** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D. C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For the quarterly period ended March 31, 2011**

 

**OR**

 

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

 

**For the transition period from            to            **

 

**Commission File Number: 333-115186**

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

(Exact name of registrant as specified in its charter)

 

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

 

**3250 Highway 128 East**

**Geyserville, California 95441**

**(707) 857-2777**

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

 

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

 

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

 

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

 

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

 

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

 

 

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**INDEX TO FORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                                | ** ** |
|--------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|               |       |                                                                                                                                           |       |
| ** **         | ** ** | **PART I — FINANCIAL INFORMATION**                                                                                                   | ** ** |
|               |       |                                                                                                                                           |       |
| 1.                 |       | Unaudited   Condensed Financial Statements                                                                                                     | 4          |
|               |       | Condensed   Balance Sheets-March 31, 2011 (unaudited) and December 31, 2010                                                          | 4          |
|               |       | Unaudited Condensed Statements of Revenues, Expenses   and Changes in Net Assets (Deficit) - Three Months Ended March 31, 2011   and 2010 | 5          |
|               |       | Unaudited   Condensed Statements of Cash Flows — Three Months Ended March 31, 2011   and 2010                                        | 6          |
|               |       | Notes to Unaudited Condensed Financial Statements                                                                                              | 8          |
| 2.                 |       | Management’s   Discussion and Analysis of Financial Condition and Results of Operations                                                   | 18         |
| 3.                 |       | Quantitative   and Qualitative Disclosures About Market Risk                                                                                   | 28         |
| 4.                 |       | Controls and   Procedures                                                                                                                      | 28         |
|               |       |                                                                                                                                           |       |
| ** **         | ** ** | **PART II — OTHER INFORMATION**                                                                                                      | ** ** |
|               |       |                                                                                                                                           |       |
| 1.                 |       | Legal Proceedings                                                                                                                              | 29         |
| 1A.                |       | Risk Factors                                                                                                                                   | 29         |
| 6.                 |       | Exhibits                                                                                                                                       | 33         |
|               |       |                                                                                                                                           |       |
| Signatures         | 34         |
|               |       |
| Exhibit Index | 34         |

 

2

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**CAUTIONARY STATEMENT**

 

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

 

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

 

*Our key risks are described in our annual report on Form 10-K filed with the Securities and Exchange Commission.*

 

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** **

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

** **

**CONDENSED BALANCE SHEETS**

**(Dollars in Thousands)**

 
| ** **                                     | ** ** | **March 31, 2011** | ** ** | **December 31, 2010** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **(Unaudited)**              | ** ** | ** **                      | ** ** |
| **ASSETS**                                     | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| CURRENT ASSETS:                                | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Cash and cash equivalents                      |       | $                            | 43,677     |                            | $          | 36,713 |   |
| Accounts receivable                            |       | 42                           |       | 290                             |       |
| Inventories                                    |       | 92                           |       | 96                              |       |
| Prepaid expenses and other current assets      |       | 1,177                        |       | 1,402                           |       |
|                                           |       |                         |       |                            |       |
| Total current assets                           |       | 44,988                       |       | 38,501                          |       |
|                                           |       |                         |       |                            |       |
| RESTRICTED CASH                                |       | 4,331                        |       | 4,330                           |       |
|                                           |       |                         |       |                            |       |
| CAPITAL ASSETS:                                |       |                         |       |                            |       |
| Buildings and building improvements            |       | 133,911                      |       | 132,907                         |       |
| Furniture, fixtures and equipment              |       | 36,071                       |       | 33,786                          |       |
| Accumulated depreciation                       |       | (68,714                      | )          | (66,348                         | )          |
| Construction in progress                       |       | 77,750                       |       | 77,296                          |       |
|                                           |       |                         |       |                            |       |
| Capital assets                                 |       | 179,018                      |       | 177,641                         |       |
|                                           |       |                         |       |                            |       |
| DEPOSITS AND OTHER ASSETS                      |       | 1,500                        |       | 1,680                           |       |
|                                           |       |                         |       |                            |       |
| TOTAL ASSETS                                   |       | $                            | 229,837    |                            | $          | 222,152 |   |
|                                           |       |                         |       |                            |       |
| **LIABILITIES AND NET ASSETS**                 |       |                         |       |                            |       |
|                                           |       |                         |       |                            |       |
| CURRENT LIABILITIES:                           |       |                         |       |                            |       |
| Accounts payable                               |       | $                            | 3,116      |                            | $          | 1,884 |   |
| Payable to Tribe, net                          |       | 3,232                        |       | 5,823                           |       |
| Accrued liabilities                            |       | 13,230                       |       | 7,977                           |       |
| Current maturities of long-term debt           |       | 199,804                      |       | 199,719                         |       |
| Total current liabilities                      |       | 219,382                      |       | 215,403                         |       |
|                                           |       |                         |       |                            |       |
| COMMITMENTS AND CONTINGENCIES                  |       |                         |       |                            |       |
|                                           |       |                         |       |                            |       |
| NET ASSETS                                     |       |                         |       |                            |       |
| Invested in capital assets-net of related debt |       | (20,786                      | )          | (22,078                         | )          |
| Restricted for capital projects                |       | 4,331                        |       | 4,330                           |       |
| Unrestricted                                   |       | 26,910                       |       | 24,497                          |       |
|                                           |       |                         |       |                            |       |
| Total net assets                               |       | 10,455                       |       | 6,749                           |       |
|                                           |       |                         |       |                            |       |
| TOTAL LIABILITIES AND NET ASSETS               |       | $                            | 229,837    |                            | $          | 222,152 |   |

 

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

 

4

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

* *

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

**(Dollars in Thousands)**

**(Unaudited)**

 
| ** **                                 | ** ** | **Three-Month Period Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------------|------------|
| ** **                                 | ** ** | **March 31,**                     | ** ** |
| ** **                                 | ** ** | **2011**                               | ** ** | **2010** | ** ** |
| **OPERATING REVENUES:**                    |       |                                   |       |   |   |
|                                       |       |                                   |       |   |   |
| Casino                                     |       | $                                      | 30,092     |   | $ | 30,936 |   |
| Food and beverage                          |       | 1,570                                  |       | 1,439 |   |
| Other                                      |       | 220                                    |       | 257 |   |
|                                       |       |                                   |       |   |   |
| Gross revenues                             |       | 31,882                                 |       | 32,632 |   |
|                                       |       |                                   |       |   |   |
| Promotional allowances                     |       | (548                                   | )          | (379 | ) |
|                                       |       |                                   |       |   |   |
| Net revenues                               |       | 31,334                                 |       | 32,253 |   |
|                                       |       |                                   |       |   |   |
| OPERATING EXPENSES:                        |       |                                   |       |   |   |
| Casino                                     |       | 4,335                                  |       | 3,833 |   |
| Food and beverage                          |       | 1,610                                  |       | 1,804 |   |
| Selling, general, and administrative       |       | 9,660                                  |       | 10,563 |   |
| Depreciation                               |       | 2,366                                  |       | 2,459 |   |
| Gaming commission and surveillance expense |       | 699                                    |       | 768 |   |
| Compact revenue sharing trust fund         |       | 334                                    |       | 334 |   |
| Total operating expenses                   |       | 19,004                                 |       | 19,761 |   |
|                                       |       |                                   |       |   |   |
| INCOME FROM OPERATIONS                     |       | 12,330                                 |       | 12,492 |   |
|                                       |       |                                   |       |   |   |
| NON-OPERATING EXPENSE-Net:                 |       |                                   |       |   |   |
| Interest expense                           |       | (5,157                                 | )          | (5,214 | ) |
| Interest income                            |       | 7                                      |       | 11 |   |
|                                       |       |                                   |       |   |   |
| Non-operating expense-net                  |       | (5,150                                 | )          | (5,203 | ) |
|                                       |       |                                   |       |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | 7,180                                  |       | 7,289 |   |
|                                       |       |                                   |       |   |   |
| DISTRIBUTIONS TO TRIBE                     |       | (3,474                                 | )          | (3,398 | ) |
|                                       |       |                                   |       |   |   |
| CHANGES IN NET ASSETS                      |       | 3,706                                  |       | 3,891 |   |
|                                       |       |                                   |       |   |   |
| NET ASSETS (DEFICIT) -Beginning of period  |       | 6,749                                  |       | (5,324 | ) |
|                                       |       |                                   |       |   |   |
| NET ASSETS (DEFICIT) -End of period        |       | $                                      | 10,455     |   | $ | (1,433 | ) |

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(Dollars in Thousands)**

 
| ** **                                                         | ** ** | **Three-Month Period Ended********March 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2011**                                                     | ** ** | **2010** | ** ** |
| **CASH FLOWS FROM OPERATING   ACTIVITIES:**                        |       |                                                         |       |   |   |
| Cash received from gaming winnings and concessions                 |       | $                                                            | 31,472     |   | $ | 32,196 |   |
| Cash paid for salaries and benefits                                |       | (7,254                                                       | )          | (6,625 | ) |
| Cash paid to suppliers                                             |       | (8,415                                                       | )          | (10,859 | ) |
| Cash paid for compact revenue sharing trust fund                   |       | (334                                                         | )          | (334 | ) |
|                                                               |       |                                                         |       |   |   |
| Net cash provided by operating activities                          |       | 15,469                                                       |       | 14,378 |   |
|                                                               |       |                                                         |       |   |   |
| **CASH FLOWS FROM CAPITAL AND   RELATED FINANCING ACTIVITIES:**    |       |                                                         |       |   |   |
| Payments of debt                                                   |       | —                                                       |       | (304 | ) |
| Payments of offering cost in connection with   refinancing of debt |       | (8                                                           | )          | — |   |
| Purchases of capital assets                                        |       | (1,977                                                       | )          | (2,900 | ) |
| Transfers to the Tribe for development costs                       |       | (2,100                                                       | )          | (3,500 | ) |
| Transfers to the Tribe for slope reinforcement                     |       | (952                                                         | )          | — |   |
| Change in restricted cash                                          |       | (1                                                           | )          | (2 | ) |
| Other                                                              |       | —                                                       |       | (42 | ) |
|                                                               |       |                                                         |       |   |   |
| Net cash used in capital and related financing   activities        |       | (5,038                                                       | )          | (6,748 | ) |
|                                                               |       |                                                         |       |   |   |
| **CASH FLOWS PROVIDED BY INVESTING   ACTIVITIES:**                 |       |                                                         |       |   |   |
| Interest income                                                    |       | 7                                                            |       | 11 |   |
|                                                               |       |                                                         |       |   |   |
| **CASH FLOWS USED IN NON-CAPITAL   FINANCING ACTIVITIES:**         |       |                                                         |       |   |   |
|                                                               |       |                                                         |       |   |   |
| Distributions to Tribe                                             |       | (3,474                                                       | )          | (3,398 | ) |
|                                                               |       |                                                         |       |   |   |
| **CHANGE IN CASH AND CASH   EQUIVALENTS**                          |       | 6,964                                                        |       | 4,243 |   |
|                                                               |       |                                                         |       |   |   |
| **CASH AND CASH EQUIVALENTS,   Beginning of the period**           |       | 36,713                                                       |       | 31,618 |   |
|                                                               |       |                                                         |       |   |   |
| **CASH AND CASH EQUIVALENTS, End of   the period**                 |       | $                                                            | 43,677     |   | $ | 35,861 |   |

