note 2 to the audited financial statements for the fiscalyear ended December 31, 2006. Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen condensed or omitted for purposes of presenting the interim condensedfinancial statements. Such statements should be read in conjunction with theaudited financial statements, including notes thereto, for the year endedDecember 31, 2006.

 

*AccountingStandards*—The Authority prepares its financial statements inaccordance with accounting principles generally accepted in the United Statesof America (“generally accepted accounting principles”). The financialstatements presented are prepared on the accrual basis of accounting from theaccounts and financial transactions of the Authority. Generally acceptedaccounting principles require the Authority to apply all applicablepronouncements of the Governmental Accounting Standards Board (“GASB”). TheAuthority 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, unlessthose pronouncements conflict with or contradict GASB pronouncements.  TheAuthority is given the option whether to apply all FASB Statements andInterpretations issued after November 30, 1989, except for those that conflictwith or contradict GASB pronouncements. Accordingly, the Authority has electedto implement non-conflicting FASB Statements and Interpretations issued afterNovember 30, 1989.

 

There are differencesbetween financial statements prepared in accordance with GASB pronouncementsand those prepared in accordance with FASB pronouncements. The statements ofrevenues, expenses and changes in fund deficit are a combined statement underGASB pronouncements. FASB pronouncements allow a statement of income oroperations and a separate statement of owners’ or shareholders’ (deficit)equity, which is where distributions to owners would be presented under FASBpronouncements.  The amount shown as income before distributions to Tribewould not be different if the Authority followed all FASB pronouncements todetermine net income and would be the most comparable amount to net incomecomputed under FASB pronouncements. The Authority is a separate fund of theTribe, a governmental entity, and as such there is no owners’ or shareholders’(deficit) equity as traditionally represented under FASB pronouncements. The most comparable measure of owners’ (deficit) equity is presented on theAuthority’s balance sheet as fund (deficit) equity.

 

8

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*NewAccounting Pronouncements*—In September 2006, the FASB issuedSFAS No. 157, *Fair Value Measurements*. SFAS No.157 defines fair value, establishes a framework for measuring fair value inaccordance with generally accepted accounting principles, and expandsdisclosures about fair value measurements. The provisions of SFAS No. 157 areeffective for the fiscal year beginning January 1, 2008. The future impact ofthe adoption of SFAS No. 157 by the Authority has not yet been evaluated.

 

In February 2007, theFASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities*, including an amendmentof FASB Statement No. 115. SFAS No. 159 permits an entity to measure certainfinancial assets and financial liabilities at fair value and offers anirrevocable option to carry the vast majority of financial assets andliabilities at fair value, with changes in fair value recorded in earnings. Theprovisions of SFAS No. 159 are effective for the fiscal year beginning January1, 2008. The future impact of the adoption of SFAS No. 159 by the Authority hasnot yet been evaluated.

 

*Use ofEstimates*—The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from these estimates.

 

*Cashand Cash Equivalents*—The Authority considers all highlyliquid investments with a maturity of three months or less at date of purchaseas cash equivalents. The carrying amount of cash and cash equivalentsapproximates its fair value. Cash and cash equivalents include cash on hand,cash on deposit with banks and highly liquid investments.  The FederalDeposit Insurance Corporation (“FDIC”) has insured $100,000 of the cash ondeposit with the banks. The Authority believes that there is little risk ofloss regarding the uninsured amounts of cash and cash equivalents on depositwith the banks.

 

*Inventories*—Inventories,consisting principally of gaming supplies and concession items, are stated atthe lower of cost (first-in, first-out) or market.

 

*RestrictedCash*—Restricted cash consists of estimated constructionexpenses for three parking structures, related infrastructure improvements andconstruction contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds necessary to develop anapproximately 18-acre parcel of land adjacent to the Tribe’s reservation. Thesefunds are held in escrow accounts which are restricted for authorizedconstruction disbursements. These escrow accounts are invested in CD’s, whichgenerate interest on a monthly basis. The FDIC has insured $100,000 of thisbalance. The Authority believes that there is little risk of loss regarding theuninsured amounts of restricted cash held in the escrow account. Restrictedcash was $7,314,126 and $7,248,253 at September 30, 2007 and December 31, 2006,respectively.  As of September 30, 2007, restricted cash includes amountsavailable for construction of $2,743,767 and land development funds of$4,570,359.

 

*Depositsand Other Assets*—As of September 30, 2007 and December 31,2006, deposits and other assets include $4,174,261 and $4,940,532 inunamortized bond discount, legal fees and other issuance costs related to theissuance of the Notes; $12,046 and $213,218 of performance deposits and $15,900and $112,908 of rental deposits.  Deferred loan costs are amortized usingthe effective interest method to interest expense over the term of the relatedfinancial arrangement.

 

*AccruedLiabilities*—Accrued liabilities consist of accrued interest,accrued payroll and other accrued liabilities.

 

 *AccruedProgressive Slot Jackpots*—Accrued progressive slot jackpots consistof 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.

 

*AccruedSlot Players Club*—In accordance with Emerging Issues TaskForce Issue No. 00-22*, Accounting for “Points”and Certain other**Time-based or Volume-basedSales**Incentive Offers and Offers for FreeProducts or Services to be Delivered in the Future*, the Authorityhas recorded a liability related to prizes and cash incentives earned by themembers of the Authority’s Players Club and have adjusted the liability for theestimated future breakage. The Authority has recorded the cost of the estimatedredemption of the liability related to prizes as an operating expense and theestimated redemption of the liability related to cash as promotional allowancein the accompanying statements of revenues, expenses and changes in funddeficit.

 

*CasinoRevenues*—In accordance with industry practice, the Authorityrecognizes as casino revenue the net win from gaming activities, which is thedifference between gaming wins and losses. Casino revenues are net of accrualsfor anticipated payouts of progressive slot jackpots.

 

*Food,Beverage and Retail*—The Authority recognizes as food,beverage and retail revenues, the proceeds from its food, beverage and giftshop sales. The Authority continues to distribute beverages without cost in thegaming area for playing guests.

 

*OtherRevenues*—Other revenues are comprised of commissions on ATMand other miscellaneous items.

 

*PromotionalAllowances*—The retail value of food and beverages provided tocustomers without charge or at a discount is included in Food, beverage andretail revenues and then deducted as promotional allowances. Such amounts thatare included in Food, 

 

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beverage and retailrevenues for the three months ended September 30, 2007 and 2006 were $744,844and $657,381, respectively. The amounts included in Food, beverage and retailrevenues for the nine months ended September 30, 2007 and 2006 were $1,921,226and $1,656,388, respectively. The amounts included in casino revenues are alsodeducted as promotional allowances.  The distribution of electroniccoupons (e-coupons) to customers is included in Casino revenues and is alsodeducted as promotional allowances.  The total e-coupons for the threemonths ended September 30, 2007 and 2006 were $2,465,560 and $2,829,145,respectively. The total e-coupons for the nine months ended September 30, 2007and 2006 were $7,048,971 and $6,570,564, respectively. The redemption of cashincentives earned by the Players Club members is also recorded as promotionalallowances. The cost of cash incentives for the three months ended September30, 2007 and 2006 were $460,278 and $467,659, respectively, and for the ninemonths ended September 30, 2007 and 2006 were $1,333,874 and $1,193,370,respectively.

