Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D. C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

**x**                **QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For the quarterly period ended June 30, 2010**

 

**OR**

 

**o**                   **TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For the transition period from to**

 

**Commission File Number: 333-115186**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exactname of registrant as specified in its charter)

 

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

 

**3250 Highway 128 EastGeyserville, California 95441**

**(707) 857-2777**

(Address,including zip code, and telephone number,

includingarea code, of registrant’s principal executive offices)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  x   No  o

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

 

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

**INDEX TOFORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                                          | ** ** |
|--------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|               |       |                                                                                                                                                     |       |
| ** **         | ** ** | **PART I –  FINANCIAL INFORMATION**                                                                                                            | ** ** |
|               |       |                                                                                                                                                     |       |
| 1.                 |       | Unaudited  Condensed Financial Statements                                                                                                                | 4          |
|               |       | Condensed Balance  Sheets-June 30, 2010 (unaudited) and December 31, 2009                                                                      | 4          |
|               |       | Unaudited  Condensed Statements of Revenues, Expenses and Changes in Net Assets (Deficit)  – Three and Six Months ended June 30, 2010 and 2009 | 5          |
|               |       | Unaudited  Condensed Statements of Cash Flows – Six Months ended June 30, 2010 and  2009                                                       | 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         |
| 4T.                |       | Controls and  Procedures                                                                                                                                 | 28         |
|               |       |                                                                                                                                                     |       |
| ** **         | ** ** | **PART II – OTHER  INFORMATION**                                                                                                               | ** ** |
|               |       |                                                                                                                                                     |       |
| 1.                 |       | Legal Proceedings                                                                                                                                        | 29         |
| 1A.                |       | Risk Factors                                                                                                                                             | 29         |
| 6.                 |       | Exhibits                                                                                                                                                 | 32         |
|               |       |                                                                                                                                                     |       |
| Signatures         |       |                                                                                                                                                     | 33         |
|               |       |                                                                                                                                                     |       |
| Exhibit Index |       |                                                                                                                                                     | 33         |

 

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**CAUTIONARYSTATEMENT**

 

*Except forthe historical financial information contained herein, the matters discussed inthis report on Form 10-Q (as well as documents incorporated herein byreference) may be considered forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”).  Such forward-looking statementsare based upon current expectations that involve risks and uncertainties andinclude declarations regarding the intent, belief or current expectations of usand our management and may be signified by the words “believes,” “anticipates,”“plans,” “expects,” “intends” and similar expressions. Our actual results andthe timing of certain events may differ significantly from the resultsdiscussed in the forward-looking statements. All forward-looking statements inthis 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. Alldiscussion in this report should be read in conjunction with our financialstatements and the accompanying notes contained in this report.*

 

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

 

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

 

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**PART I.FINANCIAL INFORMATION**

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

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSEDBALANCE SHEETS**

 
| ** **                                     | ** ** | **June 30, 2010** | ** **  | **December 31, 2009** | ** ** |
|------------------------------------------------|------------|------------------------|-------------|----------------------------|------------|
| ** **                                     | ** ** | **(Unaudited)**        | ** **  | ** **                 | ** ** |
| **ASSETS**                                     | ** ** | ** **             | ** **  | ** **                 | ** ** |
| CURRENT ASSETS:                                | ** ** | ** **             | ** **  | ** **                 | ** ** |
| Cash and cash equivalents                      |       | $                      | 35,929,958  |                       | $          | 31,617,507 |   |
| Accounts receivable                            |       | 142,106                |        | 266,146                    |       |
| Inventories                                    |       | 63,166                 |        | 77,643                     |       |
| Prepaid expenses and other current assets      |       | 1,376,636              |        | 1,379,133                  |       |
|                                           |       |                   |        |                       |       |
| Total current assets                           |       | 37,511,866             |        | 33,340,429                 |       |
|                                           |       |                   |        |                       |       |
| RESTRICTED CASH                                |       | 7,101,172              |        | 7,097,526                  |       |
|                                           |       |                   |        |                       |       |
| CAPITAL ASSETS:                                |       |                   |        |                       |       |
| Buildings and building improvements            |       | 132,068,397            |        | 131,361,604                |       |
| Furniture, fixtures and equipment              |       | 36,156,912             |        | 35,102,290                 |       |
| Accumulated depreciation                       |       | (64,915,494            | )           | (60,121,221                | )          |
| Construction in progress                       |       | 75,085,672             |        | 59,588,618                 |       |
|                                           |       |                   |        |                       |       |
| Capital assets - net                           |       | 178,395,487            |        | 165,931,291                |       |
|                                           |       |                   |        |                       |       |
| DEPOSITS AND OTHER ASSETS                      |       | 1,634,788              |        | 1,936,623                  |       |
|                                           |       |                   |        |                       |       |
| TOTAL ASSETS                                   |       | $                      | 224,643,313 |                       | $          | 208,305,869 |   |
|                                           |       |                   |        |                       |       |
| **LIABILITIES AND NET ASSETS  (DEFICIT)**      |       |                   |        |                       |       |
|                                           |       |                   |        |                       |       |
| CURRENT LIABILITIES:                           |       |                   |        |                       |       |
| Accounts payable                               |       | $                      | 3,159,398   |                       | $          | 6,060,663 |   |
| Payable to Tribe                               |       | 10,197,054             |        | —                     |       |
| Accrued liabilities                            |       | 8,661,457              |        | 7,695,373                  |       |
| Current maturities of long-term debt           |       | —                 |        | 492,203                    |       |
| Total current liabilities                      |       | 22,017,909             |        | 14,248,239                 |       |
|                                           |       |                   |        |                       |       |
| LONG-TERM DEBT - net of current maturities     |       | 199,550,337            |        | 199,381,712                |       |
|                                           |       |                   |        |                       |       |
| TOTAL LIABILITIES                              |       | 221,568,246            |        | 213,629,951                |       |
|                                           |       |                   |        |                       |       |
| COMMITMENTS AND CONTINGENCIES                  |       |                   |        |                       |       |
|                                           |       |                   |        |                       |       |
| NET ASSETS (DEFICIT)                           |       |                   |        |                       |       |
| Invested in capital assets-net of related debt |       | (21,154,850            | )           | (33,942,624                | )          |
| Restricted for capital projects                |       | 7,101,172              |        | 7,097,526                  |       |
| Unrestricted                                   |       | 17,128,745             |        | 21,521,016                 |       |
|                                           |       |                   |        |                       |       |
| Total net assets (deficit)                     |       | 3,075,067              |        | (5,324,082                 | )          |
|                                           |       |                   |        |                       |       |
| TOTAL LIABILITIES AND NET ASSETS (DEFICIT)     |       | $                      | 224,643,313 |                       | $          | 208,305,869 |   |

 

Theaccompanying notes are an integral part of these unaudited interim financialstatements.

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

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

**(Unaudited)**

 
| ** **                                 | ** ** | **Three-Month Period Ended** | ** ** | **Six-Month Period Ended** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **June 30,**            | ** ** | **June 30,**          | ** ** |
| ** **                                 | ** ** | **2010**                     | ** ** | **2009**                   | ** ** | **2010** | ** ** | **2009** | ** ** |
| **OPERATING REVENUES:**                    |       |                         |       |                       |       |   |   |   |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| Casino                                     |       | $                            | 31,140,938 |                       | $          | 29,469,018 |   | $ | 62,076,315 |   | $ | 59,421,534 |   |
| Food, beverage, and retail                 |       | 1,483,895                    |       | 1,480,986                  |       | 2,923,207 |   | 2,906,872 |   |
| Other                                      |       | 250,252                      |       | 333,529                    |       | 507,272 |   | 462,365 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| Gross revenues                             |       | 32,875,085                   |       | 31,283,533                 |       | 65,506,794 |   | 62,790,771 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| Promotional allowances                     |       | (440,010                     | )          | (468,386                   | )          | (818,925 | ) | (688,297 | ) |
|                                       |       |                         |       |                       |       |   |   |   |   |
| Net revenues                               |       | 32,435,075                   |       | 30,815,147                 |       | 64,687,869 |   | 62,102,474 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| OPERATING EXPENSES:                        |       |                         |       |                       |       |   |   |   |   |
| Casino                                     |       | 4,051,941                    |       | 3,924,507                  |       | 7,884,949 |   | 8,097,389 |   |
| Food, beverage, and retail                 |       | 1,701,831                    |       | 1,702,607                  |       | 3,505,584 |   | 3,764,985 |   |
| Selling, general, and administrative       |       | 10,140,090                   |       | 9,812,193                  |       | 20,703,413 |   | 19,897,088 |   |
| Depreciation                               |       | 2,335,426                    |       | 2,381,411                  |       | 4,794,273 |   | 4,756,021 |   |
| Gaming commission and surveillance expense |       | 767,474                      |       | 1,050,373                  |       | 1,535,447 |   | 1,915,874 |   |
| Compact revenue sharing trust fund         |       | 333,750                      |       | 333,750                    |       | 667,500 |   | 667,500 |   |
| (Gain) on sale of assets                   |       | —                       |       | (33,000                    | )          | — |   | (33,000 | ) |
|                                       |       |                         |       |                       |       |   |   |   |   |
| Total Operating expenses                   |       | 19,330,512                   |       | 19,171,841                 |       | 39,091,166 |   | 39,065,857 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| INCOME FROM OPERATIONS                     |       | 13,104,563                   |       | 11,643,306                 |       | 25,596,703 |   | 23,036,617 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| NON-OPERATING EXPENSE-Net:                 |       |                         |       |                       |       |   |   |   |   |
| Interest expense                           |       | (5,214,736                   | )          | (5,214,986                 | )          | (10,429,472 | ) | (10,430,486 | ) |
| Interest income                            |       | 16,476                       |       | 23,362                     |       | 27,876 |   | 31,800 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| Non-operating expense-net                  |       | (5,198,260                   | )          | (5,191,624                 | )          | (10,401,596 | ) | (10,398,686 | ) |
|                                       |       |                         |       |                       |       |   |   |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | 7,906,303                    |       | 6,451,682                  |       | 15,195,107 |   | 12,637,931 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| DISTRIBUTIONS TO TRIBE                     |       | (3,397,979                   | )          | (3,324,980                 | )          | (6,795,958 | ) | (6,649,959 | ) |
|                                       |       |                         |       |                       |       |   |   |   |   |
| CHANGES IN NET ASSETS                      |       | 4,508,324                    |       | 3,126,702                  |       | 8,399,149 |   | 5,987,972 |   |
|                                       |       |                         |       |                       |       |   |   |   |   |
| NET ASSETS (DEFICIT) -Beginning of period  |       | (1,433,257                   | )          | (12,807,884                | )          | (5,324,082 | ) | (15,669,154 | ) |
|                                       |       |                         |       |                       |       |   |   |   |   |
| NET ASSETS (DEFICIT) -End of period        |       | $                            | 3,075,067  |                       | $          | (9,681,182 | ) | $ | 3,075,067 |   | $ | (9,681,182 | ) |