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(Dollars in Thousands)**

 
| ** **                                                                                   | ** ** | **Three-Month Period Ended********March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2011**                                                     | ** ** | **2010** | ** ** |
| **RECONCILIATION OF INCOME FROM OPERATIONS TO NET CASH PROVIDED   BY OPERATING ACTIVITIES:** | ** ** | ** **                                                   | ** ** | ** ** | ** ** |
|                                                                                         |       |                                                         |       |   |   |
| Income From Operations                                                                       |       | $                                                            | 12,330     |   | $ | 12,492 |   |
|                                                                                         |       |                                                         |       |   |   |
| Adjustments to reconcile operating income to net   cash provided by operating activities:    |       |                                                         |       |   |   |
| Depreciation                                                                                 |       | 2,366                                                        |       | 2,459 |   |
| Changes in operating assets and liabilities:                                                 |       |                                                         |       |   |   |
| Accounts receivable                                                                          |       | 248                                                          |       | 40 |   |
| Inventories                                                                                  |       | 4                                                            |       | 12 |   |
| Prepaid expenses and other current assets                                                    |       | 225                                                          |       | 182 |   |
| Deposit and other assets                                                                     |       | (67                                                          | )          | — |   |
| Accounts payable                                                                             |       | (54                                                          | )          | (1,266 | ) |
| Related party payable                                                                        |       | 161                                                          |       | — |   |
| Accrued liabilities                                                                          |       | 256                                                          |       | 459 |   |
| Total adjustments                                                                            |       | 3,139                                                        |       | 1,886 |   |
|                                                                                         |       |                                                         |       |   |   |
| **NET CASH PROVIDED BY OPERATING   ACTIVITIES**                                              |       | $                                                            | 15,469     |   | $ | 14,378 |   |
|                                                                                         |       |                                                         |       |   |   |
| **SUPPLEMENTARY SCHEDULE OF NONCASH   CAPITAL AND RELATED FINANCING ACTIVITIES:**            |
|                                                                                         |       |                                                         |       |   |   |
| Acquisition of property and equipment through   accounts payable                             |       | $                                                            | 1,513      |   | $ | 225 |   |
| Acquisition of property and equipment through transfers   to Tribe for development costs     |       | $                                                            | —     |   | $ | 11,086 |   |
| Acquisition of property and equipment through   transfers to Tribe for slope reinforcement   |       | $                                                            | 300        |   | $ | — |   |

 

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

 

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** **

**NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

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

 

River Rock Entertainment Authority (the “Authority”) is a governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians (the “Tribe”), a federally recognized Indian tribe. River Rock Casino (the “Casino”) is a governmental development project of the Authority. The Casino offers Class III gaming (as defined by the Indian Gaming Regulatory Act of 1988, as amended) on tribal land located in Geyserville, California. The legal authority for slot machines and table games is provided by the Tribe’s gaming compact with the State of California (the “Compact”), which was entered into in September 1999 and became effective upon approval by the Secretary of Interior on May 5, 2000.  The Compact expires on December 31, 2020.

 

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

 

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

 

**2.****                               ****BASIS OF PRESENTATION, UNAUDITED INTERIM FINANCIAL STATEMENTS**

 

The unaudited condensed financial statements of the Authority, presented herein are presented on the same basis and can be compared to the audited financial statements reported in the Authority’s 2010 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). The accompanying condensed balance sheet as of December 31, 2010 has been derived from the audited financial statements included in the Authority’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

River Rock Entertainment Authority has made its disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, but condensed or omitted certain information and disclosures normally included in notes to financial statements in accordance with the SEC’s rules and regulations. The unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto in the Authority’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

In the opinion of the Authority’s management, the accompanying unaudited interim condensed financial statements contain all adjustments (consisting of normal recurring adjustments) to fairly present the Authority’s condensed financial position as of March 31, 2011 and the condensed statements of revenues, expenses and changes in net assets (deficit) for the three month periods ended March 31, 2011 and 2010. The condensed statements of revenues, expenses and changes in net assets (deficit) and condensed cash flows for all periods presented are not necessarily indicative of the results of operations or cash flows expected for the year or any other period.

 

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

 

*Accounting Standards*—The Authority prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to State and local government agencies and, as such, the Authority is accounted for as a proprietary fund. The financial statements presented are prepared on the accrual basis of accounting from the accounts and financial transactions of the Authority. GAAP requires the Authority to apply all applicable pronouncements of the Governmental Accounting Standards Board (“GASB”). The Authority is also required to follow the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”) for topics issued on or before November 30, 1989, unless those topics 

 

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conflict with or contradict GASB pronouncements.  The Authority is given the option whether to apply the FASB topics issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements. Accordingly, the Authority has elected to implement non-conflicting FASB topics issued after November 30, 1989.

 

There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with the FASB Codification. The statements of revenues, expenses and changes in net assets (deficit) are a combined statement under GASB pronouncements. The FASB Codification allows a statement of income or operations and a separate statement of owners’ or shareholders’ equity (deficit), which is where distributions to owners would be presented.  The amount shown as income before distributions to Tribe would be the most comparable amount to net income computed under the FASB Codification.  The Authority is a separate enterprise fund of the Tribe, a governmental entity, and as such there is no owners’ or shareholders’ equity (deficit) as traditionally represented under the FASB Codification.  The most comparable measure of owners’ equity (deficit) is presented on the Authority’s balance sheet as net assets (deficit).

 

FASB has issued Accounting Standards Update (“ASU”) No. 2010-06, “*Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements*.” This ASU requires certain new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require: (A) A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and (B) In the reconciliation for fair value measurements using significant unobservable inputs, Level 3, a reporting entity should present separately information about purchases, sales, issuances, and settlements.  In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures: (A) For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and (B) A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this standard had no effect on the Authority’s financial position or result of operations.

 

FASB has issued ASU No. 2010-16, “*Entertainment — Casinos (Topic 924) — Accruals for Casino Jackpot Liabilities.*”  This ASU addresses the accounting for casino base jackpot liabilities, specifically, whether an entity accrues liabilities for a base jackpot before it is won if the entity is not required to award the base jackpot.  This ASU clarifies that an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won if the entity can avoid paying that jackpot.  Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot.  This guidance applies to both base and progressive jackpots.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this statement did not have a material impact on the Authority’s financial position or results of operations.

 

In December 2010, the GASB issued Statement No. 62, *Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.*The Statement incorporates into GASB’s authoritative literature the applicable guidance previously presented in the following pronouncements issued before November 30, 1989:

 

·                  FASB Statements and Interpretation.

·                  Accounting Principles Board Opinions.

·                  Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure.

 

9

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While the guidance included largely has been taken “as is” from the original FASB and AICPA pronouncements, it has been modified when appropriate to relate specifically to the governmental environment to increase its usefulness to this audience. By incorporating and maintaining this guidance in a single source, the Statement reduces the complexity of locating and using authoritative literature needed to prepare state and local government financial reports. It also eliminates the need for the financial statement preparers and auditors to determine which FASB and AICPA pronouncement provisions apply to state and local governments. The requirements of Statement No. 62 are effective for financial statements for periods beginning after December 15, 2011, which for the Authority will be the beginning of fiscal year 2012. We do not expect the adoption of this statement to have a material impact on the Authority’s financial statements.

 

*Use of Estimates*—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include legal and other contingencies, obligations under players’ club programs and useful lives and recoverability of long-lived assets. Actual results could differ from these estimates.

 

*Cash and Cash Equivalents*— The Authority considers all highly liquid investments with a maturity of three months or less at date of purchase as cash equivalents. The carrying amount of cash and cash equivalents approximates its fair value. Cash and cash equivalents include cash on hand, cash on deposit with banks and highly liquid investments.  The Federal Deposit Insurance Corporation (“FDIC”) has insured $0.3 million of the cash on deposit at an FDIC member bank. The Authority believes that there is little risk of loss regarding the uninsured amounts of cash and cash equivalents on deposit with the banks.

 

*Restricted Cash*— Restricted cash accounts were established from net proceeds from the Notes Offering and investment earnings thereon set aside in construction financing accounts, for construction costs for related infrastructure improvements and construction contingencies. It also included funds that were reserved for construction contingencies and the funds for the development of the Dugan Property, an approximately 18-acre parcel of land adjacent to the Tribe’s reservation. The restricted cash is held in escrow accounts that can only be used for authorized construction disbursements until the related projects are completed.  These escrow accounts are invested in money market accounts, which generate interest on a monthly basis. The FDIC insures $0.3 million of this balance. The Authority believes that there is little risk of loss regarding the uninsured amounts of restricted cash held in the escrow accounts. Restricted cash was $4.3 million at March 31, 2011 and December 31, 2010 .  At March 31, 2011, restricted cash includes funds available for land development, more specifically the emergency access road which will be used to further develop either the Dugan Road or an alternate access road that will meet the requirement of our Memorandum of Agreement with Sonoma County.

 

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

 

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

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

 

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

 

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

 

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*Evaluation of Long-Lived Assets* — We evaluate our capital assets for impairment in accordance with accounting pronouncement GASB No. 42, “*Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.*” The Authority’s capital assets consist of building and improvements, and furniture, fixtures and equipment, including slot machines.    A capital asset is considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstances is outside the normal life cycle of the capital asset.  The Authority is required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred rather than as part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset, and to account for insurance recoveries in the same manner.  Common indicators of impairment include evidence of physical damage where restoration efforts are needed to restore service utility, enactment or approval of laws or regulations setting standards that the capital asset would not be able to meet, technological development or evidence of obsolescence, a change in the manner or expected duration of use of a capital asset or construction stoppage.  The Authority’s management has determined that no impairment of capital assets currently exists.

