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**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D. C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

**x****  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For the quarterly period ended September 30, 2008**

 

**OR**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934.**

 

**For the transition periodfrom              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,including area code, of registrant’s principal executive offices)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes  x   No  o

 

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” in Rule 12b-2of the Exchange Act. (Check one):

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

 

Indicate by check mark whetherthe Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o   No x

 

 

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**INDEX TO FORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                                                                            | ** ** |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|               |       |                                                                                                                                                                                       |       |
| ** **         | ** ** | **PART I –  FINANCIAL INFORMATION**                                                                                                                                              | **4**      |
|               |       |                                                                                                                                                                                       |       |
| 1.                 |       | Condensed Financial  Statements (unaudited)                                                                                                                                                | 4          |
|               |       | Condensed Balance Sheets-September 30, 2008 and  December 31, 2007                                                                                                               | 4          |
|               |       | Condensed Statements of Revenues, Expenses and  Changes in Fund Deficit-Three-Months ended September 30, 2008 and 2007  and Nine-Months ended   September 30, 2008 and 2007 | 5          |
|               |       | Condensed  Statements of Cash Flows-Nine-Months ended September  30, 2008 and  2007                                                                                              | 6          |
|               |       | Notes to  unaudited Condensed Financial Statements                                                                                                                                         | 7          |
| 2.                 |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                | 15         |
| 3.                 |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                | 21         |
| 4.                 |       | Controls and  Procedures                                                                                                                                                                   | 21         |
|               |       |                                                                                                                                                                                       |       |
| ** **         | ** ** | **PART II –  OTHER INFORMATION**                                                                                                                                                 | **23**     |
|               |       |                                                                                                                                                                                       |       |
| 1.                 |       | Legal Proceedings                                                                                                                                                                          | 23         |
| 1A.                |       | Risk Factors                                                                                                                                                                               | 23         |
| 6.                 |       | Exhibits and Reports on Form 8-K                                                                                                                                                      | 25         |
|               |       |                                                                                                                                                                                       |       |
| Signatures         | 26         |
|               |       |
| Exhibit Index | 27         |

 

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**CAUTIONARY STATEMENT**

 

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

 

*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 Creek RancheriaBand of Pomo Indians)**

**CONDENSED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                                      | ** ** | **September 30, 2008** | ** **  | **December 31, 2007** | ** ** |
|-------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| CURRENT ASSETS:                                 |       |                        |        |                            |       |
| Cash and cash equivalents                       |       | $                           | 45,244,035  |                            | $          | 46,533,389 |   |
| Restricted cash-current                         |       | —                      |        | 466,517                         |       |
| Accounts receivable                             |       | 745,453                     |        | 307,386                         |       |
| Inventories                                     |       | 199,849                     |        | 153,215                         |       |
| Prepaid expenses and other current assets       |       | 1,489,924                   |        | 1,427,891                       |       |
|                                            |       |                        |        |                            |       |
| Total current assets                            |       | 47,679,261                  |        | 48,888,398                      |       |
|                                            |       |                        |        |                            |       |
| RESTRICTED CASH - net of current                |       | 7,373,604                   |        | 6,868,956                       |       |
|                                            |       |                        |        |                            |       |
| PROPERTY AND EQUIPMENT:                         |       |                        |        |                            |       |
| Buildings and building improvements             |       | 130,247,641                 |        | 129,642,521                     |       |
| Furniture, fixtures and equipment               |       | 33,696,678                  |        | 29,969,430                      |       |
|                                            |       |                        |        |                            |       |
| Accumulated depreciation                        |       | (52,147,671                 | )           | (44,460,665                     | )          |
| Construction in progress                        |       | 26,550,151                  |        | 9,256,830                       |       |
|                                            |       |                        |        |                            |       |
| Property and equipment-net                      |       | 138,346,799                 |        | 124,408,116                     |       |
|                                            |       |                        |        |                            |       |
| DEPOSITS AND OTHER ASSETS                       |       | 3,458,994                   |        | 4,339,002                       |       |
|                                            |       |                        |        |                            |       |
| TOTAL ASSETS                                    |       | $                           | 196,858,658 |                            | $          | 184,504,472 |   |
|                                            |       |                        |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                |       |                        |        |                            |       |
|                                            |       |                        |        |                            |       |
| CURRENT LIABILITIES:                            |       |                        |        |                            |       |
| Accounts payable:                               |       |                        |        |                            |       |
| Trade                                           |       | $                           | 1,937,022   |                            | $          | 3,563,243 |   |
| Construction                                    |       | —                      |        | 466,517                         |       |
| Accrued liabilities                             |       | 12,462,169                  |        | 7,566,821                       |       |
| Current maturities of long-term debt            |       | 55,719                      |        | 213,172                         |       |
|                                            |       |                        |        |                            |       |
| Total current liabilities                       |       | 14,454,910                  |        | 11,809,753                      |       |
|                                            |       |                        |        |                            |       |
| LONG-TERM DEBT - net of current maturities      |       | 198,963,075                 |        | 198,747,638                     |       |
|                                            |       |                        |        |                            |       |
| Total long-term liabilities                     |       | 198,963,075                 |        | 198,747,638                     |       |
|                                            |       |                        |        |                            |       |
| COMMITMENTS AND CONTINGENCIES                   |       |                        |        |                            |       |
|                                            |       |                        |        |                            |       |
| FUND DEFICIT:                                   |       |                        |        |                            |       |
| Invested in capital assets-net of related  debt |       | (60,557,629                 | )           | (74,552,694                     | )          |
| Restricted for capital projects                 |       | 7,373,604                   |        | 7,335,473                       |       |
| Unrestricted                                    |       | 36,624,698                  |        | 41,164,302                      |       |
|                                            |       |                        |        |                            |       |
| Total fund deficit                              |       | (16,559,327                 | )           | (26,052,919                     | )          |
|                                            |       |                        |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT              |       | $                           | 196,858,658 |                            | $          | 184,504,472 |   |