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                     | ** ** | **Six-Month  Period Ended  June 30,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                     | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                     |       |                                       |       |   |   |
| Cash received from gaming winnings and concessions             |       | $                                          | 64,795,510 |   | $ | 62,125,718 |   |
| Cash paid for salaries and benefits                            |       | (13,100,741                                | )          | (14,469,975 | ) |
| Cash paid to suppliers                                         |       | (20,311,727                                | )          | (20,082,259 | ) |
| Cash paid for compact revenue sharing trust fund               |       | (667,500                                   | )          | (667,500 | ) |
|                                                           |       |                                       |       |   |   |
| Net cash provided by operating activities                      |       | 30,715,542                                 |       | 26,905,984 |   |
|                                                           |       |                                       |       |   |   |
| **CASH FLOWS FROM CAPITAL AND  RELATED FINANCING ACTIVITIES:** |       |                                       |       |   |   |
| Payments of debt                                               |       | (492,203                                   | )          | (70,379 | ) |
| Purchases of capital assets                                    |       | (4,063,141                                 | )          | (2,356,908 | ) |
| Transfers to the Tribe for development costs                   |       | (5,300,000                                 | )          | (6,217,445 | ) |
| Change in restricted cash                                      |       | (3,646                                     | )          | (3,588 | ) |
| Interest paid                                                  |       | (9,750,000                                 | )          | (9,751,014 | ) |
| Proceeds from sale of assets                                   |       | —                                     |       | 33,000 |   |
| Other                                                          |       | (26,019                                    | )          | — |   |
|                                                           |       |                                       |       |   |   |
| Net cash used in capital and related financing  activities     |       | (19,635,009                                | )          | (18,366,334 | ) |
|                                                           |       |                                       |       |   |   |
| **CASH FLOWS PROVIDED BY INVESTING  ACTIVITIES:**              |       |                                       |       |   |   |
| Interest Income                                                |       | 27,876                                     |       | 31,800 |   |
|                                                           |       |                                       |       |   |   |
| **CASH FLOWS USED IN NON-CAPITAL  FINANCING ACTIVITIES:**      |       |                                       |       |   |   |
|                                                           |       |                                       |       |   |   |
| Distributions to Tribe                                         |       | (6,795,958                                 | )          | (6,649,959 | ) |
|                                                           |       |                                       |       |   |   |
| **CHANGE IN CASH AND CASH  EQUIVALENTS**                       |       | 4,312,451                                  |       | 1,921,491 |   |
|                                                           |       |                                       |       |   |   |
| **CASH AND CASH EQUIVALENTS,  Beginning of the period**        |       | 31,617,507                                 |       | 27,348,392 |   |
|                                                           |       |                                       |       |   |   |
| **CASH AND CASH EQUIVALENTS, End of  the period**              |       | $                                          | 35,929,958 |   | $ | 29,269,883 |   |

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **RECONCILIATION OF INCOME FROM OPERATIONS**                                             | ** ** | **Six-Month  Period Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **TO NET CASH PROVIDED BY OPERATING ACTIVITIES:**                                        | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
|                                                                                     |       |                                       |       |   |   |
| Income From Operations                                                                   |       | $                                          | 25,596,703 |   | $ | 23,036,617 |   |
|                                                                                     |       |                                       |       |   |   |
| Adjustments to reconcile operating income to net  cash provided by operating activities: |       |                                       |       |   |   |
| Depreciation                                                                             |       | 4,794,273                                  |       | 4,756,021 |   |
| Changes in operating assets and liabilities:                                             |       |                                       |       |   |   |
| Accounts receivable                                                                      |       | 124,040                                    |       | (60,089 | ) |
| Inventories                                                                              |       | 14,477                                     |       | 26,051 |   |
| Prepaid expenses                                                                         |       | 2,497                                      |       | (129,852 | ) |
| Deposit and other assets                                                                 |       | (182,994                                   | )          | — |   |
| Accounts payable                                                                         |       | (599,538                                   | )          | (1,119,139 | ) |
| Accrued liabilities                                                                      |       | 966,084                                    |       | 396,375 |   |
| Total adjustments                                                                        |       | 5,118,839                                  |       | 3,869,367 |   |
|                                                                                     |       |                                       |       |   |   |
| **NET CASH PROVIDED BY OPERATING  ACTIVITIES**                                           |       | $                                          | 30,715,542 |   | $ | 26,905,984 |   |
|                                                                                     |       |                                       |       |   |   |
| **SUPPLEMENTARY SCHEDULE OF NONCASH  CAPITAL AND RELATED FINANCING ACTIVITIES:**         |       |
|                                                                                     |       |                                       |       |   |   |
| Acquisition of property and equipment through  accounts payable                          |       | $                                          | 277,405    |   | $ | — |   |
|                                                                                     |       |                                       |       |   |   |
| Acquisition of property and equipment through  transfers to Tribe for development costs  |       | $                                          | 10,197,054 |   | $ | — |   |

 

The accompanying notes are an integral part of these unaudited interimfinancial 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 PomoIndians (the “Tribe”), a federally recognized Indian tribe. River Rock Casino(the “Casino”) is a governmental development project of the Authority. TheCasino offers Class III gaming (as defined by the Indian Gaming RegulatoryAct of 1988, as amended) on tribal land located in Geyserville, California. Thelegal authority for slot machines and table games is provided by the Tribe’sgaming compact with the State of California (the “Compact”), which was enteredinto in September 1999 and became effective upon approval by the Secretaryof Interior on May 5, 2000.  The Compact expires on December 31,2020.

 

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

 

The Authority operates as a separate, wholly ownedoperating unit of the Tribe and is not a separate legal entity. These financialstatements reflect the financial position and activity of the Authority onlyand do not purport to represent the financial position and activity of theTribe.

 

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

 

The unaudited condensed financial statements of theAuthority, presented herein are presented on the same basis and can be comparedto the audited financial statements reported in the Authority’s annualinformation in the Authority’s 2009 Annual Report on Form 10-K, filed withthe Securities and Exchange Commission (“the SEC”). The accompanying condensedbalance sheet as of December 31, 2009 has been derived from the auditedfinancial statements included in the Authority’s Annual Report onForm 10-K for the year ended December 31, 2009.

 

River Rock Entertainment Authority has made itsdisclosures in accordance with accounting principles generally accepted in theUnited States of America as they apply to interim reporting, but condensed oromitted certain information and disclosures normally included in notes tofinancial statements in accordance with the SEC’s rules and regulations.The unaudited condensed financial statements should be read in conjunction withthe financial statements and the notes thereto in River Rock EntertainmentAuthority’s Annual Report on Form 10-K for the year endedDecember 31, 2009.

 

In the opinion of the Authority’s management, theaccompanying unaudited interim condensed financial statements contain alladjustments (consisting of normal recurring adjustments) to fairly present theAuthority’s condensed financial position as of June 30, 2010 and thecondensed statements of revenues, expenses and changes in net assets (deficit)for the three and six month periods ended June 30, 2010 and 2009, andcondensed statements of cash flows for the six months ended June 30, 2010and 2009, as applicable. The condensed statements of revenues, expenses andchanges in net assets (deficit) and condensed cash flows for all periodspresented are not necessarily indicative of the results of operations or cashflows expected for the year or any other period.

 

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

 

*Accounting Standards*—The Authorityprepares its financial statements in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”) applicable to Stateand local government agencies and, as such, the Authority is accounted for as aproprietary fund. The financial statements presented are prepared on theaccrual basis of accounting from the accounts and financial transactions of theAuthority. GAAP requires the Authority to apply all applicable pronouncementsof the Governmental Accounting Standards Board (“GASB”). The Authority is alsorequired to follow the Accounting Standards Codification issued by theFinancial Accounting Standards Board (“FASB”) for topics issued on or beforeNovember 30, 1989, unless those topics conflict with or contradict GASBpronouncements.  The Authority is given the option whether to apply theFASB topics issued after November 30, 1989, except for those that conflict

 

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withor contradict GASB pronouncements. Accordingly, the Authority has elected toimplement non-conflicting FASB topics issued after November 30, 1989.

 

There are differences between financial statements prepared inaccordance with GASB pronouncements and those prepared in accordance with theFASB Codification. The statements of revenues, expenses and changes in netassets (deficit) are a combined statement under GASB pronouncements. The FASBCodification allows a statement of income or operations and a separatestatement of owners’ or shareholders’ equity (deficit), which is wheredistributions to owners would be presented.  The amount shown as incomebefore distributions to Tribe would be the most comparable amount to net incomecomputed under the FASB Codification.  The Authority is a separateenterprise fund of the Tribe, a governmental entity, and as such there is noowners’ or shareholders’ equity (deficit) as traditionally represented underthe FASB Codification.  The most comparable measure of owners’ equity(deficit) is presented on the Authority’s balance sheet as net assets(deficit).

 

Duringthe third quarter of 2009, the Authority adopted the new Accounting StandardsCodification (“ASC”) as issued by the FASB. The ASC has become the source of authoritative GAAP recognized by theFASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority offederal securities laws are also sources of authoritative GAAP for SECregistrants.  The ASC is not intended tochange or alter existing GAAP.  Theadoption of the ASC did not have a material impact on the Authority’s financialstatements.

 

FASB has issued Accounting Standards Update (“ASU”) No. 2010-06, “*Fair Value Measurements and Disclosures (Topic 820) -Improving Disclosures about Fair Value Measurements*.” This ASUrequires certain new disclosures and clarifies some existing disclosurerequirements about fair value measurement as set forth in Codification Subtopic820-10. The FASB’s objective is to improve these disclosures and, thus,increase the transparency in financial reporting. Specifically, ASU 2010-06amends Codification Subtopic 820-10 to now require: (A) A reporting entityshould disclose separately the amounts of significant transfers in and out ofLevel 1 and Level 2 fair value measurements and describe the reasons for thetransfers; and (B) In the reconciliation for fair value measurements usingsignificant unobservable inputs, Level 3, a reporting entity should presentseparately information about purchases, sales, issuances, andsettlements.  In addition, ASU 2010-06 clarifies the requirements of thefollowing existing disclosures: (A) For purposes of reporting fair valuemeasurement for each class of assets and liabilities, a reporting entity needsto use judgment in determining the appropriate classes of assets andliabilities; and (B) A reporting entity should provide disclosures aboutthe valuation techniques and inputs used to measure fair value for bothrecurring and nonrecurring fair value measurements.  ASU 2010-06 iseffective for interim and annual reporting periods beginning after December 15,2009, except for the disclosures about purchases, sales, issuances, andsettlements in the roll forward of activity in Level 3 fair value measurements.Those disclosures are effective for fiscal years beginning afterDecember 15, 2010, and for interim periods within those fiscal years. Asthis update is only “disclosure-related,” it does not have an impact on theAuthority’s financial position and results of revenues, expenses and changes innet assets (deficit).

 

FASBhas issued ASU No. 2010-16, “*Entertainment — Casinos(Topic 924) — Accruals for Casino Jackpot Liabilities.*”  This ASU addresses the accounting for casinobase jackpot liabilities, specifically, whether an entity accrues liabilitiesfor a base jackpot before it is won if the entity is not required to award thebase jackpot.  This ASU clarifies that anentity should not accrue jackpot liabilities (or portions thereof) before ajackpot is won if the entity can avoid paying that jackpot.  Jackpots should be accrued and charged torevenue when an entity has the obligation to pay the jackpot.  This guidance applies to both base andprogressive jackpots.  This ASU iseffective for fiscal years beginning after December 15, 2010, and forinterim periods within those fiscal years. The adoption of this new standard is not expected to have any effect onthe Authority’s financial position or result of operations.

 

*Use of Estimates*—The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosures of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting period. Significant estimates include legal and othercontingencies, obligations under players’ club programs and useful lives andrecoverability of long-lived assets. Actual results could differ from theseestimates.

 

*Cash and Cash Equivalents*— The Authority considersall highly liquid investments with a maturity of three months or less at dateof purchase as cash equivalents. The carrying amount of cash and cashequivalents approximates its fair value.

 

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Cash and cash equivalentsinclude cash on hand, cash on deposit with banks and highly liquidinvestments.  The Federal DepositInsurance Corporation (“FDIC”) has insured $250,000 of the cash on deposit atan FDIC member bank. The Authority believes that there is little risk of lossregarding the uninsured amounts of cash and cash equivalents on deposit withthe banks.

 

*Restricted Cash*— Restricted cash consistsof net proceeds from the Notes Offering and investment earnings thereon setaside in construction financing accounts, for construction costs for relatedinfrastructure improvements and construction contingencies. It also includesfunds that are reserved for construction contingencies and the funds for thedevelopment of the Dugan Property, an approximately 18-acre parcel of landadjacent to the Tribe’s reservation. The restricted cash is held in escrowaccounts that can only be used for authorized construction disbursements untilthe related projects are completed.  These escrow accounts are invested inmoney market accounts, which generate interest on a monthly basis. The FDIC hasinsured $250,000 of this balance. The Authority believes that there is littlerisk of loss regarding the uninsured amounts of restricted cash held in theescrow accounts. Restricted cash was $7,101,172 and $7,097,526 at June 30,2010 and December 31, 2009, respectively.  As of June 30, 2010,restricted cash includes amounts available for construction of $2,773,500 andland development funds of $4,327,672.  OnJuly 30, 2010, U.S. Bank National Association, as trustee and collateralagent for the Senior Notes, transferred $2,682,699 from restricted accountsheld by U.S. Bank to the Authority’s unrestricted operating account. Thetransferred amount represents the remaining balances of proceeds from the saleof the Senior Notes and investment earnings thereon that had been held by U.S.Bank in a restricted construction financing account and a construction escrowaccount less all fees and expenses owed to U.S. Bank to date.  The remaining balance of restricted cashrelates to the emergency access road which will be used to further developeither the Dugan Road or an alternate access road and will remain restrictedfor such purposes.