 

*Capitalized interest*—**The interest cost associated with major development and construction projects is capitalized and included in the cost of the asset.  Capitalization of interest ceases when the project is substantially complete or when development activity is suspended.  The Authority capitalized interest of approximately $0.1 million for the three months ended March 31, 2011 and none during the three months ended March 31, 2010.

 

*Prepaid Expenses and Other Current Assets* — Prepaid expenses and other current assets were $1.2 million and $1.4 million as of March 31, 2011 and December 31, 2010, respectively, which includes prepaid insurance, prepaid uniforms and prepaid supplies.

 

*Deposits and Other Assets*— As of March 31, 2011 and December 31, 2010, respectively, deposits and other assets mainly represent $0.6 million and $0.9 million in remaining legal fees and other issuance costs related to the issuance of the Authority’s 9 3⁄4% Senior Notes due 2011 (the “Senior Notes”) under the Indenture, dated November 7, 2003 (the “Indenture”). Each of the March 31, 2011 and December 31, 2010 balances also includes $0.7 million of capitalized costs incurred in connection with efforts to refinance the Senior Notes.

 

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

 

*Progressive Jackpots Liabilities*—The Casino has a number of progressive jackpot slot machines.  As bets are made, the amount available to win increases and will be paid out when the appropriate winning combination occurs.  The Casino has recorded the progressive jackpots as a liability, with a corresponding charge against gaming revenue, of $1.2 million and $1.5 million as of March 31, 2011 and December 31, 2010, respectively.  Also, the Casino has available for customer play wide area progressive slot machines that are interlinked with other unrelated casinos.  These machines are monitored and maintained by the vendor and the Casino is required to remit a percentage of coin-in to the respective vendor.  The Casino records a charge against revenue for the portion of the fee applied to the wide area progressive jackpots.  Amounts recorded against revenue for the portion of the fee applied to the wide area progressive jackpots were approximately $0.3 million and $0.2 million for the three months ended March 31, 2011 and 2010, respectively.  All other administrative charges are recorded in operating expenses.

 

*Accrued Players Club*— The Authority has recorded a liability related to free play, prizes and cash incentives earned by the members of our Players Club. The Authority has recorded the estimated redemption of the liability as contra-revenue in the accompanying statements of revenues, expenses and changes in net assets (deficit).

 

*Contingencies* — The Authority assesses its exposure to loss contingencies, including legal matters, and provides for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be materially impacted. As of March 31, 2011, management determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal

 

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actions change, the addition of accruals for such items in future periods may be required and such accruals may be material.

 

*Authority net assets* — Investments in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets.  Investment in capital assets, net of related debt, excludes unspent debt proceeds.  Restricted net assets represent amounts that are appropriated or are legally segregated for a specific purpose.  The Authority’s net assets are reported as restricted when there are limitations imposed on their use, either through the enabling legislation adopted by the Authority or through external restrictions imposed by creditors, laws, or regulations of other governments.

 

*Casino Revenues*—The Authority recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses. Casino revenues are net of accruals for anticipated payouts of progressive slot jackpots and certain player incentives, when earned by the customer.

 

*Food and Beverage Revenues*— The Authority recognizes as food and beverage revenues the proceeds from its food and beverage venues. The Authority continues to distribute non-alcoholic beverages without cost in the gaming area for playing guests.

 

*Other Revenues*— Other revenues are comprised of commissions on ATM and vending machine transactions.

 

*Promotional Allowances*— The retail value of food and beverages provided to customers without charge or at a discount is included in food and beverage revenues and then deducted as promotional allowances. Such amounts included in food and beverage revenues for the three months ended March 31, 2011 and 2010 were $0.5 million and $0.4 million, respectively.

 

*Food and Beverage Expenses*— Food and beverage expenses include cost of goods sold related to providing food and beverage to our customers. The estimated costs of providing complimentary products and services are reflected in Casino expenses.

 

*Advertising Costs*— Advertising costs are expensed as incurred or when an advertisement is first aired or circulated. Advertising costs included in selling, general and administrative expenses for the three months ended March 31, 2011 and 2010 were $0.9 million and $1.5 million, respectively.

 

*Gaming Commission and Surveillance Expenses*— The Authority pays for various expenses for the Tribal Gaming Commission and Surveillance.  Such expenses include salaries and wages and related benefits for Regulatory, Surveillance and office staff, training, audit fees, background checks and licensing.

 

*Income Taxes*—As a governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians, a federally recognized Indian tribe, the Authority is a non-taxable entity for purposes of federal and state income taxes.

 

*Distributions to Tribe*— Distributions to Tribe are made up of permitted and service payments under the covenants of the Indenture.  They are included in the Statements of Revenues, Expenses and Changes in Net Assets (deficit) as distributions to Tribe allowed pursuant to the Indenture.  Total distributions to the Tribe for the three months ended March 31, 2011 and 2010 were $3.5 million and $3.4 million, respectively.

 

**4.****                         ****CERTAIN RISKS AND UNCERTAINTIES**

 

The Authority’s operations are dependent on the continued licensing and qualification of the Authority by the Tribal Gaming Commission. Such licensing and qualification are reviewed periodically by the Tribal Gaming

 

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Commission and regulatory agencies of the State of California. The Authority believes that no events or circumstances have arisen that would have an adverse effect on the Casino’s ability to continue its licensing and qualification by the Tribal Gaming Commission or regulatory agencies of the State of California to operate the Authority.

 

**5.****                         ****RELATED PARTIES**

 

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

 

The Authority pays for various expenses for the following departments operated by the Tribe:  Tribal Gaming Commission including surveillance, and plant operations and human resources. These departmental expenses include but are not limited to payroll and related expenses, legal, and other operational expenses. Total amounts billed by the Tribe to the Casino for these departments, excluding Tribal Gaming Commission and surveillance, for the three months ended March 31, 2011 and 2010 were $0.9 million and $1.0 million, respectively.  These amounts are recorded as a component of selling, general and administrative expenses.

 

The Authority pays for various expenses for the Tribal Gaming Commission and surveillance. The Tribal Gaming Commission and surveillance expenses are recorded in Gaming Commission and surveillance expenses on the Statements of Revenues, Expenses and Changes in Net Assets (deficit).  Gaming Commission and surveillance expenses for the three months ended March 31, 2011 and 2010 were $0.7 million and $0.8 million, respectively.

 

The Tribe has incurred expenses on behalf of the Authority that relate to the development of land adjacent to the Tribe’s reservation, the Dugan Property, which is expected to include an additional access road to the Casino.  To date, the Authority capitalized approximately $1.5 million related to the Dugan Property.

 

The Tribe incurred approximately $67 million in total expenses on behalf of the Authority for master planning of the proposed resort and infrastructure improvements on the reservation that benefit the Casino. Almost all of such expenditures were incurred prior to 2009 before the construction was suspended.  The Authority reimbursed the Tribe approximately $52.4 million through 2009.  In January 2010, the Authority’s Board of Directors authorized the reimbursement of the Tribe in an amount not to exceed approximately $14.9 million of construction costs.  The approval included a payment reimbursement schedule to the Tribe of $2.7 million on January 18, 2010, $0.4 million monthly from February 1, 2010 through April 1, 2010 and $0.7 million monthly thereafter without exceeding $14.9 million.  The Authority reimbursed the Tribe $9.5 million during the fiscal year ended December 31, 2010 and $2.1 million for the three months ended March 31, 2011. A remaining balance of $2.6 million is included in Payable to Tribe in the Condensed Balance Sheet at March 31, 2011.  When the reimbursement payments are made or accrued, the related amounts are capitalized and reflected in construction-in-progress. The reimbursed costs consist of engineering and design costs related to the proposed master plan development, including electrical, HVAC, landscaping, interior design services and consulting fees for legal and feasibility services, as well as the construction costs of the lower Acorn Road.

 

The Tribe incurred expenses related to the reinforcement of the slope on the northwest side of the Reservation near the Casino.  In May 2010, the Authority’s Board of Directors authorized the reimbursement to the Tribe in an amount not to exceed $0.9 million and an additional $2.4 million was approved in August 2010.  In October 2010, the Authority’s Board of Directors authorized the reimbursement to the Tribe not to exceed $3.5 million and an additional $0.3 million was approved in March 2011.  As of March 31, 2011, the Casino has incurred approximately $3.8 million in construction costs of which approximately $0.7 million is accrued in Payable to Tribe.  The Authority currently expects that the cost of this project will not exceed $3.8 million.

 

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** **

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

 

Cash and cash equivalents and restricted cash consisted of the following as of March 31, 2011 and December 31, 2010 (Dollars in Thousands):

 
| ** **                                            | ** ** | **March 31,********2011** | ** ** | **December 31,********2010** | ** ** |
|-------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| ** **                                            | ** ** | **(unaudited)**                | ** ** | ** **                        | ** ** |
| Operating accounts                                    |       | $                              | 16,850     |                              | $          | 15,030 |   |
| Money market accounts*                                |       | 22,129                         |       | 15,123                            |       |
| Cash on hand                                          |       | 4,698                          |       | 6,560                             |       |
| Cash and cash equivalents                             |       | 43,677                         |       | 36,713                            |       |
|                                                  |       |                           |       |                              |       |
| Restricted cash                                       |       | 4,331                          |       | 4,330                             |       |
|                                                  |       |                           |       |                              |       |
| Total cash and cash equivalents and restricted   cash |       | $                              | 48,008     |                              | $          | 41,043 |   |

 

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*Represents level 1 fair value measurement, quoted prices in active markets for identical items.