 

*Foodand Beverage Costs*—Food and beverage costs included costsassociated with food and beverage, excluding amounts reclassified as Casinoexpenses.  The estimated costs of providing complimentary services arereclassified from Food and beverage to Casino expenses.  The estimatedcosts of such services were $1,432,578 and $823,724 for the three months endedSeptember 30, 2007 and 2006, respectively.  The estimated costs of suchservices were $3,834,519 and $2,853,168 for the nine months ended September 30,2007 and 2006, respectively.

 

*AdvertisingCosts*—Advertising costs are expensed the first timeadvertising takes place. Advertising costs included in Selling, general andadministrative expenses were $1,338,520 and $921,453 for the three months endedSeptember 30, 2007 and 2006, respectively. Advertising costs for the ninemonths ended September 30, 2007 and 2006 were $4,982,457 and $4,344,866,respectively.

 

*GamingCommission & Surveillance Expenses*—The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission expenses are reported as Gaming Commission andsurveillance expense on the Statements of Revenues, Expenses and Changes inFund Deficit. Gaming Commission and surveillance expenses for the three monthsended September 30, 2007 and 2006 were $747,961 and $672,799, respectively. GamingCommission and surveillance expenses for the nine months ended September 30,2007 and 2006 were $2,243,759 and $2,121,531, respectively.

 

*IncomeTaxes*—As a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians, a federally recognized Indian tribe, theAuthority is a non-taxable entity for purposes of federal and state incometaxes.

 

*Distributionsto Tribe*—Distributions to Tribe are made up of permittedpayments.  They are included in the Statements of Revenues, Expenses andChanges in Fund Deficit as distributions to Tribe allowed pursuant to theIndenture for the Notes.  Monthly permitted payments increased by $20,800from $1,020,000 to $1,040,800 in April 2007.  Total distributions to theTribe for the three months ended September 30, 2007 and 2006 were $3,122,400and $5,020,000, respectively. Total distributions to the Tribe for the ninemonths ended September 30, 2007 and 2006 were $9,304,800 and $11,080,000,respectively.

 

*Reclassification* – On the statement of cash flows for the nine-monthperiod ended September 30, 2006, cash received from gaming winnings andconcessions of $702,428 has been reclassified as cash flows from investingactivities – interest income, to conform to the current period presentation andthe presentation of such amounts in prior quarters, as restated. The statementsof cash flows for certain prior periods in the year ended December 31, 2006were previously restated to reflect interest income as cash flows frominvesting activities – interest income, rather than included as part of cashreceived from gaming winnings and concessions, as such amounts should have beenincluded in investing activities. To correct this error, the reclassificationdescribed above has been made on the statement of cash flows for the nine-monthperiod ended September 30, 2006.

 

**3.****                             CERTAINRISKS AND UNCERTAINTIES**

 

The Authority’soperations are dependent on the continued licensing and qualification of theAuthority by the Tribal Gaming Commission. Such licensing and qualification arereviewed periodically by the Tribal Gaming Commission and regulatory agenciesof the State of California. The Authority believes that no events orcircumstances have arisen that would have an adverse effect on the Casino’sability to continue its licensing and qualification by the Tribal GamingCommission or regulatory agencies of the State of California to operate theAuthority.

 

**4.****                             RELATEDPARTIES**

 

The Authority has beenconstructed on federal land beneficially owned by the Tribe. The Authority doesnot pay the Tribe for the use of the land.

 

Commencing January 1,2004, the Authority paid for various expenses for the following departmentsoperated by the Tribe: Tribal Gaming Commission, surveillance, plantoperations, human resources, purchasing and warehousing.  On January 1,2005, the Authority operated the Purchasing and Warehouse departments, andcontinued to pay expenses for the other departments operated by theTribe.  These departmental expenses include but are not limited to payrolland related expenses, legal and other operational expenses.  Underdirection of the River Rock Entertainment Authority Board and the TribalCouncil, the Tribe assumed responsibility of the Purchasing and Warehousedepartments on May 8, 2006.  The expenses associated with the Purchasingand Warehouse 

 

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departments incurred bythe Tribe are included in these amounts and will be reimbursed to the Tribe bythe Authority as with other Tribal departments.

 

Total expenses for thesedepartments, excluding Tribal Gaming Commission and surveillance, were $1,387,313and $830,437 for the three months ended September 30, 2007 and 2006,respectively. They are recorded as a component of Selling, general andadministrative expenses. Total expenses for these departments, excluding TribalGaming Commission and surveillance,  were$2,996,146 and $2,339,442 for the nine months ended September 30, 2007 and2006, respectively.

 

The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission and surveillance expenses are recorded in GamingCommission and surveillance expenses on the Statements of Revenues, Expensesand Changes in Fund Deficit.  Gaming Commission and surveillance expensesfor the three months ended September 30, 2007 and 2006 were $747,961 and $672,799,respectively. Gaming commission and surveillance expenses for the nine monthsended September 30, 2007 and 2006 were $2,243,759 and $2,121,531, respectively.

 

The Tribe has incurred costson behalf of the Authority that relate to the master planning of the proposedresort and Tribal infrastructure that benefit the Authority in the amount of $10.2million, of which the Authority has agreed to reimburse $4.6 million. Prior tothe end of the quarter the Authority reimbursed the Tribe $0.5 million and subsequentto the end of the quarter the Authority reimbursed the Tribe another $4.0 million(see Note 13).

 

**5.****                             DEVELOPMENTAND LOAN AGREEMENT**

 

The Tribe entered into aDevelopment and Loan Agreement with Dry Creek Casino, LLC (“DCC”) onAugust 26, 2001, which has been amended from time to time (as amended, the“Development Agreement”). In consideration of DCC providing credit enhancementand other services under the Development Agreement, the Tribe was obligated topay DCC a Credit Enhancement Fee. The Credit Enhancement Fee was defined as 20%of the Authority’s net income before distributions to the Tribe plusdepreciation and amortization plus annual interest on $25.0 million principalamount of the Notes less revenues from sales of alcoholic beverages. The CreditEnhancement Fee was required to be paid monthly for a period of five yearscommencing on June 1, 2003.

 

The Authorityhad the right to terminate the Development Agreement by exercising a buy-outoption (the “Buy-Out Option”) and did so on January 31, 2007. Subsequently on March 2,2007, the Authority and DCC signed a mutual agreement to fix the amounts due toDCC in respect of such exercise to the sum of $11,350,000 less the amount paidafter the Authority exercised the buy-out option of $737,491. The net paymentof $10,612,509 was made in March 2007 and expensed in full in the three monthsended March 31, 2007. Credit Enhancement Fee expense was $0 and$2,312,920 for the three months ended September 30, 2007 and 2006, respectively.Credit Enhancement Fee expense was $11,348,897 and $5,774,547 for the ninemonths ended September 30, 2007 and 2006, respectively.