 

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

 

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

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

 

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

 

Majoroutlays of capital assets and improvements are capitalized asconstruction-in-progress as projects are constructed.

 

*Evaluationof Long-Lived Assets* — Accounting pronouncement GASB No. 42, “*Accounting and Financial Reporting for Impairment of Capital Assets andfor Insurance Recoveries,*” established accounting and financialreporting standards for impairment of capital assets.  The Authority’s capital assets includebuilding and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired ifboth the decline in service utility of the capital asset is large in magnitudeand the event or change in circumstances is outside the normal life cycle ofthe capital asset.  The Authority isrequired to evaluate prominent events or changes in circumstances affectingcapital assets to determine whether impairment of a capital asset has occurred.  Common indicators of impairment includeevidence of physical damage where restoration efforts are needed to restoreservice utility, enactment or approval of laws or regulations setting standardsthat the capital asset would not be able to meet, technological development orevidence of obsolescence, a change in the manner or expected duration of use ofa capital asset or construction stoppage. This Statement will require the Authority to report the effects ofcapital asset impairment in its financial statements when they occur, ratherthan as part of the ongoing depreciation expense for the capital asset or upondisposal of the capital asset, and to account for insurance recoveries in thesame manner.  The Authority’s managementhas determined that no impairment of capital assets currently exists.

 

*Capitalized interest*—**The interest cost associated with major development andconstruction projects is capitalized and included in the cost of theasset.  Capitalization of interest ceaseswhen the project is substantially complete or when 

 

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developmentactivity is suspended.  The Authority didnot capitalize any interest for the six months ended June 30, 2010 and2009.

 

*Prepaid Expenses and Other Current Assets* — Prepaidexpenses and other current assets were $1,376,636 and $1,379,133 as of June 302010 and December 31, 2009, respectively, which includes prepaidinsurance, prepaid uniforms and prepaid supplies.

 

*Deposits and Other Assets*— As of June 30, 2010and December 31, 2009, respectively, deposits and other assets mainlyrepresent $1,364,601 and $1,875,448 in unamortized legal fees and otherissuance costs related to the issuance of the Authority’s 9 3⁄4% Senior Notes due2011 (the “Senior Notes”) under the Indenture, dated November 7, 2003 (the“Indenture”) and $182,994 in costs incurred in connection with the potentialoffering of new notes.

 

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

 

*Progressive Jackpots Liabilities*—The Casino hasa number of progressive jackpot slot machines.  As coins are played, theamount available to win increases and will be paid out when the appropriatewinning combination occurs.  The Casino has recorded the progressivejackpots as a liability, with a corresponding charge against gaming revenue, of$1,544,872 and $1,587,748 as of June 30, 2010 and December 31, 2009,respectively.  Also, the Casino has available for customer play wide areaprogressive slot machines that are interlinked with other unrelatedcasinos.  These machines are monitored and maintained by the vendor andthe Casino is required to remit a percentage of coin-in to the respectivevendor.  The Casino records a charge against revenue for the portion ofthe fee applied to the wide area progressive jackpots.  Amounts recordedagainst revenue for the portion of the fee applied to the wide area progressivejackpots were approximately $273,912 and $351,226 for the three months ended June 30,2010 and 2009, respectively; and approximately $492,130 and $701,970 for thesix months ended June 30, 2010 and 2009.  All other administrativecharges are recorded in operating expenses.

 

*Accrued Slot Players Club*— The Authority has recordeda liability related to free play, prizes and cash incentives earned by themembers of our Players Club. The Authority has recorded the estimatedredemption of the liability as contra-revenue in the accompanying statements ofrevenues, expenses and changes in net assets (deficit).

 

*Contingencies* — TheAuthority assesses its exposure to loss contingencies, including legal matters,and provides for an exposure if it is judged to be probable and estimable. Ifthe actual loss from a contingency differs from management’s estimate,operating results could be materially impacted. As of June 30, 2010,management determined that no accruals for claims and legal actions arerequired. If circumstances surrounding claims and legal actions change materially,the addition of accruals for such items in future periods may be required.

 

*Authority net assets* — Investments in capitalassets, net of related debt, consists of capital assets, net of accumulateddepreciation, reduced by the outstanding balances of any borrowings used forthe acquisition, construction or improvement of those assets.  Invested incapital assets, net of related debt, excludes unspent debt proceeds. Restricted net assets represent amounts that are appropriated or are legallysegregated for a specific purpose.  The Authority’s net assets arereported as restricted when there are limitations imposed on its use, eitherthrough the enabling legislation adopted by the Authority or through externalrestrictions imposed by creditors, grantors, laws or regulations of othergovernments.

 

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

 

*Food, Beverage and Retail Revenues*— The Authorityrecognizes as food, beverage and retail revenues the proceeds from its food,beverage and gift shop sales. The Authority continues to distributenon-alcoholic beverages without cost in the gaming area for playingguests.  In December 2009, the Authority replaced the gift shop withvending machines.  The vending machines are owned and operated by a thirdparty.  The Authority receives a commission from the vending machine salesand such commission are recorded as Other Revenues.

 

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

 

*Promotional Allowances*— The retail value of foodand beverages provided to customers without charge or at a discount is includedin food, beverage and retail revenues and then deducted as promotionalallowances. Such amounts that are included in food, beverage, and retailrevenues for the three months ended June 30, 2010 and 2009 were $440,010and $468,386, respectively.  The amountsincluded in food, beverage and retail revenues for the six months ended June 30,2010 and 2009 were $818,925 and $688,297, respectively.

 

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

 

*Advertising Costs*— Advertising costs areexpensed as incurred or when an advertisement is first aired or circulated.Advertising costs included in selling, general and administrative expenses forthe three months ended June 30, 2010 and 2009 were $1,452,753 and$1,226,723, respectively.  Advertisingcosts for the six months ended June 30, 2010 and 2009 were $2,975,629 and$2,068,699, respectively.

 

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

 

*Income Taxes*—As a governmentalinstrumentality of the Tribe, the Authority is a non-taxable entity forpurposes of federal and state income taxes.

 

*Distributions to Tribe*— Distributionsto Tribe are made up of permitted and service payments under the covenants ofthe Indenture.  They are included in the statements of Revenues, Expensesand Changes in Net Assets (deficit) as distributions to Tribe allowed pursuantto the Indenture.  Total distributions to the Tribe for the three monthsended June 30, 2010 and 2009 were $3,397,979 and $3,324,980,respectively.  Total distributions to theTribe for the six month ended June 30, 2010 and 2009 were $6,795,958 and$6,649,959, respectively.

 

*Reclassifications*— Certain prior period balances in the Statements of Cash Flows, havebeen reclassified to be consistent with current period presentation with noimpact on cash provided by operating activities, cash used in capital andrelated financing activities, cash provided by investing activities or cashused in non-capital financing activities. In addition, $295,656 and $469,825 ofpromotional allowances for the three and six month periods ended June 30,2009 was reclassified from selling, general and administrative expenses topromotional allowances with no impact on income from operations.

 

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

 

TheAuthority’s operations are dependent on the continued licensing andqualification of the Authority by the Tribal Gaming Commission. Such licensingand qualification are reviewed periodically by the Tribal Gaming Commission andregulatory agencies of the State of California. The Authority believes that noevents or circumstances have arisen that would have an adverse effect on theCasino’s ability to continue its licensing and qualification by the TribalGaming Commission or regulatory agencies of the State of California to operatethe Authority.

 

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

 

TheCasino has been constructed on federal land beneficially owned by the Tribe. TheAuthority does not pay the Tribe for the use of the land.

 

TheAuthority pays for various expenses for the following departments operated bythe Tribe:  Tribal Gaming Commissionincluding surveillance, and plant operations and human resources.  These departmental expenses include but arenot limited to payroll and related expenses, legal, and other operationalexpenses.  The Tribe had been operatingthe warehouse, however, in April 2010, the Authority began operating thewarehouse department.

 

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Totalamounts billed by the Tribe to the Casino for these departments, excludingTribal Gaming Commission and surveillance, for the three months ended June 30,2010 and 2009 were $944,218 and $978,798 respectively.  These amounts are recorded as a component ofselling, general and administrative expenses. The expenses for these departments for the six months ending June 30,2010 and 2009 were $1,930,283 and $1,858,713, respectively.

 

TheAuthority pays for various expenses for the Tribal Gaming Commission andsurveillance. Tribal Gaming Commission and surveillance expenses arerecorded in Gaming Commission and surveillance expenses on the Statements ofRevenues, Expenses and Changes in Net Assets (deficit).  Gaming Commissionand surveillance expenses for the three months ended June 30, 2010 and2009 were $767,474 and $1,050,373, respectively.  Gaming Commission and surveillance expensesfor the six months ended June 30, 2010 were $1,535,447 and $1,915,874.

 

TheTribe incurred approximately $67 million in total expenses on the Authority’sbehalf for master planning of the proposed resort and infrastructureimprovements on the reservation that benefits the Casino, of which almost allof such expenditures were incurred prior to 2009 before the construction wassuspended.  The Authority reimbursed the Tribe approximately $52.4 millionthrough 2009.  On January 8, 2010,the Authority’s Board of Directors authorized the reimbursement of the Tribe inan amount not to exceed approximately $14.9 million of constructioncosts.  The approval included a payment reimbursement schedule to theTribe of $2,700,000 on January 18, 2010, $400,000 from February 1,2010 through April 1, 2010 and $700,000 monthly thereafter withoutexceeding $14.9 million.  The Authority reimbursed the Tribe $1.8 millionfor the three months ended June 30, 2010 and $5.3 million for the sixmonths ended June 30, 2010.  TheAuthority accrued a remaining $9.3 million, which is included in Payable toTribe in the Condensed Balance Sheet at June 30, 2010.  When the reimbursement payments are made oraccrued, the related amounts are capitalized and reflected in construction-in-progress.The reimbursed costs consist of engineering and design costs related to theproposed master plan development, including electrical, HVAC, landscaping,interior design services and consulting fees for legal, branding, feasibility,and public relations services, as well as the construction costs of the lowerAcorn Road.

 

TheTribe incurred expenses related to the reinforcement of the slope on thenorthwest side of the Reservation near the Casino.  On May 19, 2010, the Authority’s Boardof Directors authorized the reimbursement to the Tribe in an amount not toexceed $911,000 of construction costs incurred by the Tribe for thisproject.  The Authority accrued thisamount which is included in Payable to Tribe in the Condensed Balance Sheet at June 30,2010.  Subsequently, on August 4,2010, the Authority’s Board of Directors authorized the reimbursement to theTribe in an amount of $0.9 million for additional related constructioncosts.  We currently expect that the costof this project will be approximately $3.0 million.

 

The Authority reserved 50 recreational vehiclespaces and 10 campsite spaces at Alexander RV Park and Campground for casinoguests.  Alexander RV Park and Campgroundis a wholly owned subsidiary of the Tribe. The cost of reserving the parking spaces and campsite spaces was $69,458and $66,150 for the three months ended June 30, 2010 and 2009,respectively.  The cost of reserving theparking spaces and campsite spaces was $138,916 and $132,300 for the six monthsended June 30, 2010 and 2009, respectively.

 

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

 

Cashand cash equivalents and restricted cash consisted of the following as of June 30,2010 and December 31, 2009:

 
| ** **                                           | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
|                                                 |       |                    |       |                        |       |
| Operating accounts                                   |       | $                       | 12,703,995 |                        | $          | 16,281,764 |   |
| Money market accounts*                               |       | 18,118,897              |       | 10,095,039                  |       |
| Cash on hand                                         |       | 5,107,066               |       | 5,240,704                   |       |
|                                                 |       |                    |       |                        |       |
| Cash and cash equivalents                            |       | 35,929,958              |       | 31,617,507                  |       |
| Restricted cash                                      |       | 7,101,172               |       | 7,097,526                   |       |
|                                                 |       |                    |       |                        |       |
| Total cash and cash  equivalents and restricted cash |       | $                       | 43,031,130 |                        | $          | 38,715,033 |   |

 

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*Representslevel 1 fair value measurement, quoted prices in active markets for identicalitems.