 

*Deposits* — Custodial credit risk is the risk that in the event of a bank failure, the Authority’s deposits (cash in checking, sweep, and money market accounts held with its third-party administrator) may not be returned to it.  The Authority does not have a deposit policy for custodial credit risk.  As of March 31, 2011 and December 31, 2010 approximately $42.9 million and $34.3 million, respectively, of the Authority’s bank balance for deposits of $43.6 million and $36.7 million, respectively, were exposed to custodial credit risk, as it was uninsured and uncollateralized

 

**7.             CAPITAL ASSETS**

 

Capital Assets at March 31, 2011 and December 31, 2010 consisted of the following (Dollars in Thousands):

 
| ** **                        | ** ** | **Balance, as of********December 31,   2010** | ** ** | **Additions** | ** ** | **Dispositions** | ** ** | **Transfers********In(Out)** | ** ** | **Balance, as of   March 31,   2011** | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------------------|------------|------------------------------------------------------|------------|
| ** **                        | ** ** | ** **                                                   | ** ** | ** **    | ** ** | ** **       | ** ** | ** **                   | ** ** | **(unaudited)**                                      | ** ** |
| Building and improvements         |       | $                                                            | 132,907    |          | $          | 1,000            |       | $                            | —     |                                                 | $          | 4 |   | $ | 133,911 |   |
| Furniture, fixtures and equipment |       | 33,786                                                       |       | 2,285         |       | —           |       | —                       |       | 36,071                                               |       |
| Less accumulated depreciation     |       | (66,348                                                      | )          | (2,366        | )          | —           |       | —                       |       | (68,714                                              | )          |
|                              |       | 100,345                                                      |       | 919           |       | —           |       | 4                            |       | 101,268                                              |       |
| Construction in Progress          |       | 77,296                                                       |       | 458           |       | —           |       | (4                           | )          | 77,750                                               |       |
| Capital assets - net              |       | $                                                            | 177,641    |          | $          | 1,377            |       | $                            | —     |                                                 | $          | — |   | $ | 179,018 |   |

 

Construction in progress consists primarily of payments to the tribe and various vendors related to the Authority’s master plan development and land improvements. It also includes $3.8 million relating to the slope reinforcement (see Note 5). Substantially all of the Authority’s personal property is pledged as collateral to secure its debt.

 

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**8.         ACCRUED LIABILITIES**

 

Accrued liabilities consisted of the following as of March 31, 2011 and December 31, 2010 (Dollars in Thousands):

 
| ** **                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2011**           | ** ** | **2010**              | ** ** |
|                                       |       | **(unaudited)**    |       |                  |       |
| Accrued in-house progressive slot jackpots |       | $                  | 1,244      |                  | $          | 1,485 |   |
| Accrued payroll and related benefits       |       | 2,127              |       | 1,778                 |       |
| Accrued interest                           |       | 8,125              |       | 3,250                 |       |
| Accrued other expenses                     |       | 1,734              |       | 1,464                 |       |
| Total accrued liabilities                  |       | $                  | 13,230     |                  | $          | 7,977 |   |

 

**9.             LONG-TERM DEBT**

 

Long-term debt consisted of the following as of March 31, 2011 and December 31, 2010 (Dollars in Thousands):

 
| ** **                                                                                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **2011**           | ** ** | **2010**              | ** ** |
| ** **                                                                                        | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
|                                                                                              |       |               |       |                  |       |
| 9-3/4% Senior Notes, net of unamortized issue discount   of $197 and $281. Due November 2011 |       | $                  | 199,804    |                  | $          | 199,719 |   |
|                                                                                              |       |               |       |                  |       |
| Total Long-Term Debt                                                                              |       | 199,804            |       | 199,719               |       |
| Less: current portion                                                                             |       | (199,804           | )          | (199,719              | )          |
|                                                                                              |       |               |       |                  |       |
| Total long-term-debt - net of current maturities                                                  |       | $                  | —     |                  | $          | — |   |

 

On November 7, 2003, the Authority issued the Senior Notes. The proceeds were utilized to fund an expansion project, which included three parking structures, related infrastructure improvements, repayment of various debt and advances and fund payment of various accruals and payables, as well as to increase cash on hand. The proceeds were also utilized to fund a land purchase (the Dugan Property) and settle litigation.  The Senior Notes are collateralized by a first priority pledge of the Authority’s revenue and substantially all of the existing and future tangible and intangible personal property. The Authority may redeem the Senior Notes prior to maturity, in whole or in part, at a redemption price that is equal to par, plus accrued and unpaid interest.  The $200 million principal payment is due November 1, 2011.

 

The Authority’s long-term debt is recorded at an amortized historical cost basis.  The fair value of the Senior Notes was approximately $171.5 million as of March 31, 2011 based on level one inputs, quoted prices in active markets.

 

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**10.****                  ****EMPLOYEE BENEFIT PLAN**

 

The Authority participates in a 401(k) plan, a retirement plan (the “Plan”), which is qualified under Section 401(k) of the Internal Revenue Code.  The Plan is a defined contribution plan administered by an insurance company and is available to all eligible employees of the Casino who have attained age 21 and have at least three months of eligible service as defined in the Plan.  The Plan participants may contribute up to 50 percent of their eligible pretax compensation, subject to legal limitations.  The Authority, at its discretion, will make matching contributions.  Any forfeiture due to employee terminations reduces future Casino contributions.  Participants become vested in employer contributions, as well as any earnings thereon, over a three-year period at the rate of 30 percent, 60 percent and 100 percent at the end of each year, respectively. Employee contributions to the Plan were $0.1 million for the three months ended March 31, 2011, and 2010. The Casino made matching contributions to the Plan of approximately $77,000 and $11,000 during the three months ended March 31, 2011 and 2010, respectively. The Casino temporarily suspended its matching contribution in January 2009 and reinstated it in March 2010.

 

**11.****                   ****RISK MANAGEMENT**

 

The Casino is exposed to various risks of loss related to worker’s compensation and torts; theft of, damage to or destruction of assets; and errors or omissions.  The Casino has purchased commercial insurance policies for said risks.  There has been no significant reduction of insurance coverage, and settlements have not exceeded coverage in the past three years.  The Casino retains the risk of dental claims subject to individual limits ranging from $2,000 to $3,000 per plan member.

 

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

 

The Authority extended its operating lease of the sprung structure that houses the Casino operations.  The amended lease was to expire on June 17, 2012.  On January 12, 2011, the Authority purchased the sprung structure for approximately $0.8 million resulting in the termination of the operating lease. Total rental expense was $0.1 million for the three months ended March 31, 2010 and was insignificant for the three months ended March 31, 2011

 

Other operating leases include leases for office spaces and copiers.

 

**13.****                  ****LEGAL MATTERS**

 

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

 

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

 

Under the Compact as entered into with the State of California in September 1999, the Tribe must pay annual license fees for Class III gaming devices, based on the number of gaming device licenses approved by the state gaming commission.  The Compact does not require a license for the first 350 Class III gaming devices in use and does not require a license fee for an additional 350 machines.  Payments are due on a quarterly basis and are remitted into a state revenue sharing trust fund.  License fees expense totaled $0.3 million for each of the three months ended March 31, 2011 and 2010.

 

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

 

The Authority is an unincorporated instrumentality of the Tribe formed pursuant to an adopted law of the Tribe. While the Authority is not a separate corporation or other legal entity distinct from the Tribe, this tribal law allows the Authority to own and operate its business. This tribal law also provides that the Authority’s obligations 

 

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and other liabilities are not those of the Tribe and that the obligations and liabilities of the Tribe are not those of the Authority. This law is untested and generally has no direct counterpart in other areas of the law. If this law should prove to be ineffective at limiting the Authority’s liability, the Authority’s business and assets could become subject to claims asserted against the Tribe or its assets. Similarly, the Authority would be liable for such claims if the Tribe waived its sovereign immunity to an extent that allowed enforcement of such claims against the Authority’s business or assets.

 

On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into a memorandum of agreement (“MOA”) which settled several long-standing legal disputes between Sonoma County (the “County”) and the Tribe and provides a binding framework for resolving future disputes.  Pursuant to the MOA, as amended, the Tribe has agreed to pay the County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to the County resulting from the Tribe’s various ongoing projects and is intended to support the services being provided by the County. In addition to the mitigation fees, the Tribe will pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribe’s Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and services that serve to promote tourism in the County. Such in lieu fees could total as much as $25 million during the term of the MOA.  The Tribe has made the prior two payments to the County in the total amount of $10.3 million and is not currently seeking reimbursement from the Authority. Effective January 2011, the Authority will be making escalating annual payments until the remainder of the $75 million has been paid and intends to make the next scheduled annual payment to the County required by the MOA in the amount of $3.5 million no later than June 30, 2011.

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed financial statements and related notes included in Item 1 of this report.

 

**Overview**

 

We are an unincorporated governmental instrumentality of the Tribe that owns and operates the Casino.  We offer Class III slot and video poker gaming machines, house banked table games (including Blackjack and Mini-baccarat), and a wide range of food and beverage offerings.

 

*Recent Operational Highlights*

 

As part of the effort to enhance the overall appeal of our casino, we completed a reconfiguration of our gaming floor in April 2009.  This effort has resulted in the reduction of approximately 300 slot machines and 2 table games.  The Tribe maintained our contractual rights under the Compact to operate a total of 1,600 slot machines in our casino.  We considered many factors such as peak period demand, per unit productivity and player comfort in our analysis to ensure that the reduction of gaming devices will not adversely impact our revenues. Throughout 2011, we continued to refine the configuration of our gaming floor.

 

A targeted, cost-efficient renovation project was completed in our fiscal year ended December 31, 2009 as part of an overall strategic operating plan for the casino. In previous anticipation of building a new casino resort, the current facility had not been upgraded for several years.  In addition to the physical plant of the gaming operation, furniture, fixtures, equipment and gaming software was neither replaced nor repaired to adequately service the needs of the business. The overall appearance and appeal of the casino was insufficient to meet basic customer requirements.  Major components of the renovation project included upgrading slot accounting software, slot and table player tracking software, adding new carpeting, new slot chairs, interior and exterior signage and the replacement of paint and wallpaper.  To further enhance the overall gaming experience and appeal to a broader spectrum of potential gamers, two additional food amenities were constructed.  Fortune Café, with 64 seats, offers a quick service, cook-to-order Asian-themed menu and is designed to be a high-margin, high-volume, quick turn restaurant and the Center Stage Bar & Grill, with 64 seats, offers “bar top” video poker games, was recently expanded to include a casual dining area and an upgraded stage and sound system that hosts live music and entertainment on the weekends.

 

In an ongoing effort to improve the overall appearance and appeal of the Casino to meet customer requirements, we completed two additional renovation projects in 2010.  The first project, a high-limit room offering high-limit slot machines and table games, comfortable seating, a bar with food and beverage service, and a private restroom was directed to appeal to a higher end player.  The second project, Lucky Dogz, is a 24-hour snack shop serving hot dogs, sandwiches, salads, snacks and drinks.

 

In January 2011, the poker tables were removed to make way for approximately 60 penny denomination slot machines that were placed in service in February 2011.