 

**6.****                             CASHAND CASH EQUIVALENTS AND RESTRICTED CASH**

 

Cash and cash equivalents and restricted cash consisted of thefollowing as of September 30, 2007 and December 31, 2006:

 
| ** **                                           | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                                                 |       |                             |       |                            |       |
| Operating  Accounts                                  |       | $                                | 11,804,666 |                            | $          | 5,573,333 |   |
| Money Market  Accounts                               |       | 10,523                           |       | 31,967                          |       |
| Short Term  Investments                              |       | 31,146,761                       |       | 22,304,924                      |       |
| Cash on hand                                         |       | 4,912,773                        |       | 4,638,777                       |       |
|                                                 |       |                             |       |                            |       |
| Cash and cash  equivalents                           |       | 47,874,723                       |       | 32,549,001                      |       |
| Restricted cash                                      |       | 7,314,126                        |       | 7,248,253                       |       |
|                                                 |       |                             |       |                            |       |
| Total cash and  cash equivalents and restricted cash |       | $                                | 55,188,849 |                            | $          | 39,797,254 |   |

 

The Authority’s cash inbanks and cash equivalents (the “Investments”) are categorized by level ofcredit risk assumed by the Authority. Category 1 includes investments thatare insured or registered or for which the investments are held by theAuthority or its agent in the Authority’s name. Category 2 includesuninsured and unregistered investments for which the investments are held bythe counterparty’s trust department or agent in the Authority’s name.Category 3 includes uninsured and unregistered investments for which theinvestments are held by the counterparty’s agent but not in the Authority’sname. At September 30, 2007, the Authority had $200,000 in Category 1investments, $11,804,666 cash in banks, $10,523 in money market accounts and$31,146,761 in short term investments, which are Category 2 investments, and$7,314,126 restricted cash in bank over the FDIC insurance limits, which areCategory 3 investments.  Amounts in Category 2 and Category 3investments are invested in short term, highly liquid cash equivalents andinvestments.  As of September 30, 2007 and December 31, 2006, theseamounts are composed of money market accounts in the 

 

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amount of $10,523 and$31,967, respectively, and A1/P1 bonds in the amount of $31,146,761 and$22,304,924, respectively.

 

**7.****                             PROPERTYAND EQUIPMENT**

 

Property and equipment atDecember 31, 2006 and September 30, 2007 consisted of the following:

 
| ** **                         | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**           | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|------------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **September 30,** | ** ** |
| ** **                         | ** ** | **2006**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2007**               | ** ** |
|                               |       |                  |        |          |       |             |       |                   |       |
| Buildings and improvements         |       | $                     | 129,245,481 |          | $          | 240,691          |       | $                      | —     |   | $ | 129,486,172 |   |
| Furniture,  fixtures and equipment |       | 27,110,280            |        | 2,000,986     |       | (65,213          | )          | 29,046,053             |       |
| Less accumulated  depreciation     |       | (32,696,126           | )           | (8,892,616    | )          | 36,315           |       | (41,552,427            | )          |
|                               |       |                  |        |          |       |             |       |                   |       |
|                               |       | 123,659,635           |        | (6,650,939    | )          | (28,898          | )          | 116,979,798            |       |
| Construction in progress           |       | 4,385,195             |        | 5,125,374     |       | —           |       | 9,510,760              |       |
|                               |       |                  |        |          |       |             |       |                   |       |
| Property and equipment—net    |       | $                     | 128,044,830 |          | $          | (1,525,374       | )          | $                      | (28,898    | ) | $ | 126,490,558 |   |

 

Construction in progressconsists of payments or amounts owed to various vendors related to theAuthority’s master plan development and land improvements. Substantially all ofthe Authority’s personal property is pledged as collateral to secure itsdebt.  At September 30, 2007 and 2006, the Authority had $415,640 and$256,840 in capital lease assets with related accumulated depreciation of$182,998 and $51,685, respectively.

 

**8.****                             ACCRUEDLIABILITIES**

 

Accrued liabilitiesconsisted of the following as of September 30, 2007 and December 31, 2006:

 
| ** **                                  | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                        |       |                         |       |                        |       |
| Accrued in-house  progressive slot jackpots |       | $                            | 919,574    |                        | $          | 779,409 |   |
| Accrued payroll  and related benefits       |       | 2,167,021                    |       | 2,005,731                   |       |
| Accrued interest                            |       | 8,125,000                    |       | 3,250,000                   |       |
| Accrued credit  enhancement fees            |       | —                       |       | 783,070                     |       |
| Accrued other  expenses                     |       | 236,986                      |       | 275,958                     |       |
| Total accrued  liabilities                  |       | $                            | 11,448,581 |                        | $          | 7,094,168 |   |

 

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**9.****                             LONG-TERMDEBT**

 

Long-term debt consistedof the following as of September 30, 2007 and December 31, 2006:

 
| ** **                                                                                       | ** ** | **September 30,  2007** | ** **  | **December 31,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
|                                                                                             |       |                         |        |                        |       |
| 9-3/4% Senior  Notes, net of unamortized issue discount of $1,377,101 and $1,630,039. Due  2011. |       | $                            | 198,622,899 |                        | $          | 198,369,961 |   |
| Vehicles Notes                                                                                   |       | 17,839                       |        | 25,439                      |       |
| Capital leases  obligations                                                                      |       | 312,713                      |        | 747,288                     |       |
|                                                                                             |       |                         |        |                        |       |
| Total Long-Term  Debt                                                                            |       | 198,953,451                  |        | 199,142,688                 |       |
| Less: current  portion                                                                           |       | (271,907                     | )           | (642,413                    | )          |
|                                                                                             |       |                         |        |                        |       |
| Total long-term  debt - net of current maturities                                                |       | $                            | 198,681,544 |                        | $          | 198,500,275 |   |

 

On November 7, 2003, theAuthority issued the Notes. The proceeds were utilized to fund an expansionproject, which included three parking structures, related infrastructureimprovements, repayment of various debt and advances and fund payment ofvarious accruals and payables, as well as to increase cash on hand. Theproceeds were also utilized to fund a land purchase and settlelitigation.  The Notes are collateralized by a first priority pledge ofthe Authority’s revenue and substantially all of the existing and futuretangible and intangible personal property. Before November 1, 2007, theAuthority may redeem the Notes, in whole or in part, at a redemption priceequal to 100% of their principal amount plus a make-whole premium and accrued andunpaid interest. On or after November 1, 2007, the Authority may redeem theNotes, in whole or in part, at a redemption price that is at a premium to theprincipal amount of the Notes (expressed as percentages of principal amount),plus accrued and unpaid interest.

 

**10.****                      LEASES**

 

The Authority leases aSprung structure, which is accounted for as an operating lease. Such leaseexpense was $36,230 and $108,690 for the three months ended September 30, 2007and 2006, respectively. This lease expense was $253,610 and $346,600 for thenine months ended September 30, 2007 and 2006, respectively.