 

*Deposits* — Custodial credit risk isthe risk that in the event of a bank failure, the Authority’s deposits (cash inchecking, sweep, and money market accounts held with its third-partyadministrator) may not be returned to it.  The Authority does not have adeposit policy for custodial credit risk.  As of June 30, 2010 and December 31,2009, approximately $37,376,509 and $34,009,525, respectively, of the Authority’sbank balance for deposits of $37,876,509 and $34,580,666, respectively, wereexposed to custodial credit risk, as it was uninsured and uncollateralized.

 

**7.**                          **CAPITAL ASSETS**

 

CapitalAssets at June 30, 2010 and December 31, 2009 consisted of thefollowing:

 
| ** **                         | ** ** | **Balance,  as of  December 31,  2009** | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **Transfers  In(Out)** | ** ** | **Balance,  as of  June 30, 2010** | ** ** |
|------------------------------------|------------|----------------------------------------------|-------------|---------------|------------|------------------|------------|------------------------|------------|-----------------------------------------|------------|
| ** **                         | ** ** | ** **                                   | ** **  | ** **    | ** ** | ** **       | ** ** | ** **             | ** ** | **(Unaudited)**                         | ** ** |
| ** **                         | ** ** | ** **                                   | ** **  | ** **    | ** ** | ** **       | ** ** | ** **             | ** ** | ** **                              | ** ** |
| Building and improvements          |       | $                                            | 131,361,604 |          | $          | 358,644          |       | $                      | —     |                                    | $          | 348,149 |   | $ | 132,068,397 |   |
| Furniture, fixtures and  equipment |       | 35,102,290                                   |        | 988,775       |       | —           |       | 65,847                 |       | 36,156,912                              |       |
| Less accumulated  depreciation     |       | (60,121,221                                  | )           | (4,794,273    | )          | —           |       | —                 |       | (64,915,494                             | )          |
|                               |       | 106,342,673                                  |        | (3,446,854    | )          | —           |       | 413,996                |       | 103,309,815                             |       |
| Construction in Progress           |       | 59,588,618                                   |        | 15,911,050    |       | —           |       | (413,996               | )          | $                                       | 75,085,672 |   |
| Capital assets - net               |       | $                                            | 165,931,291 |          | $          | 12,464,196       |       | $                      | —     |                                    | $          | — |   | $ | 178,395,487 |   |

 

Constructionin progress consists of payments to the Tribe and various vendors related tothe Authority’s master plan development and land improvements.  Substantially all of the Authority’s personalproperty is pledged as collateral to secure its debt.

 

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**8.**                          **ACCRUED LIABILITIES**

 

Accruedliabilities consisted of the following as of June 30, 2010 andDecember 31, 2009:

 
| ** **                                  | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
|                                        |       |                    |       |                        |       |
| Accrued in-house  progressive slot jackpots |       | $                       | 1,544,872  |                        | $          | 1,587,748 |   |
| Accrued payroll and  related benefits       |       | 2,559,810               |       | 1,514,557                   |       |
| Accrued interest                            |       | 3,250,000               |       | 3,250,000                   |       |
| Accrued other expenses                      |       | 1,306,775               |       | 1,343,068                   |       |
| Total accrued liabilities                   |       | $                       | 8,661,457  |                        | $          | 7,695,373 |   |

 

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

 

Long-term debt consisted of the following as of June 30, 2010 andDecember 31, 2009:

 
| ** **                                                                                                | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                | ** ** | **2010**          | ** **  | **2009**              | ** ** |
|                                                                                                      | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
|                                                                                                      |       |              |        |                  |       |
| 9-3/4% Senior Notes, net  of unamortized issue discount of $449,663 and $618,288. Due  November 2011 |       | $                 | 199,550,337 |                  | $          | 199,381,712 |   |
| Vehicle and Slot Notes                                                                                    |       | —            |        | 492,203               |       |
|                                                                                                      |       |              |        |                  |       |
| Total Long-Term Debt                                                                                      |       | 199,550,337       |        | 199,873,915           |       |
| Less: current portion                                                                                     |       | —            |        | (492,203              | )          |
|                                                                                                      |       |              |        |                  |       |
| Total long-term-debt - net  of current maturities                                                         |       | $                 | 199,550,337 |                  | $          | 199,381,712 |   |

 

OnNovember 7, 2003, the Authority issued the Senior Notes. The proceeds wereutilized to fund an expansion project, which included three parking structures,related infrastructure improvements, repayment of various debt and advances andfund payment of various accruals and payables, as well as to increase cash onhand. The proceeds were also utilized to fund a land purchase and settlelitigation.  The Senior Notes are collateralized by a first prioritypledge of the Authority’s revenue and substantially all of the existing andfuture tangible and intangible personal property. The Authority may redeem theSenior Notes, in whole or in part, at a redemption price that is at a premiumto the principal amount of the Senior Notes (expressed as percentages ofprincipal amount), plus accrued and unpaid interest.  Interest on the Senior Notes is duesemi-annually in May and November.

 

TheAuthority’s long-term debt is recorded at an amortized historical costbasis.  The fair value of the Senior Notes was approximately $194.0million as of June 30, 2010 based on level one inputs, quoted prices inactive markets.

 

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

 

The Authority participates in a 401(k) Plan, aretirement plan (the “Plan”), which is qualified underSection 401(k) of the Internal Revenue Code.  The Plan is adefined contribution plan administered by an insurance company and is availableto all eligible employees of the Casino who have attained age 21 and have atleast three months of eligible service as defined in the Plan.  The Planparticipants may contribute up to 50 percent of their eligible pretaxcompensation, subject to legal

 

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limitations. The Authority at its discretion, will make matching contributions.  Anyforfeiture due to employee terminations reduces future Casinocontributions.  Participants become vested in employer contributions, aswell as any earnings thereon, over a three-year period at the rate of 30percent, 60 percent and 100 percent at the end of each year, respectively. Employee contributions to the Plan were $136,495 and $180,082 for the threemonths ended June 30, 2010, and 2009, respectively; and $263,908 and $321,233for the six months ended June 30, 2010 and 2009, respectively.  TheCasino made matching contributions to the Plan of $66,775 and $82 during thethree months ended June 30, 2010, and 2009, respectively; and $78,743 and$41,719 for the six months ended June 30, 2010 and 2009,respectively.  The Casino temporarily suspended its matching contributionin January 2009 and reinstated it in March 2010.

 

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

 

The Casino is exposed to various risks of lossrelated to worker’s compensation and torts; theft of, damage to or destructionof assets; and errors or omissions.  The Casino has purchased commercialinsurance policies for said risks.  There has been no significantreduction of insurance coverage, and settlements have not exceeded coverage inthe past three years.  The Casino retains the risk of dental claimssubject to individual limits of $1,500 per enrolled employee and covereddependent.

 

**12.**                   **LEASES**

 

The Authority extended its operating lease of the sprung structure thathouses the Casino operations.  The amended lease expires on June 17,2012.  The agreement calls for monthly payments of $25,395.  Totalrental expense was $76,185 and $97,855 for the three months ended June 30,2010 and 2009, respectively.  Totalrental expense was $152,307 and $206,545 for the six months ended June 30,2010 and 2009, respectively.

 

Other operating leases include leases for office spaces and copiers.

 

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

 

The Authority is involved in litigation and disputesfrom time to time in the ordinary course of business with vendors and patrons.The Authority believes that the aggregate liability, if any, arising from suchlitigation or disputes will not have a material adverse effect on its resultsof 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 of $900-$4,350 per Class III gamingdevice, based on the number of gaming device licenses approved by the stategaming commission.  The Compact does not require a license for the first 350Class III gaming devices in use and does not require a license fee for anadditional 350 machines.  Payments are due on a quarterly basis and areremitted into a state revenue sharing trust fund.  License fees expensetotaled $333,750 for each of the three months ended June 30, 2010 and2009.  License fees expense totaled$667,500 for each of the six months ended June 30, 2010 and 2009.

 

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

 

TheAuthority is an unincorporated instrumentality of the Tribe formed pursuant toan adopted law of the Tribe. While the Authority is not a separate corporationor other legal entity distinct from the Tribe, this tribal law allows theAuthority to own and operate its business. This tribal law also provides thatthe Authority’s obligations and other liabilities are not those of the Tribeand that the obligations and liabilities of the Tribe are not those of theAuthority. This law is untested and generally has no direct counterpart inother areas of the law. If this law should prove to be ineffective at limitingthe Authority’s liability, the Authority’s business and assets could becomesubject to claims asserted against the Tribe or its assets.

 

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On March 18, 2008, the Tribe and the Sonoma County Board ofSupervisors entered into a memorandum of agreement (“MOA”) which settledseveral long-standing legal disputes between Sonoma County (the “County”) andthe Tribe and provides a binding framework for resolving future disputes. Pursuant to the MOA, the Tribe has agreed to pay the County up to $75 millionin mitigation fees over a 12 year period to offset impacts of the potentiallosses and impacts to the County resulting from the Tribe’s various ongoingprojects and is intended to support the services being provided by theCounty.   In addition to the mitigation fees, the Tribe will pay afee in lieu of the County’s Transient Occupancy Tax in the amount of 9% of therental collected on occupied hotel rooms, to be paid quarterly and continuingfor five years after the later to occur of the termination of the MOA, as maybe extended, or the Tribe’s Compact with the State (which is now terminable in2020 at the earliest), which fees may be applied to programs and services thatserve to promote tourism in the County. Such in lieu fees could total as muchas $25 million during the term of the MOA.  The Tribe has not made anydeterminations to seek reimbursement or direct payment from the Authority ofamounts due to the County pursuant to the MOA.

 

A casino renovation was approved by management aspart of ongoing efforts to improve the overall appearance and appeal of theCasino to meet customer requirements.  Toadditionally enhance the overall gaming experience and appeal to higher endplayers, management will be moving the Poker Table to a section of the Casinofloor and converting the current poker room into a high-limit room offeringhigh-limit slot machines and table games, comfortable seating, and a bar withfood and beverage service.  The projectis expected to be fully complete by late September 2010 and to remain within a$0.8 million budget.

 

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

 

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

 

**Overview**

 

We are an unincorporatedgovernmental instrumentality of the Tribe that owns and operates theCasino.  We offer Class III slot andvideo poker gaming machines, house banked table games (including Blackjack,Three card poker, Mini-baccarat and Pai Gow poker), Poker, featuring Texas Hold’em,and a wide range of food and beverage offerings.

 

*Recent Operational Highlights*

 

As part of the effort toenhance the overall appeal of our casino, we completed a reconfiguration of ourgaming floor in April 2009.  This effort has resulted in thereduction of approximately 358 slot machines and four table games.  TheTribe will maintain our contractual rights under the Compact to operate a totalof 1,600 slot machines in our casino.  We considered many factors such aspeak period demand, per unit productivity and player comfort in our analysis toensure that the reduction of gaming devices will not adversely impact ourrevenues.

 

A targeted, cost-efficientrenovation was completed in our fiscal year ended December 31, 2009 (“FY2009”) as part of an overall strategic operating plan for the casino.  Inprevious anticipation of building a new casino resort, the current facility hadnot been upgraded for several years.  In addition to the physical plant ofthe gaming operation, furniture, fixtures, equipment and gaming software wasneither replaced nor repaired to adequately service the needs of the business.The overall appearance and appeal of the casino was insufficient to meet basiccustomer requirements.  Major componentsof the renovation project included upgrading slot accounting software, slot andtable player tracking software, adding new carpeting, new slot chairs, interiorand exterior signage and the replacement of paint and wallpaper.  Toadditionally enhance the overall gaming experience and appeal to a broaderspectrum of potential gamers, two additional food amenities wereconstructed.  The 24-seat Fortune Café, which is open 24 hours, seven daysper week, offers a quick service, cook-to-order Asian-themed menu and isdesigned to be a high-margin, high-volume, quick turn restaurant.  Additionally,the Center Stage Bar & Grill, with 64 seats, offers “bar top” videopoker games, and was recently expanded to include a casual dining area and anupgraded stage and sound system that hosts live music and entertainment on theweekends.