 

The construction of our new casino resort has temporarily been postponed due to lack of available financing.  We are actively reviewing our financing options and remain “shovel ready” to proceed.

 

The Senior Notes mature on November 1, 2011. We expect to enter the financing market after we resolve ongoing negotiations with Sonoma County regarding our MOA, which include issues such as the timing of our future payments to the County and details regarding the grading and location of the required emergency access road that would significantly impact the cost of construction.  While we expect to be able to refinance this debt, there can 

 

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be no assurances that this in fact will occur.

 

**FASB Codification Discussion**

 

Over the years, the Financial Accounting Standards Board (“FASB”) and other designated GAAP-setting bodies, have issued standards in the form of FASB Statements, Interpretations, FASB Staff Positions, EITF consensuses, AICPA Statements of Position, etc.  The FASB recognized the complexity of its standard-setting process and embarked on a revised process in 2004 resulting in the release of the FASB Accounting Standards Codification (the “ASC”) on July 1, 2009.  The ASC was effective for financial statements for interim or annual reporting periods ending after September 15, 2009.

 

The ASC became the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, the ASC superseded all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the ASC will become nonauthoritative.

 

Following the ASC, FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. FASB will not consider Accounting Standards Updates as authoritative in their own right.  Accounting Standards Updates will serve only to update the ASC, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the ASC.

 

**Critical Accounting Policies and Estimates**

 

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

 

·                              Casino Revenues — Casino revenue is recognized as the net win from gaming activities, which is the difference between gaming wins and losses. Casino revenues are net of accruals for anticipated payouts of progressive slot jackpots and certain player incentives, when earned by the customer.

 

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

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

 

We evaluate our capital assets for impairment in accordance with the Accounting pronouncement GASB No. 42, “*Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.*”  GASB No. 42 establishes accounting and financial reporting standards for impairment of capital assets.  Our capital assets include building and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstances is outside the normal

 

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life cycle of the capital asset.  We are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred.  Common indicators of impairment include evidence of physical damage where restoration efforts are needed to restore service utility, enactment or approval of laws or regulations setting standards that the capital asset would not be able to meet, technological development or evidence of obsolescence, a change in the manner or expected duration of use of a capital asset or construction stoppage.  GASB No. 42 requires us to report the effects of capital asset impairment in our financial statements when they occur, rather than as part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset, and to account for insurance recoveries in the same manner.

 

·                              Accrued Progressive Slot Jackpots — Accrued progressive slot jackpots consist of estimates for prizes relating to various games that have accumulated jackpots. We have recorded the anticipated payouts as a reduction of casino revenues and as a component of accrued liabilities.  We do not accrue for the base jackpot.

 

·                              Contingencies — We assess our exposure to loss contingencies, including legal matters, and provide for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be materially impacted. As of March 31, 2011, we have determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal actions change materially, the addition of accruals for such items in future periods may be required.

 

Codification — There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with the Codification issued by the FASB. The statements of revenues, expenses and changes in net assets (deficit) are a combined statement under GASB pronouncements. The FASB Codification allows a statement of income or operations and a separate statement of owners’ or shareholders’ equity (deficit), which is where distributions to owners would be presented. The amount shown as income before distributions to the Tribe would be the most comparable amount to net income computed under the FASB Codification. We are a separate enterprise fund of the Tribe, a governmental entity, and as such there is no owners’ or shareholders’ equity (deficit) as traditionally represented under the FASB Codification.  The most comparable measure of owners’ equity (deficit) is presented on our balance sheet as net assets (deficit).

 

The SEC has issued a final rule, *Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers* that is applicable to us. This rule provides a permanent exemption for nonaccelerated filers from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act of 2002 (“SOX”). Specifically, this rule adopts amendments to SEC rules and forms to conform them to Section 404(c) of SOX, as added by Section 989G of the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” Section 404(c) provides that Section 404(b) of SOX does not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934.

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

** **

**RESULTS OF OPERATIONS**

**For the Three Months Ended March 31, 2011 and 2010**

**(Dollars in Millions)**

 
| ** **                                 | ** ** | ** **         | ** ** | ** **   | ** ** | **Dollar**                  | ** ** | **Percentage**              | ** ** |
|--------------------------------------------|------------|--------------------|------------|--------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **March 31,** | ** ** | **Variance** | ** ** | **Variance**                | ** ** |
| ** **                                 | ** ** | **2011**           | ** ** | **2010**     | ** ** | **2011 vs. 2010** | ** ** | **2011 vs. 2010** | ** ** |
| **OPERATING REVENUES:**                    |       |               |       |         |       |                        |       |                        |       |
|                                       |       |               |       |         |       |                        |       |                        |       |
| Casino                                     |       | 30.1               |       | 30.9         |       | (0.8                        | )          | -2.7                        | %          |
| Food and beverage                          |       | 1.6                |       | 1.4          |       | 0.1                         |       | 9.1                         | %          |
| Other                                      |       | 0.2                |       | 0.3          |       | —                      |       | -14.4                       | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| Gross revenues                             |       | 31.9               |       | 32.6         |       | (0.8                        | )          | -2.3                        | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| Promotional allowances                     |       | (0.5               | )          | (0.4         | )          | 0.2                         |       | 44.6                        | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| Net revenues                               |       | 31.3               |       | 32.3         |       | (0.9                        | )          | -2.8                        | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| OPERATING EXPENSES:                        |       |               |       |         |       |                        |       |                        |       |
| Casino                                     |       | 4.3                |       | 3.8          |       | 0.5                         |       | 13.1                        | %          |
| Food and beverage                          |       | 1.6                |       | 1.8          |       | (0.2                        | )          | -10.8                       | %          |
| Selling, general, and administrative       |       | 9.7                |       | 10.6         |       | (0.9                        | )          | -8.5                        | %          |
| Depreciation                               |       | 2.4                |       | 2.5          |       | (0.1                        | )          | -3.8                        | %          |
| Gaming commission and surveillance expense |       | 0.7                |       | 0.8          |       | (0.1                        | )          | -9.0                        | %          |
| Compact revenue sharing trust fund         |       | 0.3                |       | 0.3          |       | —                      |       | 0.0                         | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| Total Operating expenses                   |       | 19.0               |       | 19.8         |       | (0.8                        | )          | -3.8                        | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| INCOME FROM OPERATIONS                     |       | 12.3               |       | 12.5         |       | (0.2                        | )          | -1.3                        | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| NON-OPERATING EXPENSE-Net:                 |       |               |       |         |       |                        |       |                        |       |
| Interest expense                           |       | (5.2               | )          | (5.2         | )          | (0.1                        | )          | -1.1                        | %          |
| Interest income                            |       | —             |       | —       |       | —                      |       | -36.4                       | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| Non-operating expense-net                  |       | (5.2               | )          | (5.2         | )          | (0.1                        | )          | -1.0                        | %          |
|                                       |       |               |       |         |       |                        |       |                        |       |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | 7.2                |       | 7.3          |       | (0.1                        | )          | -1.5                        | %          |

 

**Results of Operations**

 

**Comparison of the three months ended March 31, 2011 and 2010**

 

*Net revenues*. Net revenues for the three months ended March 31, 2011 decreased by $0.9 million to $31.3 million, from $32.3 million for the three months ended March 31, 2010.  We believe the decrease in net revenues is attributable to the quarterly variation of slot hold percentages between the first quarter of 2011 and the first quarter of 2010. Approximately 96.0% of our net revenues were from our gaming activities in the first quarter of 2011, as compared to 95.9% in the comparable prior year period.  We generated $27.4 million or 87.4% of our net revenues, net of respective player incentives of $3.2 million, from gaming devices, and $2.7 million, or 8.6% of our net revenues, net of respective player incentives of approximately $40,000, from table games and poker for the three months ended March 31, 2011, as compared to $28.0 million or 86.7% of our net revenues, net of respective player incentives of $2.8 million, from gaming devices, and $3.0 million or 9.2% of net revenues,from table games and poker for the three months ended March 31, 2010.  Our win per slot machine per day was $240 for the three months ended March 31, 2011, which decreased by $17 from $257 for the three months ended March 31, 2010.  We had an average number of slot machines of 1,269 for the three months ended March 31, 2011, compared to 1,211 for the three months ended March 31, 2010. At March 31, 2011, we had 1,301 slot machines on the gaming floor.  In January 2011, the poker room was closed and converted to space for approximately 60 penny

 

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denomination slot machines that were placed in service in February 2011.

 

We generated $1.0 million in food and beverage sales for the three months ended March 31, 2011, compared to $1.1 million for the three months ended March 31, 2010 net of promotional allowances .  The retail value of our food and beverage provided to customers without charge is included in gross revenues and then deducted as promotional allowances. We do not provide complimentary alcoholic beverages to our patrons.

 

*Promotional allowances*. Promotional allowances for the three months ended March 31, 2011 were $0.5 million, or 1.7% of net revenues, compared to $0.4 million, or 1.2% of net revenues, for the three months ended March 31, 2010.

 

*Operating expenses*. Operating expenses for the three months ended March 31, 2011 were $19.0 million, or 60.6% of net revenues, compared to $19.8 million, or 61.3% of net revenues, for the three months ended March 31, 2010. The decrease in operating expenses is attributable to expense reductions due to cost saving measures we adopted to adjust for a slight decline in customer demand.

 

Casino expense includes costs associated with our gaming operations and an allocation of food and beverage expense related to the cost of complimentary activities.  Casino expense for the three months ended March 31, 2011 was $4.3 million, or 14.4% of Casino revenues, compared to $3.8 million, or 12.4% of casino revenues, for the three months ended March 31, 2010.

 

Food and beverage expense for the three months ended March 31, 2011 was $1.6 million, or 157.4% of food, beverage and retail revenue, net of promotional allowances, compared to $1.8 million, or 170.1% of food and beverage revenue, net of promotional allowances for the three months ended March 31, 2010.  Our food and beverage expense ratio is significantly higher than the industry average because we have utilized these amenities as an opportunity to build customer loyalty rather than as a source of income.

 

Selling, general and administrative expense for the three months ended March 31, 2011 decreased by $0.9 million to $9.7 million, or 30.8% of net revenues, from $10.6 million, or 32.8% of net revenues, for the three months ended March 31, 2010.  The decrease in selling, general and administrative expense is attributable primarily to a decrease in advertising expenses.