 

On October 1, 2003,the Tribe entered into a five year operating lease agreement for office andwarehouse space to replace existing facilities.  Prior to the Tribe takingcontrol over the Purchasing and Warehouse departments, the Authority reimbursedthe Tribe for lease fees allocated based on the square footage utilized. Since May 2006, when the Tribe assumed responsibility for the Purchasing andWarehouse departments, the Authority no longer reimburses the Tribe lease feesas a separate transaction.  The reimbursement is made through thereimbursement of Tribal department’s monthly allotment and quarterlyreconciliations. The Authority reimbursed the Tribe for such lease fees in theamount of $0 for the three months ended September 30, 2007 and 2006, and $0 and$256,681 for the nine months ended September 30, 2007 and 2006, respectively.

 

•                                               OnSeptember 1, 2004, the Authority entered into a five year capital lease topurchase two licenses to operate three-card poker tables in the amount of$120,000.  The capital lease is at 7.20% interest with monthly lease feesof $2,390 and a $1 buyout at the end of the lease term.

•                                               OnJuly 31, 2005, the Authority entered into a thirty six month capital lease topurchase 13 Multi-deck shufflers in the amount of $88,307.  The capitallease is at 4.80% interest with monthly lease fees of $2,640 and a $1 buyout atthe end of the lease term.

•                                               OnJuly 31, 2005, the Authority entered into a thirty six month capital lease topurchase 6 King shufflers in the amount of $61,422.  The capital lease isat 7.09% interest with monthly lease fees of $1,899 and a $1 buyout at the endof the lease term.

•                                               OnJuly 31, 2005, the Authority entered into a thirty six month capital lease topurchase 4 Ace shufflers in the amount of $45,283.  The capital lease isat 7.09% interest with monthly lease fees of $1,400 and a $1 buyout at the endof the lease term.

•                                               OnApril 27, 2006, the Authority entered into a thirty six month capital lease topurchase 5 Deckmate shufflers in the amount of $61,827.  The capital leaseis at 7.92% interest with monthly lease fees of $2,387 and a $1 buyout at theend of the lease term.

•                                               OnJuly 21, 2006, the Authority entered into a thirty six month capital lease topurchase 2 Pai Gow Poker Tables in the amount of $38,800.  The capitallease is at 4.26% interest with monthly lease fees of $1,150. Upon full payment

of the sale amount, titleto the product shall be transferred to the Authority.

 

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Lease expenses were$47,093 and $119,184 for the three months ended September 30, 2007 and 2006,respectively, and $306,949 and $390,526 for the nine months ended September 30,2007 and 2006, respectively. Lease expenses are included in general andadministrative expenses in the accompanying statements of revenues, expensesand changes in fund deficit. Expected remaining payments under operating leasesare $60,753, $242,183, $242,017 and $213,713 for the years ending December 31,2007, 2008, 2009 and 2010, respectively. Expected remaining payments undercapital leases are $31,682, $101,918 and $34,183 for the years ending December31, 2007, 2008 and 2009, respectively.

 

**11.****             LEGAL MATTERS**

 

*California Department of Alcoholic Beverage Control*

 

In September 2004, theDepartment of Alcoholic Beverage Control (“ABC”) denied the Tribe’s applicationfor a liquor license based on a building code interpretation by a state officerwho was later determined to lack jurisdiction to make a code determination, anddid so without consulting the Tribe’s building code official havingjurisdiction. The Tribe appealed and, in May 2005, an Administrative Law Judgeruled for the Tribe and recommended that the ABC reverse itself and approve thelicense, which the ABC did as of October 2005, pending a hearing on theprotests. The ABC has received approximately 65 protests to issuance of thelicense from various citizens and local government officials. The ABC hadscheduled a hearing on those protests in November 2007, which wascontinued by stipulation of the parties because the Tribe and variousprotestants are engaged in settlement discussions with respect to certainprotest issues. The Tribe intends to vigorously defend its application andbelieves the protests are without merit.

 

We are involved in otherlitigation and disputes from time to time in the ordinary course of businesswith vendors and patrons. The Authority believes that the aggregate liability,if any, arising from such litigation or disputes will not have a materialadverse effect on its results of operations, financial condition or cash flows.

 

**12.****             COMPACT REVENUESHARING TRUST FUND**

 

The Compact requires theAuthority to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $333,750 for the threemonths ended September 30, 2007 and 2006, respectively, and $1,001,250 for thenine months ended September 30, 2007 and 2006, respectively.

 

**13.****             COMMITMENTS ANDCONTINGENCIES**

 

The Authority is anunincorporated instrumentality of the Tribe formed pursuant to a recentlyadopted law of the Tribe. While the Authority is not a separate corporation orother legal entity distinct from the Tribe, this tribal law allows theAuthority to own and operate its business. This tribal law also provides thatthe Authority’s obligations and other liabilities are not those of the Tribeand that the obligations and liabilities of the Tribe are not those of theAuthority. This law is untested and generally has no direct counterpart inother areas of the law. If this law should prove to be ineffective at limitingthe Authority’s liability, the Authority’s business and assets could becomesubject to claims asserted against the Tribe or its assets. Similarly, theAuthority would be liable for such claims if the Tribe waived its sovereignimmunity to an extent that allowed enforcement of such claims against theAuthority’s business or assets.

 

On October 5, 2007 andOctober 9, 2007, the Authority reimbursed the Tribe in the amounts of $0.5million and $3.5 million, respectively, for costs incurred by the Tribe onbehalf of the Authority that related to the master planning of the proposedresort and Tribal infrastructure that benefits the Authority. The Tribe hasincurred an additional $5.6 million in costs relating to the master planning ofthe proposed resort. While the Tribe has not made any request to the Authorityfor reimbursement of such amount, it may request reimbursement from theAuthority in the future.  While theAuthority has no obligation to pay such amounts when requested and any suchreimbursement would need to be approved by management and the Board ofDirectors of the Authority, there is a possibility that such request forreimbursement may be made by the Tribe. Prior to making any reimbursementpayment, the Authority will consider various factors, including, but notlimited to, whether the costs incurred were actually related to the masterplanning, 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 for the Authority's senior notes.

 

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

 

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with the accompanying financial statements and relatednotes included in Item 1 of this report.

 

**Overview**

 

We are an unincorporatedgovernmental instrumentality of the Tribe that owns and operates the River RockCasino. We offer Class III slot and video poker gaming machines, house bankedtable games (including Blackjack, Three card poker, Mini-baccarat and Pai Gowpoker), Poker, featuring Texas Hold’em, comprehensive food and non-alcoholicbeverage offerings and goods for sale in our gift shop.