 

A new casino renovation wasapproved by management as part of our ongoing efforts to improve the overallappearance and appeal of the Casino to meet customer requirements.  To additionally enhance the overall gamingexperience and appeal to our higher end players, management will be moving ourPoker Table to a section of the Casino floor and converting the current pokerroom into a high-limit room offering high-limit slot machines and table games,comfortable seating, and a bar with food and beverage service.  The project is expected to be fully completeby late September 2010 and to remain within a $0.8 million budget.

 

**FASBCodification Discussion**

 

Over the years, theFinancial Accounting Standards Board (“FASB”) and other designated GAAP-settingbodies, 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 itsstandard-setting process and embarked on a revised process in 2004 resulting inthe release of the FASB Accounting Standards Codification (the “ASC”) on July 1,2009.  The ASC was effective forfinancial statements for interim or annual reporting periods ending after September 15,2009.

 

The ASC became the source ofauthoritative U.S. generally accepted accounting principles (GAAP) recognizedby the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of theSecurities and Exchange Commission (SEC) under authority of federal securitieslaws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, theASC superseded all then-existing non-SEC accounting and reportingstandards.  All

 

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other non-grandfatherednon-SEC accounting literature not included in the ASC will becomenonauthoritative. This Statement was effective for financial statements issuedfor interim and annual periods ending after September 15, 2009.

 

Following the ASC, FASB willnot issue new standards in the form of Statements, FASB Staff Positions, orEmerging Issues Task Force Abstracts. Instead, it will issue AccountingStandards Updates. FASB will not consider Accounting Standards Updates asauthoritative in their own right. Accounting Standards Updates will serve only to update the ASC, providebackground information about the guidance, and provide the bases for conclusionson the change(s)  in the ASC.

 

The ASC does not change howwe account for our transactions or the nature of related disclosures made.  However, when referring to guidance issued bythe FASB, we will refer to topics in the ASC rather than FASB Statements, forexample.  We have updated references toGAAP in this Form 10-Q to reflect the guidance in the ASC.

 

**CriticalAccounting Policies and Estimates**

 

We have identified certaincritical accounting policies and estimates that affect our more significantjudgments and estimates used in the preparation of our financial statements.The preparation of our financial statements, in conformity with GAAP, requiresthat we make estimates and judgments that affect the reported amounts of assetsand liabilities, revenues and expenses, and related disclosures of contingentassets and liabilities. On an on-going basis, we evaluate those estimates,including those related to asset impairment, accruals for our promotional slotclub, compensation and related benefits, revenue recognition, contingencies andlitigation. These estimates are based on the information that is currentlyavailable to us and on various other assumptions that we believe to bereasonable under the circumstances. Actual results could vary from thoseestimates under different assumptions or conditions. We believe that thefollowing critical accounting policies affect significant judgments andestimates used in the preparation of our financial statements:

 

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

 

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

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

 

We evaluate our capital assetsfor impairment in accordance with the Accounting pronouncement GASB No. 42,“*Accounting and Financial Reporting for Impairmentof Capital Assets and for Insurance Recoveries.*”  This Statement establishes accounting andfinancial reporting standards for impairment of capital assets.  Our capital assets include building andimprovements, furniture, fixtures and equipment.  A capital asset is considered impaired ifboth the decline in service utility of the capital asset is large in magnitudeand the event or change in circumstances is outside the normal life cycle ofthe capital asset.  We are required toevaluate prominent events or changes in circumstances affecting capital assetsto determine whether impairment of a capital asset has occurred.  Common indicators of impairment includeevidence of physical damage where restoration efforts are needed to restoreservice utility, enactment or approval of laws or regulations setting standardsthat the capital asset would not be able to meet, technological development orevidence of obsolescence, a change in the manner or expected duration of use ofa capital asset or construction stoppage. This Statement requires us to report the effects of capital assetimpairment in our financial statements when they occur, rather than as part ofthe ongoing depreciation expense for the capital asset or upon disposal of thecapital asset, and to account for insurance recoveries in the same manner.

 

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·          Accrued Progressive SlotJackpots — Accrued progressive slot jackpots consist of estimates for prizesrelating to various games that have accumulated jackpots. We have recorded theanticipated payouts as a reduction of casino revenues and as a component ofaccrued liabilities.  We do not accruefor the base jackpot.

 

·          Contingencies — We assessour exposure to loss contingencies, including legal matters, and provide for anexposure if it is judged to be probable and estimable. If the actual loss froma contingency differs from management’s estimate, operating results could bematerially impacted. As of June 30, 2010, we have determined that no accrualsfor claims and legal actions are required. If circumstances surrounding claimsand legal actions change materially, the addition of accruals for such items infuture periods may be required.

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**RESULTS OF OPERATIONS**

**For the Three Months Ended June 30, 2010 and 2009**

**(Dollars in Millions)**

 
| ** **                                 | ** ** | **June 30,** | ** ** | **Dollar  Variance** | ** ** | **Percentage  Variance** | ** ** |
|--------------------------------------------|------------|-------------------|------------|----------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **2010**          | ** ** | **2009**             | ** ** | **2010 vs. 2009**        | ** ** | **2010 vs. 2009** | ** ** |
|                                       |       |              |       |                 |       |                     |       |   |   |
| OPERATING REVENUES:                        |       |              |       |                 |       |                     |       |   |   |
| Casino                                     |       | $                 | 31.1       |                 | $          | 29.5                     |       | $ | 1.7 |   | 5.7 | % |
| Food, beverage and retail                  |       | 1.5               |       | 1.5                  |       | 0.0                      |       | 0.2 | % |
| Other                                      |       | 0.3               |       | 0.3                  |       | (0.1                     | )          | -25.0 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| Gross revenues                             |       | 32.9              |       | 31.3                 |       | 1.6                      |       | 5.1 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| Promotional allowances                     |       | (0.4              | )          | (0.5                 | )          | 0.0                      |       | -6.1 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| Net revenues                               |       | 32.4              |       | 30.8                 |       | 1.6                      |       | 5.3 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| OPERATING EXPENSES:                        |       |              |       |                 |       |                     |       |   |   |
| Casino                                     |       | 4.1               |       | 3.9                  |       | 0.1                      |       | 3.2 | % |
| Food, beverage and retail                  |       | 1.7               |       | 1.7                  |       | (0.0                     | )          | 0.0 | % |
| Selling, general and administrative        |       | 10.1              |       | 9.8                  |       | 0.3                      |       | 3.3 | % |
| Depreciation                               |       | 2.3               |       | 2.4                  |       | (0.0                     | )          | -1.9 | % |
| Gaming commission and surveillance expense |       | 0.8               |       | 1.1                  |       | (0.3                     | )          | -26.9 | % |
| Compact revenue sharing trust fund         |       | 0.3               |       | 0.3                  |       | —                   |       | 0.0 | % |
| (Gain) on sale of assets                   |       | —            |       | (0.0                 | )          | 0.0                      |       | -100.0 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| Total operating expenses                   |       | 19.3              |       | 19.2                 |       | 0.2                      |       | 0.8 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| INCOME FROM OPERATIONS                     |       | 13.1              |       | 11.6                 |       | 1.5                      |       | 12.6 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| NON-OPERATING EXPENSE-Net                  |       |              |       |                 |       |                     |       |   |   |
| Interest expense                           |       | (5.2              | )          | (5.2                 | )          | 0.0                      |       | 0.0 | % |
| Interest income                            |       | 0.0               |       | 0.0                  |       | (0.0                     | )          | -29.5 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| Non-operating expense-net                  |       | (5.2              | )          | (5.2                 | )          | (0.0                     | )          | 0.1 | % |
|                                       |       |              |       |                 |       |                     |       |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | $                 | 7.9        |                 | $          | 6.5                      |       | $ | 1.5 |   | 22.5 | % |

 

**Results of Operations**

 

**Comparisonof the three months ended June 30, 2010 and 2009**

 

*Net revenues*. Net revenues for the threemonths ended June 30, 2010 increased by $1.6 million to $32.4 million,from $30.8 million for the three months ended June 30, 2009.  Webelieve the increase in net revenues is attributable to an increase in customersatisfaction levels resulting from the casino renovation project.  Our renovation project has resulted in bettercustomer retention, longer stays, and an increase in the number of visits.  Approximately 96.0% of our net revenues werefrom our gaming activities in the second quarter of 2010, as compared to 95.6%in the comparable prior year period.  Wegenerated $28.4 million or 87.5% of our net revenues from gaming devices, and$2.7 million, or 8.5% of our net revenues from table games and poker for thethree months ended June 30, 2010, compared to $26.4 million from gamingdevices or 85.6% of our net revenues, and $3.1 million or 10.0% of net revenuesfrom table games and poker for the three months ended 

 

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June 30, 2009.  Our win per slot machine per day was $256 forthe three months ended June 30, 2010, which increased by $47 from $209 forthe three months ended June 30, 2009. The increase in net win per machine per day is attributable to the thedecrease in the daily average number of slot machines on the floor.  We have been reconfiguring our gaming floorin an effort to enhance our overall appeal. As part of this effort, we reduced the average number of slot machinesto 1,217 for the three months ended June 30, 2010, compared to 1,385 forthe three months ended June 30, 2009.

 

We generated $1.0 million,net of promotional allowance of $0.4 million, in food, beverage and retailsales for the three months ended June 30, 2010, compared to $1.0 million,net of promotional allowances of $0.5 million, in food, beverage and retailsales for the three months ended June 30, 2009.

 

*Promotionalallowances*. Promotional allowances for the three months ended June 30,2010 were $0.4 million, or 1.4% of net revenues, compared to $0.5 million, or1.5% of net revenues, for the three months ended June 30, 2009.

 

*Operatingexpenses*. Operating expenses for the three months ended June 30,2010 were $19.3 million, or 59.6% of net revenues, compared to $19.2 million,or 62.2% of net revenues, for the three months ended June 30, 2009.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities.  Casino expense for the three months ended June 30,2010 was $4.1 million compared to $3.9 million for the three months ended June 30,2009.  Casino expense as a percentage ofCasino revenues decreased to 13.0% from 13.3% for the three months ended June 30,2009.

 

Food,beverage and retail expense for the three months ended June 30, 2010 was$1.7 million, or 163.0% of food, beverage and retail revenue, net ofpromotional allowances, compared to $1.7 million, or 168.1% of food, beverageand retail revenue, net of promotional allowances for the three months ended June 30,2009.  Our food, beverage and retailexpense ratio is significantly higher than the industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

 

Selling, general andadministrative expense for the three months ended June 30, 2010 was $10.1million, or 31.3% of net revenues, from $9.8 million, or 31.8% of net revenues,for the three months ended June 30, 2009. The increase in selling, general and administrative expense is primarilydue to an increase in advertising and contract services.

 

Depreciation expense for thethree months ended June 30, 2010 was $2.3 million compared to $2.4 for thethree months ended March 31, 2009. Depreciation expense was computed using the straight-line method overthe useful life of property, plant and equipment.

 

Gaming Commission andsurveillance expense for the three months ended June 30, 2010 was $0.8million compared to $1.1 million for the three months ended June 30,2009.  The decrease in Gaming Commissionand surveillance expense is primarily due to a decrease in payroll.

 

The Compact requires us topay 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 June 30, 2010 and 2009.

 

*Incomefrom operations.* Income from operations for the three months ended June 30,2010 was $13.1 million, or 40.4% of net revenues, compared to $11.6 million, or37.8% of net revenues, for the three months ended June 30, 2009.  Theincrease in income from operations is attributable to the increase in businessvolumes as a result of the Casino renovation project as well as the ongoingmarketing efforts and the decrease in operating expenses from our cost savingmeasures.

 

*Non-operatingexpense, net.* Non-operating expense, net for the three months endedJune 30, 2010 was $5.2 million, or 16.0% of net revenues, compared to $5.2million or 16.8% of net revenues, for the three months ended June 30,2009.  Non-operating expense, net, includes $5.2 million of interestexpense for each of the three months ended June 30, 2010 and 2009.  No interest costs were capitalized in thethree months ended June 30, 2010 and 2009.