 

Depreciation expense for the three months ended March 31, 2011 was $2.4 million compared to $2.5 million for the three months ended March 31, 2010.  Depreciation expense was computed using the straight-line method over the useful life of property, plant and equipment. The decrease in depreciation expense is due to an increase in the amount of our assets becoming fully depreciated.

 

Gaming Commission and surveillance expense for the three months ended March 31, 2011 was $0.7 million compared to $0.8 million for the three months ended March 31, 2010. The decrease is due to reduction in staff and related payroll expenses and benefits.

 

The Compact requires us to pay a quarterly fee to the State of California’s revenue sharing trust fund, based on the number of licensed gaming devices we are allowed to operate.  Revenue sharing trust fund fees assessed were $0.3 million for each of the three months ended March 31, 2011 and 2010.

 

*Income from operations.* Income from operations for the three months ended March 31, 2011 was $12.3 million, or 39.4% of net revenues, compared to $12.5 million, or 38.7% of net revenues, for the three months ended March 31, 2010.  The decrease in income from operations is primarily attributable to the variation in slot hold percentages between the first quarter of 2011 and 2010.  Offsetting the decrease in revenues was the decrease in operating expenses from our cost saving measures.

 

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*Non-operating expense, net.* Non-operating expense, net for the three months ended March 31, 2011 was $5.2 million, or 16.4% of net revenues, compared to $5.2 million or 16.1% of net revenues, for the three months ended March 31, 2010, primarily representing interest expense for both periods.  Interest costs capitalized in the three months ended March 31, 2011 was $0.1 million.

 

*Income before distributions to Tribe*. Income before distributions to the Tribe for the three months ended March 31, 2011 was $7.2 million, or 22.9% of net revenues, compared to $7.3 million, or 22.6% of net revenues, for the three months ended March 31, 2010

 

*Distributions to the Tribe*. Distributions to the Tribe for the three months ended March 31, 2011 were $3.5 million, compared to $3.4 million for the three months ended March 31, 2010.

 

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**Liquidity and Capital Resources**

 

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

 

Construction of our Casino and infrastructure improvements commenced on April 1, 2002. As of March 31, 2011, we had spent approximately $247.7 million, net of disposals, on the planning, development and construction of our casino, infrastructure and furniture, fixtures and equipment. We financed the development with borrowings and development advances.

 

On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into the MOA that, among other things, settled several long-standing legal disputes between Sonoma County and the Tribe and provides a binding framework for resolving future disputes.  Sonoma County agreed to drop its opposition to the Tribe’s application for a liquor license subject to the agreement by the Tribe to construct an emergency access road that meets Sonoma County’s approval.

 

Pursuant to the MOA, as amended, the Tribe has agreed to pay Sonoma County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to Sonoma County resulting from the Tribe’s various ongoing and proposed development projects and is intended to support the services being provided by Sonoma County.  In addition to the mitigation fees, the Tribe will pay a fee in lieu of Sonoma County’s Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms that may be developed by the Tribe, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribe’s Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and services that serve to promote tourism in Sonoma County. Such in lieu fees could total as much as $25 million during the term of the MOA. The Tribe has made the prior two payments to the County in the total amount of $10.3 million and is not currently seeking reimbursement from us. Effective January 2011, we will be making escalating annual payments until the remainder of the $75 million has been paid. We intend to make the next scheduled annual payment to the County required by the MOA in the amount of $3.5 million no later than June 30, 2011.

 

To date, access to the Tribe’s reservation and our casino has been over a single, two-lane road. Under the MOA, the Tribe covenanted as a condition to the issuance of our liquor license to construct an emergency access road from the casino over either the Dugan Property or at an alternative site subject to approval by Sonoma County.  The MOA requires that road construction commence no later than 60 days after the Dugan Property is taken into trust by the United States for the benefit of the Tribe, the effective date of which was November 2010 (the “Trust Date”) and to be completed no later than 365 days after the Trust Date, subject to an extension if such commencement date occurs during the rainy season (approximately October 15th through April 15th).  Notwithstanding the Trust Date, we believe the Tribe will be able to obtain an extension of the construction deadline from Sonoma County, but there is no assurance that it will be able to do so. Various factors, including unknown site conditions, potential labor disputes, potential cost increases and similar variables could result in increased construction costs and there is no assurance that we will not experience cost-overruns.

 

On June 28, 2007, we and the Tribe announced plans to build a destination resort. The proposed project includes the construction of a casino, 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. The proposed project includes three above-ground levels and a hotel tower (up to eight levels) and four below-ground levels. We and the Tribe have suspended preliminary construction relating to this expansion project. We will be unable to proceed with the expansion project for the foreseeable future due to the unavailability of capital and lack of cash flow.

 

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Prior to the suspension of the master planning and related infrastructure improvements on the reservation relating to the expansion project in early 2009, the Tribe incurred approximately $67 million in total expenses on our behalf for the expansion project.  We reimbursed the Tribe approximately $52.4 million through FY 2009.  In January 2010, our Board of Directors authorized the reimbursement to the Tribe in an amount not to exceed approximately $14.9 million of costs incurred by the Tribe for the master planning of the proposed resort and our allocable share of infrastructure improvements on the Tribe’s reservation. The approval included a payment reimbursement schedule to the Tribe of $2.7 million on January 18, 2010, $0.4 million monthly from February 1, 2010 through April 1, 2010 and $0.7 million monthly thereafter without exceeding $14.9 million.  We reimbursed the Tribe $9.5 million for the fiscal year ended December 31, 2010 and $2.1 million for the three months ended March 31, 2011.  The remaining $2.6 million is included in Payable to Tribe in the Condensed Balance Sheet at March 31, 2011.  When the reimbursement payments are made or accrued, the related amounts are capitalized and reflected as construction-in-progress. The reimbursed costs consist of engineering and design costs related to the proposed master plan development, including electrical, HVAC, landscaping, interior design services and consulting fees for legal, and feasibility services, as well as the construction costs of the lower Acorn Road.

 

Our capital expenditures for the three months ended March 31, 2011 and 2010 were $5.0 million and $6.4 million, respectively.  The addition to capital expenditures for the three months ended March 31, 2011 consisted of construction-in-progress related to the slope reinforcement of which approximately $1.0 million was reimbursed to the Tribe; to the master plan development of our resort of which $2.1 million was reimbursed to the Tribe; as well as costs relating to remodels of our Casino and restaurants, and acquisitions of slot machines, vehicles and equipment of $2.0 million.

 

The Tribe incurred expenses related to the reinforcement of the slope on the northwest side of the Reservation near the Casino.  In May 2010, our Board of Directors authorized the reimbursement to the Tribe in an amount not to exceed $0.9 million and an additional $2.4 million was approved in August 2010.  In October 2010, our Board of Directors authorized the reimbursement to the Tribe not to exceed $3.5 million and an additional $0.3 million was approved in March 2011. As of March 31, 2011, we incurred approximately $3.8 million in construction costs of which $0.7 million is accrued in Payable to Tribe.  We currently expect that the cost of this project will be approximately $3.8 million.

 

As part of the effort to enhance the overall appeal of our casino, we completed a reconfiguration of our gaming floor in April 2009.  This effort has resulted in the reduction of approximately 300 slot machines and 2 table games.  We will maintain our contractual rights under the Compact to operate a total of 1,600 slot machines in our casino and pay the related RSTF payments.  We considered many factors such as peak period demand, per unit productivity, and player comfort in our analysis to ensure that the reduction of gaming devices will not adversely impact our revenues.  The reduction of gaming units on the casino floor has provided us an opportunity to upgrade current amenities, improve player comfort and enhance entertainment value. We are confident that these improvements, targeted at improving product appeal, will ultimately open up a greater spectrum of potential consumers within our designated market area.  In combination with our continuing effort to improve operational efficiency, upgrading our gaming technology, and refocusing our marketing efforts, we are confident that we will have set a solid foundation for improved and sustained cash flows.  Throughout 2011, we continued to refine the configuration of our gaming floor.

 

In an ongoing effort to improve the overall appearance and appeal of the Casino to meet customer requirements, we completed two additional renovation projects in 2010.  The first project, a high-limit room offering high-limit slot machines and table games, comfortable seating, a bar with food and beverage service, and a private restroom was directed to appeal to a higher end player.  The second project, Lucky Dogz, is a 24-hour snack shop serving hot dogs, sandwiches, salads, snacks and drinks.  In January 2011, our poker room was converted to space for approximately 60 penny denomination slot machines that were placed in service in February 2011.

 

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As of March 31, 2011, we had cash and cash equivalents, net of restricted cash of $43.7 million, compared to $36.7 million as of December 31, 2010. We had restricted cash of $4.3 million as of March 31, 2011 and December 31, 2010, respectively.  Our principal source of liquidity during the three months ended March 31, 2011 consisted of cash flow from operating activities.

 

Restricted cash accounts were established from net proceeds from the Notes Offering and investment earnings thereon set aside in construction financing accounts reserved for land development, more specifically the emergency access road which will be used to further develop either the Dugan Property or an alternate access road. Our restricted cash is held in escrow accounts that can only be used for authorized construction disbursements until the related projects are completed. The balance of our restricted cash is reserved for the development of an emergency access road from our Casino to Highway 128.  Our operating account is pledged to the Trustee for the benefit of itself and the holders of the Senior Notes until disbursed in accordance with the terms of the Cash Collateral and Disbursement Agreement. Funds may generally be disbursed by our bank from the operating account for all purposes permitted by the Indenture.

 

Net cash used in capital and related financing activities for the three months ended March 31, 2011 was $5.0 million, compared to $6.7 million for the three months ended March 31, 2010. This decrease was attributable to several factors, which included a decrease in purchases of capital assets and decrease in transfers to the Tribe for development costs and slope reinforcement.

 

Cash flows provided by investing activities consisting of interest income for the three months ended March 31, 2011 and 2010 was negligible. Cash flows used in non-capital financing activities for the three months ended March 31, 2011 was $3.5 million, compared to $3.4 million for the three months ended March 31, 2010.  Cash flows used in non-capital financing activities consist of distributions to the Tribe.

 

We believe that existing cash balances, cash from operations, as well as permitted disbursements from our restricted cash escrow accounts will provide adequate funds for our working capital needs, planned capital expenditures and debt service requirements for the foreseeable future. However, our ability to fund our operations, make planned capital expenditures, make scheduled debt payments and refinance our 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.