 

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**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 accounting principles generallyaccepted in the United States of America, requires that we make estimates andjudgments that affect the reported amounts of assets and liabilities, revenuesand expenses, and related disclosures of contingent assets and liabilities. Onan on-going basis, we evaluate those estimates, including those related toasset impairment, accruals for our promotional slot club, compensation andrelated benefits, revenue recognition, allowance for doubtful accounts,contingencies and litigation. These estimates are based on the information thatis currently available to us and on various other assumptions that we believeto be reasonable under the circumstances. Actual results could vary from thoseestimates under different assumptions or conditions. We believe that thefollowing critical accounting policies affect significant judgments andestimates used in the preparation of our financial statements:

 

• CasinoRevenues – In accordance with industry practice, casino revenue is recognizedas the net win from gaming activities, which is the difference between gamingwins and losses. Casino revenues are net of accruals for anticipated payouts ofprogressive slot jackpots.

 

• Property andEquipment – Property and equipment 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  |

 

• We evaluateour property and equipment for impairment in accordance with the FinancialAccounting Standards Board’s Statement of Financial Accounting Standards No.144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*. When events or circumstances indicate that anasset should be reviewed for impairment, we compare the undiscounted cash flowderived from the asset or asset group to the net carrying value. If an impairmentis indicated, the impairment loss is measured by the amount in which thecarrying value of the asset or asset group exceeds its fair value. Fair valueis measured by comparable sales, solicited offers or discounted cash flowmodels.

 

• AccruedProgressive Slot Jackpots – Accrued progressive slot jackpots consist ofestimates for prizes relating to various games that have accumulated jackpots.We have recorded the cost of these anticipated payouts as a reduction of casinorevenues and the cost is included as a component of accrued liabilities.

 

•Contingencies – We assess our exposure to loss contingencies, including legalmatters, and provide for an exposure if it is judged to be probable andestimable. If the actual loss from a contingency differs from management’sestimate, operating results could be materially impacted. As of September 30,2007, 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.

 

Accounting Standards –There are differences between financial statements prepared in accordance withGovernmental Accounting Standards Board (“GASB”) pronouncements and thoseprepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statements of revenues, expenses and changes in funddeficit are a combined statement under GASB pronouncements. FASB pronouncementsallow a statement of income or operations and a statement of owners’ orshareholders’ (deficit) equity, which is where distributions to owners would bepresented under FASB pronouncements. The amount shown on our statements ofrevenues, expenses and changes in fund deficit as income before distributionsto the Tribe, would not be different if we followed all FASB pronouncements todetermine net income, and would be the most comparable amount to net incomecomputed under FASB pronouncements. We are an unincorporated instrumentalitycreated by tribal law and accounted for as a separate fund of the Tribe. Assuch, there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements. The most comparable measure of owners’(deficit) equity presented on our balance sheet would be Fund Deficit.

 

**Results of Operations**

 

**Comparison of the three months endedSeptember 30, 2007 and 2006**

 

*Netrevenues*. Net revenues for the three months ended September30, 2007 increased by $1.4 million to $35.0 million, from $33.6 million, forthe three months ended September 30, 2006. Our net revenues for the threemonths ended September 30, 2007, compared to the third quarter of 2006, werepositively impacted by the return of normal access to the casino following thereopening of the Highway 128 Bridge in Geyserville, which was closed for thefirst 8 months of 2006 due to flood damage. We also saw positive impacts to thevolume and length of play from upgrades to our slot machine mix. Approximately96.1% of our net revenues, net of promotional allowances, were from our gamingactivities in the third quarter 2007. We generated $29.6 million, or 84.6% ofour 

 

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net revenues, from gamingdevices, net of promotional allowances of $2.9 million, and $4.0 million, or11.4% of our net revenues from table games, net of promotional allowance of$48,395, for the three months ended September 30, 2007, compared to $28.8million from gaming devices, or 86.8% of our net revenues, net of promotionalallowances of $3.2 million, and $3.6 million from table games, net ofrespective promotional allowances of $0.1 million, or 10.8% of our netrevenues, for the three months ended September 30, 2006. Our win per slotmachine per day was $205 in the third quarter 2007, which increased by $9 from$196, in the third quarter 2006.  The change in win per slot machine perday has increased due to the removal of 30 slot machines from the floor as wellas upgrades to our slot machine mix.

 

We generated $1.2million, net of promotional allowance of $0.8 million, in food, beverage andretail sales for the three months ended September 30, 2007, and $1.0 million,net of promotional allowances of $0.7 million, in food, beverage and retailsales for the three months ended September 30, 2006.  The retail value ofour food and beverage provided to customers without charge is included in grossrevenues and then deducted as promotional allowances.

 

*Promotionalallowances*. Promotional allowances for the three months endedSeptember 30, 2007 were $3.7 million, or 10.5% of net revenues, compared to$4.0 million, or 11.8% of net revenues, for the third quarter 2006. Theincrease in promotional allowances is mainly attributable to the expanded useof e-coupons on our slot floor from bus patrons.  E-coupons cannot becashed out and requires the patron to use their Players Club card.

 

*Operatingexpenses*. Operating expenses for the three months endedSeptember 30, 2007 were $21.6 million, or 61.7% of net revenues, compared to$22.5 million, or 67.0% of net revenues, for the third quarter 2006. Thedecrease in operating expenses is primarily due to no longer having anobligation to pay the credit enhancement fee. Total operating expensesdecreased from this change by $0.9 million, for the three months endedSeptember 30, 2007, and have decreased by 5.3% as a percentage of net revenues.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities. Casinoexpense for the three months ended September 30, 2007 increased to $5.3million, or 15.6% of Casino revenues, net of promotional allowances, from $5.2million, or 15.8% of Casino revenues, for the third quarter 2006. Casino expenseas a percentage of Casino revenues, net of promotional allowances, decreased by0.2% as increases in revenues were greater than the increase in costs.

 

Food, beverage and retailexpense for the three months ended September 30, 2007 was $1.3 million, or103.9% of food, beverage and retail revenue, net of promotional allowances,compared to $1.6 million or 157.2% of food, beverage and retail revenue, net ofpromotional allowances for the third quarter 2006. Our food, beverage andretail expense ratio is significantly higher than the industry average becausewe have utilized these amenities as an opportunity to build customer loyaltyrather than as a source of income. Food, beverage and retail expenses as apercentage of food, beverage and retail revenues, net of promotionalallowances, for the three months ended September 30, 2007, has decreased by53.3% from 157.2%, to 103.9%, due to the $0.3 million increase in grossrevenues driven by expanded buffet hours and a $0.3 million decrease in food,beverage and retail expenses after the reallocation of the estimated costs ofcomplimentary beverages are reallocated to Casino expenses.

 

Selling, general andadministrative expense for the three months ended September 30, 2007 increasedby $1.5 million to $11.0 million, or 31.3% of net revenues, from $9.5 million,or 28.4% of net revenues, for the third quarter 2006. The increase in selling,general and administrative expense is attributable to an increase inadvertising costs and a planned change in advertising companies that resultedin duplicative costs.

 

Depreciation expense forthree months ended September 30, 2007 and 2006 was $3.0 million and $2.9million, respectively. Depreciation expense was computed using thestraight-line method over the useful life of property, plant and equipment.