 

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*Incomebefore distributions to Tribe*. Income beforedistributions to the Tribe for the three months ended June 30, 2010 was$7.9 million, or 24.4% of net revenues, compared to $6.5 million, or 20.9% ofnet revenues, for the three months ended June 30, 2009.

 

*Distributionsto the Tribe*. Distributions to the Tribe for the three monthsended June 30, 2010 were $3.4 million, compared to $3.3 million for thethree months ended June, 2009.

 

**RESULTS OF OPERATIONS**

**For the Six Months Ended June 30, 2010 and 2009**

**(Dollars in Millions)**

 
| ** **                                 | ** ** | **June 30,** | ** ** | **Dollar** | ** ** | **Percentage** | ** ** |
|--------------------------------------------|------------|-------------------|------------|------------|------------|----------------|------------|
| ** **                                 | ** ** | **2010**          | ** ** | **2009**   | ** ** | **Variance**   | ** ** | **Variance** | ** ** |
|                                       |       |              |       |       |       |           |       |   |   |
| OPERATING REVENUES:                        |       |              |       |       |       |           |       |   |   |
| Casino                                     |       | $                 | 62.1       |       | $          | 59.4           |       | $ | 2.7 |   | 4.5 | % |
| Food, beverage and retail                  |       | 2.9               |       | 2.9        |       | 0.0            |       | 0.6 | % |
| Other                                      |       | 0.5               |       | 0.5        |       | 0.0            |       | 9.7 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| Gross revenues                             |       | 65.5              |       | 62.8       |       | 2.7            |       | 4.3 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| Promotional allowances                     |       | (0.8              | )          | (0.7       | )          | (0.1           | )          | 19.0 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| Net revenues                               |       | 64.7              |       | 62.1       |       | 2.6            |       | 4.2 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| OPERATING EXPENSES:                        |       |              |       |       |       |           |       |   |   |
| Casino                                     |       | 7.9               |       | 8.1        |       | (0.2           | )          | -2.6 | % |
| Food, beverage and retail                  |       | 3.5               |       | 3.8        |       | (0.3           | )          | -6.9 | % |
| Selling, general and administrative        |       | 20.7              |       | 19.9       |       | 0.8            |       | 4.1 | % |
| Depreciation                               |       | 4.8               |       | 4.8        |       | 0.0            |       | 0.8 | % |
| Gaming commission and surveillance expense |       | 1.5               |       | 1.9        |       | (0.4           | )          | -19.9 | % |
| Compact revenue sharing trust fund         |       | 0.7               |       | 0.7        |       | —         |       | 0.0 | % |
| (Gain) on sale of assets                   |       | —            |       | (0.0       | )          | 0.0            |       | -100.0 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| Total operating expenses                   |       | 39.1              |       | 39.1       |       | 0.0            |       | 0.1 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| INCOME FROM OPERATIONS                     |       | 25.6              |       | 23.0       |       | 2.6            |       | 11.1 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| NON-OPERATING EXPENSE-Net                  |       |              |       |       |       |           |       |   |   |
| Interest expense                           |       | (10.4             | )          | (10.4      | )          | 0.0            |       | 0.0 | % |
| Interest income                            |       | 0.0               |       | 0.0        |       | (0.0           | )          | -12.3 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| Non-operating expense-net                  |       | (10.4             | )          | (10.4      | )          | (0.0           | )          | 0.0 | % |
|                                       |       |              |       |       |       |           |       |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | $                 | 15.2       |       | $          | 12.6           |       | $ | 2.6 |   | 20.2 | % |

 

**Comparisonof the six months ended June 30, 2010 and 2009**

 

*Net revenues*. Net revenues for the sixmonths ended June 30, 2010 increased by $2.6 million to $64.7 million,from $62.1 million, for the six months ended June 30, 2009.  Webelieve the increase in net revenues is attributable to an increase in customersatisfaction levels resulting from the casino renovation project.  Our renovation project has resulted in bettercustomer retention, longer stays, and an increase in the number of visits.  Approximately 96.0% of our net revenues werefrom our gaming activities in the six months ended June 30, 2010, ascompared to 95.7% in the comparable prior year period.  We generated $56.4 million or 87.1% of ournet revenues from gaming devices, and $5.7 million, or 8.8% of our net revenuesfrom table games and poker for the six months ended June 30, 2010,compared to $53.3 million from gaming devices or 85.9% of our net revenues, and$6.1 million or 9.8% of net revenues from table games and poker for the sixmonths ended June 30, 2009.  Our winper slot machine per day was $257 for the six months ended June 30, 2010,which

 

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increased by $57 from $200for the six months ended June 30, 2009. The increase in net win per machine per day is attributable to thedecrease in the average number of slot machines on the floor.  We have been reconfiguring our gaming floorin an effort to enhance our overall appeal. As part of this effort, we reduced the average number of slot machinesto 1,214 for the six months ended June 30, 2010, compared to 1,476 for thesix months ended June 30, 2009.

 

We generated $2.1 million,net of promotional allowance of $0.8 million, in food, beverage and retail salesfor the six months ended June 30, 2010, compared to $2.2 million, net ofpromotional allowances of $0.7 million, in food, beverage and retail sales forthe six months ended June 30, 2009.

 

*Promotionalallowances*. Promotional allowances for the six months ended June30, 2010 were $0.8 million, or 1.3% of net revenues, compared to $0.7 million,or 1.1% of net revenues, for the six months ended June 30, 2009.

 

*Operatingexpenses*. Operating expenses for the six months ended June 30,2010 were $39.1 million, or 60.4% of net revenues, compared to $39.1 million,or 62.9% of net revenues, for the six months ended June 30, 2009.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities.  Casino expense for the six months ended June 30,2010 was $7.9 million compared to $8.1 million for the six months ended June 30,2009.  Casino expense as a percentage ofCasino revenues decreased to 12.7% from 13.6% for the six months ended June 30,2009.

 

Food,beverage and retail expense for the six months ended June 30, 2010 was$3.5 million, or 166.6% of food, beverage and retail revenue, net ofpromotional allowances, compared to $3.8 million, or 169.7% of food, beverageand retail revenue, net of promotional allowances for the six months ended June 30,2009.  Our food, beverage and retailexpense ratio is significantly higher than the industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

 

Selling, general andadministrative expense for the six months ended June 30, 2010 was $20.7million, or 32.0% of net revenues, from $19.9 million, or 32.0% of netrevenues, for the six months ended June 30, 2009.

 

Depreciation expense for thesix months ended June 30, 2010 was $4.8 million compared to $4.8 millionfor the six months ended June 30, 2009. Depreciation expense was computed using the straight-line method overthe useful life of property, plant and equipment.

 

Gaming Commission andsurveillance expense for the six months ended June 30, 2010 was $1.5million compared to $1.9 million for the six months ended June 30, 2009.

 

The Compact requires us topay 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$0.7 million for each of the six months ended June 30, 2010 and 2009.

 

*Incomefrom operations.* Income from operations for the six months ended June 30,2010 was $25.6 million, or 39.6% of net revenues, compared to $23.0 million, or37.1% of net revenues, for the six months ended June 30, 2009.  Theincrease in income from operations is attributable to the increase in businessvolumes as a result of the Casino renovation project as well as the ongoingmarketing efforts and the decrease in operating expenses from our cost savingmeasures.

 

*Non-operatingexpense, net.* Non-operating expense, net for the six months endedJune 30, 2010 was $10.4  million, or16.1% of net revenues, compared to $10.4 million or 16.7% of net revenues, forthe six months ended June 30, 2009.  Non-operating expense, net,includes $10.4 million of interest expense for each of the six months ended June 30,2010 and 2009.  No interest costs werecapitalized in the six months ended June 30, 2010 and 2009.

 

*Incomebefore distributions to Tribe*. Income beforedistributions to the Tribe for the six months ended June 30, 2010 was$15.2 million, or 23.5% of net revenues, compared to $12.6 million, or 20.4% ofnet revenues, for the six months ended June 30, 2009.

 

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*Distributionsto the Tribe*. Distributions to the Tribe for the six monthsended June 30, 2010 were $6.8 million, compared to $6.6 million for thesix months ended June 30, 2009.

 

**Liquidityand Capital Resources**

 

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

 

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

 

Pursuantto the MOA, the Tribe has agreed to pay Sonoma County up to $75 million inmitigation fees over a 12 year period to offset impacts of the potential lossesand impacts to Sonoma County resulting from the Tribe’s various ongoing andproposed development projects and is intended to support the services beingprovided by Sonoma County.  In addition to the mitigation fees, the Tribewill pay a fee in lieu of Sonoma County’s Transient Occupancy Tax in the amountof 9% of the rental collected on occupied hotel rooms that may be developed bythe Tribe, to be paid quarterly and continuing for five years after the laterto occur of the termination of the MOA, as may be extended, or the Tribe’sCompact with the State (which is now terminable in 2020 at the earliest), whichfees may be applied to programs and services that serve to promote tourism inSonoma County. Such in lieu fees could total as much as $25 million during theterm of the MOA.

 

Todate, 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 theissuance of our liquor license to construct an emergency access road from thecasino over either the Dugan Property or at an alternative site subject toapproval by Sonoma County.  The MOArequires that road construction commence no later than 60 days after the DuganProperty is taken into trust by the United States for the benefit of the Tribe(the “Trust Date”) and to be completed no later than 365 days after the TrustDate, subject to an extension if such commencement date occurs during the rainyseason (approximately October 15th through April 15th).  We believe the Trust Date will occur in thenext fiscal quarter. Notwithstanding the impending Trust Date, we believe theTribe will be able to obtain an extension of the construction deadline fromSonoma County, but there is no assurance that it will be able to do so. Variousfactors, including unknown site conditions, potential labor disputes, potentialcost increases and similar variables could result in increased constructioncosts and there is no assurance that we will not experience cost-overruns.

 

OnJune 28, 2007, we and the Tribe announced plans to build a destinationresort. The proposed project includes the construction of a casino, hotel andspa, several food and beverage venues, parking and storage, administrativefacilities, a garden and terrace plaza, balconies and terraces, a retail area,conference facilities, and back of house facilities. The proposed projectincludes three above-ground levels and a hotel tower (up to eight levels) andfour below-ground levels. We and the Tribe have suspended preliminaryconstruction relating to this expansion project and have revised the proposedscale of the project. We will be unable to proceed with the expansion projectfor the foreseeable future due to the unavailability of capital and lack ofcash flow.

 

Priorto the suspension of the master planning and related infrastructureimprovements on the reservation relating to the expansion project in early2009, the Tribe incurred approximately $67 million in total expenses on ourbehalf for the expansion project.  Wereimbursed the Tribe approximately $52.4 million through FY 2009.  On January 8, 2010, our Board ofDirectors authorized the reimbursement to the Tribe in an amount not to exceedapproximately $14.9 million of construction costs.  The approval included a payment reimbursementschedule to the Tribe of $2.7 million on January 18, 2010, $400,000monthly from February 1, 2010 through April 1, 2010 and $700,000monthly thereafter without exceeding $14.9 million.  We reimbursed the Tribe $1.8 million for thethree months ended June 30, 2010 and $5.3 million for the six months ended June 30,2010.  We accrued a remaining $9.3million, which is included in Payable to Tribe in the Condensed Balance Sheetat June 30, 2010.  When the reimbursementpayments are made or accrued, the related expenses are capitalized andreflected as construction-in-progress. The reimbursed costs consist of engineering and design costs related tothe proposed master plan development,

 

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includingelectrical, HVAC, landscaping, interior design services and consulting fees forlegal, branding, feasibility and public relations services, as well as theconstruction costs of the lower Acorn Road.

 

Ourcapital expenditures for the six months ended June 30, 2010 and 2009 were$9.4 million and $8.6 million, respectively. The addition to capital expenditures for the six months ended June 30,2010 consisted primarily of construction-in-progress related to the master plandevelopment of our resort of which $5.3 million was reimbursed to the Tribe, aswell as costs relating to remodels of our Casino and restaurants.  We have reflected the expenditures relatingto the master plan development which we reimbursed the Tribe asconstruction-in-progress in our balance sheet.