 

The Senior Notes mature on November 1, 2011. We expect to enter the financing market after we resolve ongoing negotiations with Sonoma County regarding our MOA, which include issues such as the timing of our future payments to the County and details regarding the grading and location of the required emergency access road that would significantly impact the cost of construction.While we expect to be able to refinance this debt, there can be no assurances that this in fact will occur.

 

**Contractual Obligations as of March 31, 2011**

 

The following table summarizes our contractual obligations and commitments as of March 31, 2011, excluding those obligations and commitments to the Tribe (Dollars in Thousands):

 

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| ** **                     | ** ** | **Total** | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **Over 5 Years** | ** ** |
|--------------------------------|------------|-----------|------------|-----------------|------------|--------------------|------------|--------------------|------------|----------------------------|------------|
| Long-term debt obligations (a) |       | $         | 200,000    |            | $          | 200,000            |       | $                  | —     |                       | $          | — |   | $ | — |   |
| Operating lease obligations    |       | 1,439     |       | 314             |       | 616                |       | 509                |       | —                     |       |
| Payments to County under MOA   |       | 64,700    |       | 3,500           |       | 11,733             |       | 11,774             |       | 37,693                     |       |
| Total obligations (b)          |       | $         | 266,139    |            | $          | 203,814            |       | $                  | 12,349     |                       | $          | 12,283 |   | $ | 37,693 |   |

 

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(a)   Excluded from long-term debt obligations above are interest payments of $19.5 million payable through the maturity of the Senior Notes. The Senior Notes mature on November 1, 2011.  If refinancing were to take place prior to the maturity of our Senior Notes, we will calculate the interest due on a prorated basis.

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

 

In January 2010, our Board of Directors authorized the reimbursement of the Tribe in an amount not to exceed $14.9 million for expenses that the Tribe incurred on our behalf for master planning of the proposed resort and our allocable share of infrastructure improvements on the reservation.  The approval included a payment schedule under which we agreed to reimburse the Tribe $0.4 million monthly from February 1, 2010 through April 1, 2010, and $0.7 million monthly thereafter without exceeding $14.9 million (see Note 5 of our unaudited condensed financial statements) which are not included in total obligations above.

 

**Regulation and Taxes**

 

We are subject to extensive regulation by the Tribe’s Gaming Commission, the California Gambling Control Commission and the National Indian Gaming Commission. Changes in applicable laws or regulations could have a significant impact on our operations.

 

On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into the MOA that, among other things, settled several long-standing legal disputes between Sonoma County and the Tribe, and provides a binding framework for resolving future disputes.  Under the MOA, the County agreed to drop its opposition to the Tribe’s application for a liquor license.  In a related action, the Alexander Valley Association (“AVA”), a local business and residents association which has long objected to the issuance of a liquor license, agreed to withdraw its objections to the license and has persuaded its members and a number of other protestors to do likewise.

 

On May 29, 2008, the California Department of Alcoholic Beverage Control (“ABC”) issued a liquor license to our gaming and entertainment facility. However, the Tribe has agreed to restrict the sale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m. on weekdays, and to stop serving alcohol altogether at midnight except for Friday and Saturday nights and the nights before holidays. The Tribe has also agreed not to serve liquor on the Casino floor, although patrons may bring drinks purchased at the restaurant or bar on to the Casino floor. The restrictions may be renegotiated following the first to occur of the three year anniversary of the MOA or the opening of a hotel.

 

In addition, the MOA commits the County Sheriff’s Department and Fire Marshall to providing public safety and fire services to the Casino and the Tribe’s future gaming projects on the Tribe’s reservation, provides detailed agreements on off reservation impact mitigation measures, and permits the Tribe’s application to take the Dugan Property into trust to proceed without further opposition by Sonoma County.

 

Pursuant to the MOA, the Tribe has agreed to pay the County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to the County resulting from the Tribe’s various ongoing projects and is intended to support the services being provided by Sonoma County.  In addition to the mitigation fees, the Tribe will pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms, that may be developed by the Tribe, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribe’s Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and

 

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services that serve to promote tourism in Sonoma County. Such in lieu fees could total as much as $25 million during the term of the MOA. The Tribe has made the prior two payments to the County in the total amount of $10.3 million and is not currently seeking reimbursement from us. Effective January 2011, we will be making escalating annual payments until the remainder of the $75 million has been paid. We intend to make the next scheduled annual payment to the County required by the MOA in the amount of $3.5 million no later than June 30, 2011.

 

We believe the MOA has had significant positive impacts on the conduct of our business and our and the Tribe’s ability to develop our expansions plans and construct our proposed hotel and casino resort.

 

Since we are an unincorporated governmental instrumentality of the Tribe located on reservation land held in trust by the United States of America, we are not subject to federal or state income taxes. Various efforts have been made in Congress over the past several years to enact legislation that would subject the income of tribal governmental business entities, such as us, to federal income tax. Although no such legislation has been enacted, similar legislation could be passed in the future. It is not possible to determine with certainty the likelihood of possible 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 and cash flow from operations.

 

**Impact of Inflation**

 

Absent changes in competitive and economic conditions or in specific prices affecting the casino industry, we do not expect that inflation will have a significant impact on our Casino operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the casino industry in general.

 

**Seasonality**

 

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

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

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

 

Through March 31, 2011, we had not invested in derivative or foreign currency-based financial instruments.  We primarily have invested in money markets.  As such, we do not believe we have material exposure to market risk.

 

**ITEM 4T.  CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures**

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.  Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the report we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Chief Executive Officer and our Chief Financial Officer, to allow timely

 

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decisions regarding required disclosures.  Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2011, our disclosure controls and procedures were effective.

 

**Changes to Internal Controls Over Financial Reporting**

 

There have been no changes in internal control over financial reporting during the period covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II.****               ****OTHER INFORMATION**

** **

**ITEM 1.****                 ****LEGAL PROCEEDINGS**

 

We are involved in litigation and disputes from time to time in the ordinary course of business with vendors and patrons. We believe that the aggregate liability, if any, arising from such litigation or disputes will not have a material adverse effect on its results of operations, financial condition or cash flows.

 

**ITEM 1A.****              ****RISK FACTORS**

 

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

 

***We face competition from other California Indian casinos, casinos located in Nevada and elsewhere and other forms of gaming.***

 

The gaming industry is very competitive. We face or will face competition from existing and proposed California Indian gaming facilities in the surrounding area and elsewhere in California, and with casino gaming in Nevada, including gaming facilities that could be located closer to the San Francisco Bay area. We also compete with card rooms located in the surrounding area, and other forms of gaming that are legal in California, including on and off-track wagering and the California State Lottery, as well as with non-gaming leisure activities. The availability of such alternative gaming and non-gaming activities may increase in the future. Many of our competitors have substantially greater resources and name recognition than our casino. In addition, we may also face competition in our market from new facilities that may be built by other Indian tribes in the future.

 

Federal and California law currently permit Class III casino gaming only on certain tribal lands pursuant to compacts negotiated with the State of California and approved by the U.S. Secretary of the Interior. Class II gaming for tribes is permitted only on federally recognized tribal lands. There are currently 55 tribes operating 56 compacted gaming facilities in the State of California. The closest existing tribal competitors are the Hopland Sho-ka-wah Casino, located approximately 35 miles and 40 minutes north of the Tribe’s reservation; the Konocti Vista Casino, located approximately 45 miles and one hour and ten minutes northeast of the Tribe’s reservation; the Cache Creek Indian Casino and Bingo, located approximately 95 miles and two hours and fifteen minutes east of the Tribe’s reservation; and the Thunder Valley Casino, located approximately 124 miles and two hours and forty-five minutes east of the Tribe’s reservation. In addition, several potential competitors are attempting to develop and open casinos near our casino.  Non-tribal card rooms that offer poker and some other games that would be classified as Class II games if conducted by an Indian tribe exist within 50 miles of the Tribe’s reservation.

 

The most significant competition may come from the proposed Graton Rancheria casino. In April 2003, the Federated Indians of the Graton Rancheria, also known as the Coast Miwoks, announced plans to purchase land in Sonoma County near Highway 37 and Lakeville Highway, approximately 20 miles south of our casino and closer to San Francisco than the Tribe’s reservation. The proposed location would lie directly between our casino and the majority of the 7 million population base of the San Francisco Bay area. The announced plans include construction of a casino-hotel complex that will be managed by Station Casinos, Inc., based in Las Vegas, Nevada. The proposed facility would house approximately 2,000 slot machines, 120 card tables and

 

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bingo, as well as a 300-room hotel, five restaurants and a theater with up to 2,000 seats. As a result of environmental opposition to the development of such location, the Federated Indians of the Graton Rancheria announced plans to move the proposed casino-hotel complex to a site near Rohnert Park, California. The Rohnert Park City Council has approved an agreement with the Graton Tribe to share revenues with Rohnert Park and various community groups, approximately $200.0 million over 20 years, to offset the impact of the proposed project.

 

On October 1, 2010, the U.S. Department of the Interior took the proposed Rohnert Park site into federal trust on behalf of the Graton Tribe. The Department initially published notice of its intent to take the land into trust in May 2008, but withheld action on the trust acquisition due to a lawsuit filed by a citizens group opposed to the proposed casino.  After the U.S. Court of Appeals for the Ninth Circuit upheld the district court’s dismissal of the lawsuit on June 3, 2010, the Interior Department moved forward with taking the land into trust.  The land’s going into trust represents a significant step toward the development of a casino at Rohnert Park, as do the separate agreements negotiated between the Graton Tribe and Sonoma County and Marin County, whereby the counties pledged to not challenge the land-into-trust decision and the Graton Tribe agreed not to build any additional casinos in Sonoma or Marin Counties.

 

Also on October 1, 2010, the National Indian Gaming Commission (“NIGC”) approved a management contract between the Graton Tribe and SC Sonoma Management, LLC, an entity owned by Station Casinos, Inc.  As part of its approval of the management contract, the NIGC also concluded its environmental review of and approved the environmental impact statement for the proposed casino.  A spokesperson for the citizens group that filed the lawsuit challenging the fee-to-trust acquisition has stated publicly that the group will challenge the adequacy of the environmental review and approval, but no lawsuit has yet been filed.

 

Because the management contract approved by the NIGC was for Class II gaming, the Graton Tribe can operate electronic bingo machines at the proposed casino without a tribal-state compact with the State of California.  The NIGC approved the Graton Tribe’s gaming ordinance in August 2008.  Before the Graton Tribe can operate Class III gaming at the Rohnert Park site, however, a tribal-state compact will be required.  And before the Graton Tribe can operate either Class II or Class III gaming, the NIGC must issue an opinion finding that the lands at the Rohnert Park site are eligible for gaming under the Indian Gaming Regulatory Act.  The Graton Tribe must also obtain financing for the proposed Rohnert Park casino project.