 

The credit enhancementfee was $0 for three months ended September 30, 2007, compared to $2.3 million,or 6.9% of net revenues, for the third quarter 2006. The decrease is due to thetermination of the Development Agreement with Dry Creek Casino, LLC (“DCC”) byexercising the buy-out option on January 31, 2007. On March 2, 2007, we signed an agreement with DCC tofix the amounts due DCC in respect of such exercise to the sum of $11.4 millionless the amount paid after we exercised the buy-out option of $0.7 million. Thenet payment of $10.6 million was made in March 2007 and expensed in full in thefirst quarter 2007.

 

Gaming Commission andsurveillance expense for each of the three months ended September 30, 2007 and2006 was $0.7 million.

 

The Compact requires usto pay a quarterly fee to the State of California’s revenue sharing trust fundbased on the number of licensed gaming devices operated by the Tribe. Revenuesharing trust fund fees assessed were $0.3 million for each of the three monthsended September 30, 2007 and 2006, respectively.

 

*Incomefrom operations.* Income from operations for the three monthsended September 30, 2007 was $13.4 million, or 38.3% of net revenues, comparedto $11.0 million, or 33.0% of net revenues, for the third quarter 2006. The increase in income from operations is attributable to increased gaming andconcession revenues as well as the reduction of quarterly expenses attributableto the credit enhancement fee buy-out.

 

*Otherexpense, net.* Other expense, net for the three months endedSeptember 30, 2007 decreased to $4.7 million, or 13.5% of net 

 

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revenues, from $5.0 million, or 14.9% of net revenues, for the thirdquarter 2006.  Other expense, net included $5.2 million of interestexpense for the three months ended September 30, 2007 and 2006. No interestcosts were capitalized in 2007 or 2006.

 

*Incomebefore distributions to the Tribe*. Income beforedistributions to the Tribe for the three months ended September 30, 2007increased by $2.7 million to $8.7 million, or 24.9% of net revenues, from $6.0million, or 18.1% of net revenues, in the third quarter 2006.

 

*Distributionsto the Tribe*. Distributions to the Tribe for the three monthsended September 30, 2007 decreased by $1.9 million to $3.1 million, compared to$5.0 million, for the three months ended September 30, 2006. The decrease overprior year is attributable to the final reimbursements of construction costsincurred by the Tribe before the formation of the Authority. During the thirdquarter ended September 30, 2006, we reimbursed the Tribe $1.9 million,representing the remaining balance of all construction costs incurred by theTribe on behalf of the Authority.

 

**Comparison of the nine months endedSeptember 30, 2007 and 2006**

 

*Netrevenues*. Net revenues for the nine months ended September30, 2007 increased by $7.7 million to $103.9 million, from $96.2 million, forthe nine months ended September 30, 2006. Our net revenues for the nine monthsended September 30, 2007 were positively impacted by the Highway 128 Bridgereopening in Geyserville, which was closed for the first 8 months of 2006 dueto flood damage. We also saw positive impacts to slot revenues from increasedvolume and length of play from our slot machine mix upgrade. Approximately96.1% of our net revenues, net of promotional allowances, were from our gamingactivities in the first nine months of 2007. We generated $88.4 million, or85.1% of our net revenues, from gaming devices, net of promotional allowancesof $8.2 million, and $11.4 million, or 11.0% of our net revenues, from tablegames, net of promotional allowance of $0.2 million, for the nine months endedSeptember 30, 2007, compared to $82.1 million from gaming devices, or 92.9% ofour net revenues, net of promotional allowances of $7.6 million, and $10.7million from table games, net of promotional allowances of $0.2 million, or11.3% of our net revenues, for the nine months ended September 30, 2006. Ourwin per slot machine per day was $206 in the first nine months of 2007, whichincreased by $19 from $187, in the first nine months of 2006.  Theincrease in win per slot machine per day is attributable to the removal of 30slot machines from the floor as well as upgrades to our slot machine mix.

 

We generated $3.6million, net of promotional allowance of $1.9 million, for the nine monthsended September 30, 2007, and $2.9 million, net of promotional allowances of$1.7 million, in food, beverage and retail sales for the nine months endedSeptember 30, 2006.  The retail value of our food and beverage provided tocustomers without charge is included in gross revenues and then deducted aspromotional allowances.

 

*Promotionalallowances*. Promotional allowances for the nine months endedSeptember 30, 2007 were $10.3 million, or 9.9% of net revenues, compared to$9.4 million, or 9.8% of net revenues, for the first nine months of 2006. Theincrease in promotional allowances is attributable to the expanded use ofe-coupons.  E-coupons cannot be cashed out and requires the patron to usetheir Players Club card.

 

*Operatingexpenses*. Operating expenses for the nine months endedSeptember 30, 2007 were $75.0 million, or 72.2% of net revenues, compared to$67.8 million, or 70.4% of net revenues, for the first nine months of 2006. Theincrease in operating expenses is attributable to the credit enhancement feebuy-out which was fully expensed in the amount of $10.6 million in the firstquarter 2007, as described in footnote 5 of the unaudited condensed financialstatements.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities. Casinoexpense for nine months ended September 30, 2007 increased to $15.5 million, or15.6% of Casino revenues, net of promotional allowances, from $15.2 million, or16.4% of Casino revenues, net of promotional allowances, for the first ninemonths of 2006. The increase in Casino expense is primarily the result of thecosts associated to update the slot floor and the increase in costs associatedwith complimentary beverage services.

 

Food, beverage and retailexpense for the nine months ended September 30, 2007 was $4.1 million, or115.9% of food, beverage and retail revenue, net of promotional allowances,compared to $4.6 million, or 152.8% of food, beverage and retail revenue, netof promotional allowances, for the first nine months of 2006. Our food,beverage and retail expense ratio is significantly higher than the industryaverage because we have utilized these amenities as an opportunity to buildcustomer loyalty rather than as a source of income. The percentage of expensesto net revenues has decreased by 36.9%, due to increased revenues whilemaintaining promotional and operational costs.

 

Selling, general andadministrative expense for the nine months ended September 30, 2007 was $31.9million, or 30.7% of net revenues, and $30.5 million, or 31.7% of net revenues,for the first nine months of 2006. The increase in selling, general andadministrative expense is attributable to an increase in advertising costs anda planned change in advertising companies that resulted in duplicative costs.

 

Depreciation expense forthe nine months ended September 30, 2007 and 2006 was $8.9 million and $8.6million, respectively. Depreciation expense was computed using thestraight-line method over the useful life of property, plant and equipment.

 

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The credit enhancementfee was $11.3 million, or 10.9% of net revenues, for the nine months endedSeptember 30, 2007, compared to $5.8 million, or 6.0% of net revenues, for thefirst nine months of 2006. The increase is due to the termination of theDevelopment Agreement with Dry Creek Casino, LLC (“DCC”) by exercising thebuy-out option on January31, 2007. On March 2, 2007, we signed an agreement with DCC to fix the amountsdue DCC in respect of such exercise to the sum of $11.4 million less the amountpaid after we exercised the buy-out option of $0.7 million. The net payment of$10.6 million was made in March 2007 and expensed in full in the first quarterof 2007.

 

Gaming Commission andsurveillance expense for nine months ended September 30, 2007 and 2006 was $2.2million and $2.1 million, respectively.