 

As of June 30, 2010, wehad cash and cash equivalents, net of restricted cash of $35.9 million,compared to $31.6 million, as of December 31, 2009. We had restricted cashof $7.1 million as of June 30, 2010 and December 31, 2009.  Our principal source of liquidity during thethree months ended June 30, 2010 consisted of cash flow from operatingactivities.

 

Restricted cash consists ofnet proceeds from the Senior Notes and investment earnings thereon set aside inconstruction financing accounts for construction costs for the three parkingstructures, related infrastructure improvements and construction contingencies.It also includes funds that are reserved for additional constructioncontingencies and the funds for the development of the Dugan Property.  Our restricted cash is held in escrowaccounts that can only be used for authorized construction disbursements untilthe related projects are completed.  On July 30,2010, U.S. Bank National Association, as trustee and collateral agent for theSenior Notes, transferred $2,682,699 from restricted accounts held by U.S. Bankto the our  unrestricted operatingaccount. The transferred amount represents the remaining balances of proceedsfrom the sale of the Senior Notes and investment earnings thereon that had beenheld by U.S. Bank in a restricted construction financing account and aconstruction escrow account less all fees and expenses owed to U.S. Bank todate.  The remaining balance ofrestricted cash relates to the emergency access road which will be used tofurther develop either the Dugan Road or an alternate access road and willremain restricted for such purposes.

 

Net cash used in capital andrelated financing activities for the six months ended June 30, 2010 was$19.6 million, compared to $18.4 million for the six months ended June 30,2009.  This increase was primarilyattributable to the increase in purchases of capital assets.

 

Cash flows provided byinvesting activities consisting of interest income for the six months ended June 30,2010 was $27,876, compared to $31,800 for the six months ended June 30,2009.

 

Cash flows used innon-capital financing activities for the six months ended June 30, 2010was $6.8 million, compared to $6.6 million, for the six months ended June 30,2009.  Cash flows used in non-capital financing activities consist ofdistributions to the Tribe.

 

Webelieve that existing cash balances, cash from operations, as well as permitteddisbursements from our restricted cash escrow accounts will provide adequatefunds for our working capital needs and planned capital expenditures for theforeseeable future. However, our ability to fund our operations and makeplanned capital expenditures depends on our future operating performance andcash flow, which, in turn, are subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control.

 

TheSenior Notes mature on November 1, 2011. We are actively reviewing ouroptions.  We have remained in contact with various financial institutionsregarding the maturing debt to explore our options, which may includerefinancing the Senior Notes.  Inaddition, the Indenture limits our ability to incur additional indebtedness.

 

The Tribe incurred expensesrelated to the reinforcement of the slope on the northwest side of theReservation near the Casino.  On May 19,2010, our Board of Directors authorized the reimbursement to the Tribe in anamount not to exceed $911,000 of construction costs incurred by the Tribe forthis project.  The Authority accrued thisamount which is included in Payable to Tribe in the Condensed Balance Sheet at June 30,2010.  Subsequently, on August 4,2010, our Board of Directors authorized the reimbursement to the Tribe in anamount of $0.9 million for additional related construction costs.  We currently expect that the cost of thisproject will be approximately $3.0 million.

 

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A casino renovation wasapproved by management as part of our ongoing efforts to improve the overallappearance and appeal of the Casino to meet customer requirements.  In anticipation of building a new casinoresort, the facility was not improved upon for several years.  To additionally enhance the overall gamingexperience and appeal to our higher end players, we will be converting thecurrent poker room into a high-limit room offering high-limit slot machines,comfortable seating, a bar with food and beverage service.  The project is expected to be fully completeby late September 2010 and to remain within a $0.8 million budget.

 

Aspart of the effort to enhance the overall appeal of our product, we have beenreconfiguring our gaming floor.  This effort has resulted in the reductionof approximately 372 slot machines and 2 table games.  We will maintainour contractual rights under the Compact to operate a total of 1,600 slotmachines in our Casino and pay the related Revenue Sharing Trust Fund (“RSTF”)payments.  We considered many factors such as peak period demand, per unitproductivity, and player comfort in our analysis to ensure that the reductionof gaming devices will not adversely impact our revenues.  The reductionof gaming units on the Casino floor has provided us an opportunity to upgradecurrent amenities, improve player comfort and enhance entertainment value. Weare confident that these improvements, targeted at improving product appeal,will ultimately open up a greater spectrum of potential consumers within ourdesignated market area.  In combination with our continuing effort toimprove operational efficiency, upgrading our gaming technology, and refocusingour marketing efforts, we are confident that we will have set a solidfoundation for improved and sustained cash flows.

 

**ContractualObligations as of June 30, 2010**

 

Thefollowing table summarizes our contractual obligations and commitments as of June 30,2010, excluding those obligations and commitments to Tribe:

 
| ** **                     | ** ** | **Total** | ** **  | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** **  |
|--------------------------------|------------|-----------|-------------|------------|------------|---------------|------------|---------------|-------------|
| Long-term debt obligations (a) |       | $         | 200,000,000 |       | $          | —        |       | $             | 200,000,000 |   | $ | — |   |
| Operating lease obligations    |       | 1,439,415 |        | 605,517    |       | 712,432       |       | 121,466       |        |
| Total obligations (b)          |       | $         | 201,439,415 |       | $          | 605,517       |       | $             | 200,712,432 |   | $ | 121,466 |   |

 

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(a)          Excluded from long-term debtobligations above are interest payments of $19.5 million in 1 year and $6.6million in 2-3 years.

 

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

 

**Regulationand Taxes**

 

We are subject to extensiveregulation by the Tribe’s Gaming Commission, the California Gambling ControlCommission and the National Indian Gaming Commission. Changes in applicablelaws or regulations could have a significant impact on our operations.

 

OnMarch 18, 2008, the Tribe and the Sonoma County Board of Supervisorsentered into the MOA that, among other things, settled several long-standinglegal disputes between Sonoma County and the Tribe, and provides a bindingframework for resolving future disputes.   Under the MOA, the Countyagreed to drop its opposition to the Tribe’s application for a liquorlicense.  In a related action, the Alexander Valley Association, a localbusiness and residents association which has long objected to the issuance of aliquor license, agreed to withdraw its objections to the license and haspersuaded its members and a number of other protestors to do likewise.

 

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

 

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Inaddition, the MOA commits the County Sheriff’s Department and Fire Marshall toproviding public safety and fire services to the Casino and the Tribe’s futuregaming projects on the Rancheria, provides detailed agreements on offreservation impact mitigation measures, and permits the Tribe’s application totake the Dugan Property into trust, which has already been approved by theDepartment of the Interior (“DOI”) but was appealed by the DOI, to move forwardwithout further County opposition.

 

TheTribe has agreed to pay the County up to $75 million in mitigation fees over a12 year period to offset impacts of the potential losses and impacts to theCounty resulting from the Tribe’s various ongoing projects and is intended tosupport the services being provided by the County.  In addition to themitigation fees, the Tribe will pay a fee in lieu of the County’s TransientOccupancy Tax in the amount of 9% of the rental collected on occupied hotelrooms, to be paid quarterly and continuing for five years after the later tooccur of the termination of the MOA, as may be extended, or the Tribe’s Compactwith the State (which is now terminable in 2020 at the earliest), which feesmay be applied to programs and services that serve to promote tourism in theCounty. Such in lieu fees could total as much as $25 million during the term ofthe MOA.  The Tribe has not made any determinations to seek reimbursementor direct payment from us of amounts due to the County pursuant to the MOA.

 

Since we are anunincorporated governmental instrumentality of the Tribe located on reservationland held in trust by the United States of America, we are not subject tofederal or state income taxes. Various efforts have been made in Congress overthe past several years to enact legislation that would subject the income oftribal governmental business entities, such as us, to federal income tax.Although no such legislation has been enacted, similar legislation could bepassed in the future. It is not possible to determine with certainty thelikelihood 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 operatingresults and cash flow from operations.

 

**Impact ofInflation**

 

Absent changes incompetitive and economic conditions or in specific prices affecting the casinoindustry, we do not expect that inflation will have a significant impact on ourCasino operations. Since many of our patrons drive up from Santa Rosa and SanFrancisco, changes in specific prices, such as fuel and transportation prices,relative to the general rate of inflation may have a material adverse effect onthe casino industry in general.

 

**Seasonality**

 

We anticipate that activityat our Casino may be modestly seasonal with stronger results expected duringthe summer due in part to the relatively higher levels of tourism during suchtimes of the year. In addition, our operations may be impacted by adverseweather conditions and fluctuations in the tourism business. Accordingly, ourresults may fluctuate from quarter to quarter and the results of one quartermay not be indicative of results expected from future quarters.

 

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

 

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

 

Through June 30, 2010,we had not invested in derivative or foreign currency-based financialinstruments.  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**

 

**Evaluationof Disclosure Controls and Procedures**

 

Asof the end of the period covered by this Quarterly Report on Form 10-Q,management, including the Authority’s Chief Executive Officer and ChiefFinancial Officer, has evaluated the effectiveness of the design and operationof its disclosure controls and procedures. Based upon that evaluation and as of the end of the quarter for whichthis report is made,

 

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theAuthority’s Chief Executive Officer and Chief Financial Officer concluded thatthe disclosure controls and procedures were effective.  Disclosurecontrols and procedures ensure that information to be disclosed in reports thatthe Authority files and submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andterms of the Securities and Exchange Commission, and ensure that informationrequired to be disclosed in the reports that the Authority files or submitsunder the Exchange Act is accumulated and communicated to the Authority’smanagement, including its Chief Executive Officer and Chief Financial Officer,to allow timely decisions regarding required disclosure.

 

**Changes toInternal Controls Over Financial Reporting**

 

Therehas been no change in internal controls over financial reporting that occurredduring the period covered by this report that has materially affected, or isreasonably likely to materially affect, the Authority’s internal control overfinancial reporting.

 

**PART II.**                **OTHERINFORMATION**

** **

**ITEM 1.**                  **LEGALPROCEEDINGS**

 

TheAuthority is involved in litigation and disputes from time to time in theordinary course of business with vendors and patrons. The Authority believesthat the aggregate liability, if any, arising from such litigation or disputeswill not have a material adverse effect on its results of operations, financialcondition or cash flows.

 

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

 

There have been no materialchanges from the risk factors previously disclosed in our most recentForm 10-K other than the following:

 

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

 

Thegaming industry is very competitive. We face or will face competition fromexisting and proposed California Indian gaming facilities in the surroundingarea, and elsewhere in California, and with casino gaming in Nevada, includinggaming facilities that could be located closer to the San Francisco Bay area.We also compete with card rooms located in the surrounding area, and otherforms of gaming that are legal in California, including on and off-trackwagering and the California State Lottery, as well as with non-gaming leisureactivities. The availability of such alternative gaming and non-gamingactivities may increase in the future. Many of our competitors havesubstantially greater resources and name recognition than our casino. Inaddition, we may also face competition in our market from new facilities thatmay be built by other Indian tribes in the future.

 

Federaland California law currently permits Class III casino gaming only onfederally recognized tribal lands pursuant to compacts negotiated with theState of California and approved by the U.S. Secretary of the Interior.Class II gaming for tribes is permitted only on federally recognizedtribal lands. There are currently 55 tribes operating 56 compacted gamingfacilities in the State of California. The closest existing competitors are theHopland Sho-ka-wah Casino, located approximately 35 miles and 40 minutes northof the Tribe’s reservation; the Konocti Vista Casino, located approximately 45miles and one hour and ten minutes northeast of the Tribe’s reservation; theCache Creek Indian Casino and Bingo, located approximately 95 miles and twohours and fifteen minutes east of the Tribe’s reservation; and the ThunderValley Casino, located approximately 124 miles and two hours and forty-fiveminutes east of the Tribe’s reservation. In addition, several potentialcompetitors are attempting to develop and open casinos near our casino.