 

The Hopland Sho-ka-wah Casino is located several miles east of U.S. Highway 101 on Route 175. The facility features a 40,000 square foot casino offering 540 slot machines and eight table games, consisting of poker, Pai Gow, and blackjack.  The facility contains a bar and grill offering, a small cafe-type food and beverage area, and a fine-dining steak house. Hopland operates a small bus program but does not operate a hotel.

 

East of the Sho-ka-wah Casino is the Konocti Vista Casino in Lakeport, California. Lakeport is located approximately 37 miles from Cloverdale with access off Highway 29.  The casino currently houses 349 slot machines and 6 table games. The facility also offers an 80-room hotel and marina with small pool as well as a 74-space recreational vehicle park. The food and beverage program includes a restaurant and a bar.

 

The Thunder Valley Casino opened in June 2003 and is located at the intersection of Highway 65 and Interstate 80 just outside of Sacramento, California. The Nevada-style property offers approximately 3,000 slot machines and 125 table games that include blackjack, baccarat, and a variety of poker games including Let It Ride and Pai Gow. The facility features a salon, private dining rooms, bars and butler service. In addition, it houses a 500-seat buffet and various fast food options. The facility also features a nightclub.  In 2008, the Thunder Valley Casino announced plans to build a new 650-room, 23-story hotel featuring a spa, family center and other amenities.  Thunder Valley also planned to construct a 3,000-seat performing arts center, and to expand the casino to include three new restaurants, more gaming space and new poker room, and a parking structure capable of holding 5,000 cars.  The expansion began in July 2008 but was halted in November 2008.  In May 2009, the casino resumed work on the expansion, but the project was scaled down to include a 17-story hotel with 297 rooms; a 700-seat, 10,000-square-feet multipurpose entertainment center

 

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in place of the performing arts center; and a 7-story parking structure with approximately 3,800 spaces.  The hotel opened in June 2010.  Thunder Valley also added 40,000 square feet of space to its casino floor and renovated the existing casino floor to match the new space.  The casino now has 144,500 square feet of gaming space.

 

The Cache Creek Casino is located approximately 50 miles west of Sacramento and offers over 2,000 slot machines. The casino recently added a 14-table poker room and houses 122 table games including blackjack, Texas Hold’em, Pai Gow and mini-baccarat. The facility also includes a 200-room luxury hotel, 9 restaurant outlets, an entertainment pavilion with seating for 600, a spa and outdoor pool, an 18-hole golf course and a 1,883 spot parking structure. In 2007, Cache Creek announced plans to add more shops and parking and expand its gaming floor, and to add a 10-story hotel tower with 467 rooms, and a 62,500 square-foot convention center capable of seating 2,300 people.  These expansion plans were put on hold in early October 2009, but were resumed in January 2010 when the Cache Creek Casino announced plans to resume the expansion, proposing to add over 20,000 square-feet of casino space, a 52,440 square-foot convention center, and a 900-car six-story garage.  The construction of the event center and parking garage was halted in September 2010, though the renovation of the existing 200-room hotel has continued and is expected to be completed in September 2011.

 

The Lytton Band of Pomo Indians currently operates a 70,000 square-foot casino with over 1,300 Class II electronic bingo machines and 11 table games on a 9-acre site in a card room in San Pablo, near Oakland, California, on land that was placed in trust for the tribe through congressional legislation.  The Lytton Band signed a compact with the Governor of California for operating Class III casino gaming on the San Pablo site in 2004, but in 2005 the state legislature withheld its approval of this compact. In May 2007, legislation was introduced in the U.S. Senate that would require the Lytton Band to forego any Class III machines at the San Pablo site and instead limit itself to operating its existing Class II machines. This legislation was passed by the Senate in November 2007 and referred to the Committee on Natural Resources in the U.S. House of Representatives, but no further action was taken.  The legislation was again introduced in the U.S. Senate in January 2009, and the Senate passed the bill in March 2009, but no further action was taken during that session of Congress. The legislation was reintroduced in the Senate on May 4, 2011.

 

The Twin Pine Casino and Hotel, owned and operated by the Middletown Rancheria of Pomo Indians, is located on Highway 29 in Lake County, approximately 34 miles from our casino. The Twin Pine Casino and Hotel includes a 60-room hotel, three food areas and a wine tasting room, as well as 50,000 square feet of gaming space with approximately 520 slot machines and 12 table games consisting of blackjack and poker.

 

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

 

The Guidiville Band has plans to operate a 240,000 square-foot casino with 124,000 square-feet of gaming space, along with two hotels, a conference center, retail shops, restaurants and two parking structures on land currently owned by the City of Richmond at the former Point Molate Naval Base in Richmond, California.  The project is still in its early stages, as no land transfer has been approved and the environmental review must be completed.  The draft environmental impact study for the proposed project was released in July 2009, and the Bureau of Indian Affairs held a public hearing on the draft study in August 2009 and took public comments on the study until September 23, 2009.  The environmental study has two components.  A final environmental impact report, prepared by the City of Richmond pursuant to the California Environmental Quality Act, was released in February 2011 and certified by the Richmond City Council on March 8, 2011 as being accurate and complete.  A separate final environmental impact statement, prepared under the National Environmental Policy Act, is being prepared by the Bureau of Indian Affairs.

 

On April 5, 2011, the Richmond City Council voted 5-2 not to continue with plans to develop the proposed casino at Point Molate.  This vote poses significant problems for the project, as the City Council must approve the transfer of the Point Molate land to

 

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the Guidiville Band.  The City Council’s vote followed a November 2010 vote on a city-wide advisory measure in which a majority of voters opposed the casino.  After voting against the proposed casino at its April 5, 2011 meeting, the City Council directed its staff to begin a 120-day negotiation with the project developer for a non-gaming alternative for the Point Molate land.

 

The Scotts Valley Band hopes to build a 225,000 square-foot casino complex and five-story parking garage on a 29.87-acre site in unincorporated Contra Costa County, near Richmond, California.  In March 2008, the Bureau of Indian Affairs announced the filing of the Final Environmental Impact Statement for the proposed project.  A municipal services agreement between the City of Richmond and the Scotts Valley Band was challenged in court on environmental review grounds, and the agreement’s validity was upheld in February 2010.

 

The Cloverdale Rancheria has announced preliminary plans to build a 596,000 square-foot hotel/spa and casino resort some ten miles north of our casino on U.S. Highway 101, and they and their financial backers have purchased approximately 79 acres for the proposed facility.  The Cloverdale Rancheria’s financial partner was issued a default notice in March 2010 for failure to keep up with payments on the land, but a spokesperson for the Cloverdale Rancheria stated publicly that the project is still moving forward as planned. In December 2008, the DOI issued an opinion stating that if the lands were taken into trust, they would be eligible for gaming under the Indian Gaming Regulatory Act. The environmental review process for the proposed Cloverdale Rancheria project began in July 2008.  The Draft Environmental Impact Statement for the project was issued August 6, 2010, a public hearing was held on September 15, 2010, and comments were accepted through October 20, 2010.

 

Each of these proposed projects faces numerous obstacles in addition to environmental approvals, including the negotiation and approval of a tribal-state gaming compact with the State of California, approval from the DOI to take the land on which the project would be located into federal trust on behalf of the tribe, and, for the Guidiville and Scotts Valley projects, determinations from appropriate federal agencies that the tribes may conduct gaming on these lands pursuant to IGRA.

 

In June 2009, the Mishewal Wappo Tribe of Alexander Valley, a tribe with aboriginal lands and a former rancheria located in Sonoma County that was terminated by the federal government under the 1958 California Rancheria Act, filed suit against the United States Secretary of the Interior seeking to have its federally-recognized status restored.  The Chairman of the Mishewal Wappo Tribe has stated publicly that the tribe has no plans for a casino, but the tribe could have the right to conduct gaming under IGRA if its federally-recognized status is restored.

 

We also compete with other forms of gaming such as statewide lotteries, live and simulcast pari-mutuel wagering and card rooms. Initiatives expanding competitive forms of gaming have been proposed and may, from time to time, be approved by state or local authorities. Examples include the passage in California of legislation in 2007 expanding off-site betting on horse races through expanded advance deposit wagering and increased satellite wagering sites, legislation passed by the California legislature in September 2010 that would allow for exchange wagering on horse races, a legislative proposal in the California Assembly in February 2007 to amend the California Penal Code to expand permitted bingo games by charitable organizations to include electronic bingo cards, and bills introduced in the California State Senate in May 2010 and January 2011 to authorize online intrastate poker in California.

 

In August 2009, a U.S. district court judge issued an order, in ongoing litigation regarding the proper number of total slot machines allowed under the 1999 tribal-state gaming compacts, requiring that the State of California issue an additional 10,549 slot machine licenses. A drawing was held on October 5, 2009, and 3,548 licenses were awarded to eleven different Indian tribes, leaving 7,001 slot machine licenses available in the statewide pool.  On August 20, 2010, the U.S. Court of Appeals for the Ninth Circuit reduced the number of additional slot machine licenses from 10,549 to 8,050, and the court denied the State of California’s petition for

 

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a rehearing on January 28, 2011.  The State of California did not appeal the decision, and the State’s time for doing so has expired.  Thus, the appeals court’s decision is final.  As a result of the appeals court’s decision, there are 4,502 slot machine licenses not awarded in the October 2009 draw that remain available, and the Tribe or any other Indian tribe(s) could request California to hold a draw for some or all of these licenses.

 
| **ITEM 6.** | ** ** | **EXHIBITS** |
|-------------|------------|--------------|

 

The Exhibit Index filed herewith is incorporated herein by reference.

 

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**SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
| Date:   May 13, 2011 | RIVER   ROCK ENTERTAINMENT AUTHORITY |
|---------------------------|--------------------------------------|
|                      | (Registrant)                         |
|                      |                                 |
|                      | By:                                  | /s/   David Fendrick |
|                      |                                 | David   Fendrick, |
|                      |                                 | Chief   Executive Officer |

 

**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                                   |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification   by David Fendrick, 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 David Fendrick, 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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*               This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act and is not to be incorporated by reference into any filing of River Rock Entertainment Authority whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

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