 

The Compact requires usto pay a quarterly fee to the State of California’s revenue sharing trust fundbased on the number of licensed gaming devices operated by the Tribe. Revenuesharing trust fund fees assessed were $1.0 million for the nine months endedSeptember 30, 2007 and 2006, respectively.

 

*Incomefrom operations.* Income from operations for nine months endedSeptember 30, 2007 was $28.9 million, or 27.8% of net revenues, compared to$28.4 million, or 29.6% of net revenues, for the first nine months of2006.  The increase in income from operations is attributable to increasedgaming and concession revenues, as well as the reduction of quarterly expensesattributable to the credit enhancement fee buy-out.

 

*Otherexpense, net.* Other expense, net for the nine months endedSeptember 30, 2007 decreased to $14.4 million, or 13.9% of net revenues, from$15.1 million, or 15.7% of net revenues, for the first nine months of2006.  Other expense, net included $1.2 million of interest income for thenine months ended September 30, 2007, compared to $0.7 million of interestincome, for the first nine months of 2006. No interest costs were capitalizedin 2007 or 2006.

 

*Incomebefore distributions to the Tribe*. Income before distributionsto the Tribe for the nine months ended September 30, 2007 increased by $1.1million to $14.5 million, or 13.9% of net revenues, from $13.4 million, or13.9% of net revenues, in the first nine months of 2006.

 

*Distributionsto the Tribe*. Distributions to the Tribe for the nine monthsended September 30, 2007 decreased by $1.8 million to $9.3 million, compared to$11.1 million, for the nine months ended September 30, 2006. The decrease fromthe prior period is attributable to the final reimbursements of constructioncosts incurred by the Tribe before the formation of the Authority. During thethird quarter ended September 30, 2006, we reimbursed the Tribe $1.9 million,representing the remaining balance of all construction costs incurred by theTribe on behalf of the Authority.

 

**Liquidityand Capital Resources**

 

Since our inception, wehave funded our capital expenditures and working capital requirements primarilythrough debt financing, gaming equipment supplier financing, other financingand operating cash flow.

 

Construction of ourCasino and infrastructure improvements commenced on April 1, 2002. The firstportion of our gaming facility was completed in September 2002. As of September30, 2007, we had spent approximately $158.5 million on the planning, developmentand construction of our gaming facility, infrastructure and furniture, fixturesand equipment, excluding the expansion project. We financed the developmentwith borrowings and development advances.

 

 As of September 30,2007, we spent $1.1 million on the development of an approximately 18-acreparcel of land adjacent to the Tribe’s reservation (referred to as the “DuganProperty”) which is expected to include an additional access road to ourCasino. We have $4.6 million remaining in a restricted account funded from theproceeds of our Notes Offering for the development of the Dugan Property.

 

Our capital expendituresfor the nine months ended September 30, 2007 and 2006 were $3.3 million and$3.8 million, respectively. The decrease in 2007 compared to 2006 isattributable to greater capital expenditures in 2006, which consisted of aseries of minor infrastructure improvements.

 

As of September 30, 2007,we had cash and cash equivalents, net of restricted cash, of $47.9 million, ascompared to $32.5 million, as of December 31, 2006. As of September 30, 2007,we had restricted cash of $7.3 million, as compared to $7.2 million, as ofDecember 31, 2006. Our principal source of liquidity during the nine monthsended September 30, 2007 consisted of cash flow from operating activities. Netcash provided by operating activities for the nine months ended September 30,2007 was $48.8 million, an increase of $6.3 million, from $42.5 million, in2006. The increase in our net cash provided by operations is a result ofincreased cash received from gaming winnings and concessions combined withdecreased amounts paid to suppliers in 2007.

 

Restricted cash consistsof net proceeds from the Notes Offering and investment earnings thereon setaside in construction financing accounts for construction costs for the threeparking structures, related infrastructure improvements and constructioncontingencies. It also includes funds that are reserved for additionalconstruction contingencies and the funds for the development of 

 

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the Dugan Property. Ourrestricted cash is held in escrow accounts that can only be used for authorizedconstruction disbursements until the related projects are completed.

 

Net cash used for capitaland related financing activities for the nine months ended September 30, 2007was $25.4 million, compared to $19.2 million, for the nine months endedSeptember 30, 2006. The increase in cash flow used in capital and relatedfinancing activities was primarily the result of the payment of the buy-outsettlement of the credit enhancement fee.

 

Cash flow from investingactivities for the nine months ended September 30, 2007 increased by $0.5million to $1.2 million, from $0.7 million, for the nine months ended September30, 2006.

 

Cash flow used innon-capital financing activities for the nine months ended September 30, 2007was $9.3 million, a decrease of $1.8 million, from $11.1 million, for the ninemonths ended September 30, 2006.  Cash flow used in non-capital financingactivities consisted of distributions to the Tribe. The decrease from the priorperiod is attributable to the final reimbursements of construction costsincurred by the Tribe before the formation of the Authority. During the thirdquarter ended September 30, 2006, we reimbursed the Tribe $1.9 million, theremaining balance of all construction costs incurred by the Tribe on behalf ofthe Authority.

 

We believe that existingcash balances, cash from operations, as well as permitted disbursements fromour restricted cash escrow accounts will provide adequate funds for our workingcapital needs and debt service requirements for the foreseeable future. Fundingfor planned capital expenditures and expansions will come from additional thirdparty financing. However, our ability to fund our operations, make plannedoperational capital expenditures, make scheduled debt payments and refinanceour indebtedness 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.

 

On June 28, 2007, theAuthority and the Tribe announced plans to build a destination resort as morefully described in the press release furnished as an exhibit to our Form 8-Kdated June 28, 2007. The proposed project includes the construction of acasino, hotel and spa, several food and beverage venues, parking and storage,administrative facilities, a garden and terrace plaza, balconies and terraces,a retail area, conference facilities, and back of house facilities. Theproposed project includes three above-ground levels and a hotel tower (up toeight levels) and four below-ground levels. We do not currently have adequateliquidity or cash flow to finance the project as proposed. We will considervarious sources of liquidity to finance the first phase of the proposedproject.

 

The Tribe has incurredexpenses on behalf of the Authority that relate to the master planning of theproposed resort and Tribal infrastructure that benefit the Authority in theamount of $4.6 million. Prior to the end of the quarter the Authorityreimbursed the Tribe for these costs in the amount of $0.5 million subsequentto the end of the quarter the Authority reimbursed the Tribe another $4.0million as described in the Subsequent Events footnote.

 

**Contractual Obligations as ofSeptember 30, 2007**

 

The following table summarizes our contractual obligations andcommitments as of September 30, 2007:

 
| ** **                      | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
|---------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|------------|
| Long-term debt  obligations (a) |       | $         | 200,162,768 |            | $          | 153,991            |       | $                  | 8,777      |   | $ | 200,000,000 |   |
| Operating lease  obligations    |       | 1,107,895 |        | 242,432         |       | 466,343            |       | 399,120            |       |
| Capital lease  obligations      |       | 167,783   |        | 117,915         |       | 49,868             |       | —             |       |
|                            |       |      |        |            |       |               |       |               |       |
| Total  obligations (b)          |       | $         | 201,438,446 |            | $          | 514,338            |       | $                  | 524,988    |   | $ | 200,399,120 |   |

 

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(a)                Excluded fromlong-term debt obligations listed above are interest payments of $19.5 millionin 1 year; $39.0 million in 2-3 years and $26.0 million in 4-5 years.