 

Thegreatest competition may come from the proposed Graton Rancheria casino. InApril 2003, the Federated Indians of the Graton Rancheria, also known asthe Coast Miwoks, announced plans to purchase land in Sonoma County nearHighway 37 and Lakeville Highway, approximately 20 miles south of our casinoand closer to San Francisco than the Tribe’s reservation. The proposed locationwould lie directly between our casino and the majority of the 7 millionpopulation base of

 

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theSan Francisco Bay area. The announced plans include construction of acasino-hotel complex that will be managed by Station Casinos, Inc. basedin Las Vegas, Nevada. The proposed facility would house approximately 2,000slot machines, 120 card tables and bingo, as well as a 300-room hotel, fiverestaurants and a theater with up to 2,000 seats. As a result of environmentalopposition to the development of such location, the Federated Indians of theGraton Rancheria announced plans to move the proposed casino-hotel complex to asite near Rohnert Park, California. The Rohnert Park City Council has approvedan agreement with the Federated Indians of the Graton Rancheria to sharerevenues with Rohnert Park and various community groups, approximately $200.0million over 20 years, to offset the impact of the proposed project.

 

InMay 2008, the U.S. Department of Interior published in the FederalRegister a notice to take the proposed Rohnert Park site into federal trust onbehalf of the Graton Rancheria. This represents a significant step toward thedevelopment of a casino at Rohnert Park, as do the separate agreementsnegotiated between the Graton Rancheria and Sonoma County and Marin County,whereby the counties pledged to not challenge the land-into-trust decision andthe Graton Rancheria agreed not to build any additional casinos in Sonoma orMarin counties. The U.S. Department of Interior’s land-into-trust decision has,however, been challenged by citizens group opposed to a casino in RohnertPark.  The federal district courtdismissed the citizens group’s lawsuit on April 21, 2009.  On appeal, the citizens group was joined by acoalition of nearby cities.  The NinthCircuit Court of Appeals upheld the dismissal on June 3, 2010.  As a result of this litigation, theDepartment of Interior agreed to withhold action on taking the land intotrust.  A spokesperson for the citizensgroup has also stated publicly that the group will challenge the adequacy ofthe environmental impact statement for the proposed Graton casino, which wasissued in February 2009.  Anotherobstacle facing the proposed Graton Rancheria casino is the ability to obtainfinancing for the project.  In addition, theGraton Rancheria will also need to enter into a tribal-state compact with theState of California before it can operate Class III gaming at the RohnertPark site.

 

TheHopland Sho-ka-wah Casino is located several miles east of U.S. Highway 101 onRoute 175. The facility features a 40,000 square foot casino offering 570 slotmachines and eight table games. The facility offers poker, Pai Gow, blackjack,card-based roulette, and card-based craps table games.  The facility contains a Mexican foodtaqueria, a small cafe-type food and beverage area, a fine-dining steak houseand a bar. Hopland operates a small bus program but does not operate a hotel.

 

Eastof the Sho-ka-wah Casino is the Konocti Casino in Lakeport, California.Lakeport is located approximately 37 miles from Cloverdale with access offHighway 20.  The casino currently houses349 slot machines and 6 table games. The facility also offers an 80-room hoteland marina with small pool as well as a 74-space recreational vehicle park. Thefood and beverage program includes a small restaurant, buffet and a newlyremodeled steakhouse restaurant serving liquor.

 

TheThunder Valley Casino opened in June 2003 and is located at theintersection of Highway 65 and Interstate 80 just outside of Sacramento, California.The Nevada-style property offers approximately 3,000 slot machines and 125table games that include blackjack, baccarat, and a variety of poker gamesincluding Let It Ride and Pai Gow. The facility features a salon, privatedining rooms, bars and butler service. In addition, it houses a 500-seat buffetand various fast food options. The facility also features a nightclub.  In 2008, the Thunder Valley Casino announcedplans to build a new 650-room, 23-story hotel featuring a spa, family centerand other amenities.  Thunder Valley also planned to construct a3,000-seat performing arts center, and to expand the casino to include threenew restaurants, more gaming space and new poker room, and a parking structurecapable of holding 5,000 cars.  Theexpansion began in July 2008 but was halted in November 2008.  In May 2009, the casino resumed work onthe expansion, but the project was scaled down to include a 17-story hotel with297 rooms; a 700-seat, 10,000-square-feet multipurpose entertainment center in placeof the performing arts center; and a 7-story parking structure withapproximately 3,800 spaces.  The hotelopened in June 2010.  Thunder Valleyis also adding 40,000 square feet of space to its casino floor, most of whichis already open, and has renovated the existing casino floor to match the newspace.

 

TheCache Creek Casino is located approximately 50 miles west of Sacramento. TheCache Creek Casino offers approximately 2,400 slot machines. The casinorecently added a 14-table poker room and houses 122 table games includingblackjack, Texas Hold’em, Pai Gow and Caribbean Stud. The facility alsoincludes a 200-room luxury hotel, 9 restaurant outlets, an entertainmentpavilion with seating for 600, a spa and outdoor pool, an 18-hole golf courseand a 1,883 spot parking structure. In 2007, Cache Creek announced plans to addmore shops and parking and expand its gaming floor, and to add a 10-story hoteltower with 467 rooms, and a 62,500 square-foot convention center capable ofseating 2,300 people.

 

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Theseexpansion plans were put on hold in early October 2009, but were resumedin January 2010 when the Cache Creek Casino announced plans to resume theexpansion, proposing to add over 20,000 square-feet of casino space, a 52,000square-foot convention center, and a 900-car garage.  The expansion is expected to be completed by2013.

 

TheLytton Band of Pomo Indians currently operate a 70,000 square-foot casino withapproximately 1,184 Class II electronic bingo machines and over 15 tablegames 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 congressionallegislation.  The Lytton Band signed acompact with Governor Arnold Schwarzenegger for operating Class III casinogaming on the San Pablo site, but the state legislature withheld its approval.In May 2007, legislation was introduced in the U.S. Senate, which has thesupport of the Lytton Band, that would require the Lytton Band to forego anyClass III machines at the San Pablo site and instead limit itself tooperating its existing Class II machines. This legislation was passed bythe Senate in November 2007 and referred to the Committee on NaturalResources in the U.S. House of Representatives, but no further action wastaken.  The legislation was againintroduced in the U.S. Senate in January 2009, and the Senate passed thebill in March 2009, although no further action has been taken.

 

TheTwin Pine Casino and Hotel, owned and operated by the Middletown Rancheria ofPomo Indians, is located approximately 4 miles off Highway 29 in Napa County,approximately 34 miles from our casino. The Middletown Rancheria has recentlycompleted an expansion of the Twin Pine Casino and Hotel which includes a60-room hotel, three food areas and a wine tasting room, as well as 50,000square feet of gaming space with approximately 520 slot machines and 12 tablegames consisting of blackjack and poker. The Twin Pine Casino and Hotel recently announced plans to add a fourthrestaurant offering a 40-seat café with a mid-priced menu.

 

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

 

TheGuidiville Band hopes to have transferred to it land at the former Point MolateNaval Base in Richmond, California on which it hopes to operate a 240,000square-foot casino with 124,000 square-feet of gaming space, along with twohotels, a conference center, retail shops, restaurants and two parkingstructures.  The project is still in itsearly stages, as the land transfer has not been approved and environmentalreviews must be completed.  In January 2009,two environmental groups filed a lawsuit in an effort to stop the transfer ofthe land.  The Guidiville Band releasedthe draft environmental impact study for the proposed project in July 2009,and the Bureau of Indian Affairs held a public hearing on the draft study in August 2009and took public comments on the study until September 23, 2009.

 

TheScotts Valley Band hopes to build a 225,000 square-foot casino complex andfive-story parking garage on a 29.87-acre site in unincorporated Contra CostaCounty, near Richmond, California.  In March 2008, the Bureau ofIndian Affairs announced the filing of the Final Environmental Impact Statementfor the proposed project.  A municipalservices agreement between the City of Richmond and the Scotts Valley Band waschallenged in court on environmental review grounds, and the court upheld thevalidity of the agreement.

 

TheCloverdale Rancheria has announced preliminary plans to build a 596,000square-foot hotel/spa and casino resort some ten miles north of our casino onU.S. Highway 101, and they and their financial backers have purchasedapproximately 79 acres for the proposed facility.  The Cloverdale Rancheria’s financial partnerwas issued a default notice in March 2010 for failure to keep up withpayments on the land, but a spokesperson for the Cloverdale Rancheria statedpublicly that the project is still moving forward as planned. In December 2008the DOI issued an opinion stating that if the lands were taken into trust, theywould be eligible for gaming under the Indian Gaming Regulatory Act. Theenvironmental review process for the proposed Cloverdale Rancheria projectbegan in July 2008, and the Draft Environmental Impact Statement for theproject was issued on August 6, 2010.

 

Eachof these proposed projects faces numerous obstacles in addition toenvironmental approvals, including the negotiation and approval of a compactwith the State of California, approval from the DOI to take the land on whichthe project would be located into federal trust on behalf of the tribe, and,for the Guidiville and Scotts Valley projects, determinations from appropriatefederal agencies that the tribes may conduct gaming on these lands pursuant toIGRA.

 

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InJune 2009, the Mishewal Wappo Tribe of Alexander Valley, a tribe withaboriginal lands and a former rancheria located in Sonoma County that wasterminated by the federal government under the 1958 California Rancheria Act,filed suit against the United States Secretary of the Interior seeking to havetheir federally-recognized status restored. The Chairman of the Mishewal Wappo Tribe has stated publicly that thetribe has no plans for a casino, but the tribe could have the right to conductgaming under IGRA if their federally-recognized status is restored.

 

Wealso compete with other forms of gaming such as statewide lotteries, live andsimulcast pari-mutuel wagering and card rooms.

 

InMay 2007, Governor Schwarzenegger proposed that the California StateLottery be leased to a private concessionaire to increase its revenue andefficiency. Part of the Governor’s proposal included authorizing the useof instant lottery video terminals that resemble and operate like slot machinesat locations including horse racing tracks and card rooms. While approval ofsuch a proposal would require a two-thirds affirmative vote of the statelegislature and could require a constitutional amendment to the Constitution ofthe State of California, and it is uncertain whether or when such a proposalwould be approved, implementation of such a proposal could adversely affect ourand other Indian casinos’ competitive positions.  A proposal that would have allowed theCalifornia State Lottery to dedicate a higher percentage of its revenues toplayer winnings (with the hope of boosting lottery sales in California),securitize California State Lottery revenues, and change the amount ofCalifornia Lottery revenues dedicated to education was defeated in a statewideballot referendum in May 2009.

 

Otherinitiatives expanding competitive forms of gaming have been approved and may,from time to time, be approved by state or local authorities. Examples includethe passage in California of legislation in 2007 expanding off-site betting onhorse races through expanded advance deposit wagering and increased satellitewagering sites, a legislative proposal in the California Assembly in February 2007to amend the California Penal Code to expand permitted bingo games bycharitable organizations to include electronic bingo cards, and a billintroduced in the California State Senate in May 2010 to authorize onlineintrastate poker in California.

 

In August 2009, a federal district courtjudge issued an order, in ongoing litigation regarding the proper number oftotal slot machines allowed under the 1999 tribal-state gaming compacts, requiringthat the State of California issue an additional 10,549 slot machinelicenses.  A drawing was held on October 5,2009, and 3,548 licenses were awarded to eleven different Indian tribes.  The only one of our competitors to receivelicenses in the draw was the Middletown Rancheria of Pomo Indians, whichoperates the Twin Pine Casino and Hotel and received 100 additional licensesthrough the draw.  As with the licensesawarded to other tribes in the draw, the licenses awarded to the MiddletownRancheria will revert back to California if the machines are not put intooperation within one year of the draw. The licenses could also be withdrawn if California is successful in itsappeal of the district court’s ruling to the United States Court of Appeals forthe Ninth Circuit.   So long as thedistrict court’s order stays in effect, the 7,001 slot machine licenses notawarded in the October 2009 draw remain available, and the Tribe or anyother Indian tribe(s) could request California to hold a draw for some orall of these licenses.

 

**ITEM 6.**                  **EXHIBITS**

 

The Exhibit Index filedherewith is incorporated herein by reference.

 

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**SIGNATURE**

 

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

 
| Dated: August 16,  2010 |   | 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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*               Thiscertification is being furnished solely to accompany this quarterly reportpursuant to 18 U.S.C. Section 1350, and is not being filed for purposes ofSection 18 of the Exchange Act and is not to be incorporated by referenceinto any filing of River Rock Entertainment Authority whether made before orafter the date hereof, regardless of any general incorporation language in suchfiling.

 

33

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