 

(b)             The Compact requiresus to pay a quarterly fee of $0.3 million to the RSTF based on the number ofour licensed gaming devices. Total obligations do not include theRSTF payments.

 

**Regulation and Taxes**

 

We are subject toextensive regulation by the Tribe’s Gaming Commission, the California GamblingControl Commission and the National Indian Gaming Commission. Changes inapplicable laws or regulations could have a significant impact on our operations.

 

In September 2004, theDepartment of Alcoholic Beverage Control (“ABC”) denied the Tribe’s applicationfor a liquor license based on a building code interpretation by a state officerwho was later determined to lack jurisdiction to make a code determination, anddid so without consulting the Tribe’s building code official havingjurisdiction. The Tribe appealed and, in May 2005, an Administrative Law Judgeruled for the Tribe and recommended that the ABC reverse itself and approve thelicense, which 

 

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the ABC did as of October2005, pending a hearing on the protests. The ABC has received approximately 65protests to issuance of the license from various citizens and local governmentofficials. The ABC had scheduled a hearing on those protests in November2007, which was continued by stipulation of the parties because the Tribeand various protestants are engaged in settlement discussions with respect tocertain protest issues. The Tribe intends to vigorously defend its applicationand believes the protests are without merit.

 

Since we are anunincorporated governmental instrumentality of the Tribe located on reservationland held in trust by the United States of America, we are not subject to federalor state income taxes. Various efforts have been made in Congress over the pastseveral years to enact legislation that would subject the income of tribalgovernmental business entities, such as us, to federal income tax. Although nosuch legislation has been enacted, similar legislation could be passed in thefuture. It is not possible to determine with certainty the likelihood ofpossible changes in tax law or in the administration of such law. Such changes,if adopted, could have a material adverse effect on our operating results andcash flow from operations.

 

**Impact of Inflation**

 

Absent changes incompetitive and economic conditions or in specific prices affecting the casinoindustry, we do not expect that inflation will have a significant impact on ourgaming facility operations. Changes in specific prices, such as fuel andtransportation prices, relative to the general rate of inflation may have amaterial adverse effect on the casino industry in general.

 

**Seasonality**

 

Weanticipate that activity at our gaming facility may be modestly seasonal withstronger results expected during the summer due in part to the relativelyhigher levels of tourism during such times of the year. In addition, ouroperations may be impacted by adverse weather conditions and fluctuations inthe tourism business. Accordingly, our results may fluctuate from quarter toquarter and the results of one quarter may not be indicative of resultsexpected from future quarters.

 

**ITEM3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk is the riskof loss arising from adverse changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.

 

Through September 30,2007, we had not invested in derivative or foreign currency-based financialinstruments.  Additionally, we primarily have invested in short-term,fixed rate debt.  As such, we do not believe we have material exposure tomarket risk.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls andProcedures**

 

We maintain disclosurecontrols and procedures that are designed to ensure that the informationrequired to be disclosed in our reports filed with, or furnished to the SEC,pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules, regulations and forms, and that such informationis accumulated and communicated to our management, including our ChiefExecutive Officer, Chief Financial Officer, Chief Operations Officer andAssistant Financial Controller, as appropriate, to allow timely decisionsregarding required disclosure based on the definition of “disclosure controlsand procedures” in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Ourdisclosure controls and procedures are designed to provide reasonableassurances of achieving its objectives.

 

Our Chief ExecutiveOfficer and Chief Financial Officer have reviewed and evaluated theeffectiveness of our disclosure controls and procedures (as defined in ExchangeAct Rules 240.13a -15(e) and 15d — 15(e)) as of September 30, 2007. Based onthat evaluation they have concluded that our disclosure controls and proceduresas of the end of the period covered by this report are effective in reachingthat level of reasonable assurance.

 

**Changes to Internal Controls OverFinancial Reporting**

 

There were no changes inthe quarter ended September 30, 2007. We believe that we have implementedcontrols and procedures to correct the practices that led to certainrestatements of our prior financial statements.

 

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| **PART II.** | **OTHER  INFORMATION** |
|--------------|------------------------|
| ** **   | ** **             |
| **ITEM 1.**  | **LEGAL  PROCEEDINGS** |

 

*California Department of Alcoholic Beverage Control*

 

In September 2004, theDepartment of Alcoholic Beverage Control (“ABC”) denied the Tribe’s applicationfor a liquor license based on a building code interpretation by a state officerwho was later determined to lack jurisdiction to make a code determination, anddid so without consulting the Tribe’s building code official havingjurisdiction. The Tribe appealed and, in May 2005, an Administrative Law Judgeruled for the Tribe and recommended that the ABC reverse itself and approve thelicense, which the ABC did as of October 2005, pending a hearing on theprotests. The ABC has received approximately 65 protests to issuance of thelicense from various citizens and local government officials. The ABC hadscheduled a hearing on those protests in November 2007, which was continuedby stipulation of the parties because the Tribe and various protestantsare engaged in settlement discussions with respect to certain protest issues.The Tribe intends to vigorously defend its application and believes theprotests are without merit.

 

We are involved in otherlitigation and disputes from time to time in the ordinary course of businesswith vendors and patrons. The Authority believes that the aggregate liability,if any, arising from such litigation or disputes will not have a material adverseeffect on its results of operations, financial condition or cash flows.

 

**ITEM 1A.           RISK FACTORS**

 

There have been no material changes from the risk factors previouslydisclosed in our Form 10-K.

 

**ITEM 6.              EXHIBITS**

 

(a)                        Exhibits

The Exhibit Index filedherewith is incorporated herein by reference.

 

(b)                       Reports onForm 8-K

None

 

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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: November 14, 2007 | RIVER ROCK ENTERTAINMENT AUTHORITY |
|--------------------------|------------------------------------|
|                     | (Registrant)                       |
|                     |                               |
|                     | By:                                | /s/ Shawn S. Smyth |   |
|                     |                               | Shawn S. Smyth, |   |
|                     |                               | Chief Executive Officer |   |

 

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**EXHIBIT INDEX**

** **
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                   |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1            |       | Certification by Shawn S. Smyth, Chief Executive  Officer, 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 Shawn S. Smyth, Chief Executive  Officer 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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*                 Thiscertification is being furnished solely to accompany this quarterly reportpursuant to 18 U.S.C. Section 1350, and is not being filed for purposes ofSection 18 of the Securities Exchange Act of 1934 and is not to be incorporatedby reference into any filing of River Rock Entertainment Authority whether madebefore or after the date hereof, regardless of any general incorporationlanguage in such filing.

 

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