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

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** **

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

** **

**STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUNDDEFICIT**

**(Unaudited)**

** **

 
| ** **                                 | ** ** | **Three-Month Period Ended** | ** **  | **Nine-Month Period Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------------|-------------|---------------------------------------|------------|
| ** **                                 | ** ** | **September 30,**                 | ** **  | **September 30,**                | ** ** |
| ** **                                 | ** ** | **2008**                               | ** **  | **2007**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| REVENUES:                                  |       |                                   |        |                                  |       |   |   |   |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| Casino                                     |       | $                                      | 34,360,892  |                                  | $          | 36,577,971 |   | $ | 103,781,675 |   | $ | 108,252,489 |   |
| Food, beverage & retail                |       | 1,870,105                              |        | 1,967,390                             |       | 5,939,924 |   | 5,482,233 |   |
| Other                                      |       | 29,884                                 |        | 150,498                               |       | 332,550 |   | 471,159 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| Gross revenues                             |       | 36,260,880                             |        | 38,695,859                            |       | 110,054,149 |   | 114,205,881 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| Promotional allowances                     |       | (3,959,848                             | )           | (3,670,682                            | )          | (12,200,424 | ) | (10,304,071 | ) |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| Net revenues                               |       | 32,301,033                             |        | 35,025,177                            |       | 97,853,725 |   | 103,901,810 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| OPERATING EXPENSES:                        |       |                                   |        |                                  |       |   |   |   |   |
| Casino                                     |       | 5,173,252                              |        | 5,311,847                             |       | 15,073,588 |   | 15,487,406 |   |
| Food, beverage & retail                |       | 1,688,978                              |        | 1,270,307                             |       | 4,640,888 |   | 4,126,602 |   |
| Selling, general and administrative        |       | 9,778,381                              |        | 10,966,765                            |       | 31,977,517 |   | 31,898,972 |   |
| Depreciation                               |       | 2,336,747                              |        | 2,967,851                             |       | 7,687,006 |   | 8,892,616 |   |
| Credit enhancement fee                     |       | —                                 |        | —                                |       | — |   | 11,348,897 |   |
| Gaming commission and surveillance expense |       | 806,583                                |        | 747,961                               |       | 2,662,483 |   | 2,243,759 |   |
| Compact revenue sharing trust fund         |       | 333,750                                |        | 333,750                               |       | 1,001,250 |   | 1,001,250 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| Total Operating Expenses                   |       | 20,117,691                             |        | 21,598,481                            |       | 63,042,732 |   | 74,999,502 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| INCOME FROM OPERATIONS                     |       | 12,183,342                             |        | 13,426,696                            |       | 34,810,993 |   | 28,902,308 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| OTHER EXPENSE-Net                          |       |                                   |        |                                  |       |   |   |   |   |
| Interest expense                           |       | (5,215,612                             | )           | (5,218,477                            | )          | (15,649,077 | ) | (15,654,376 | ) |
| Interest income                            |       | 227,109                                |        | 503,964                               |       | 981,729 |   | 1,222,251 |   |
| Gain (Loss) on sale of assets              |       | —                                 |        | —                                |       | — |   | 4,547 |   |
| Other income (Expense) - net               |       | —                                 |        | 1,857                                 |       | (9,175 | ) | 1,114 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| Other expense-net                          |       | (4,988,503                             | )           | (4,712,656                            | )          | (14,676,523 | ) | (14,426,464 | ) |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | 7,194,839                              |        | 8,714,040                             |       | 20,134,471 |   | 14,475,844 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| DISTRIBUTIONS TO TRIBE                     |       | (3,254,791                             | )           | (3,122,400                            | )          | (10,640,879 | ) | (9,304,800 | ) |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| NET INCOME AFTER DISTRIBUTIONS TO TRIBE    |       | 3,940,048                              |        | 5,591,640                             |       | 9,493,592 |   | 5,171,044 |   |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| FUND DEFICIT-Beginning of period           |       | (20,499,375                            | )           | (34,756,488                           | )          | (26,052,919 | ) | (34,335,892 | ) |
|                                       |       |                                   |        |                                  |       |   |   |   |   |
| FUND DEFICIT-End of period                 |       | $                                      | (16,559,327 | )                                     | $          | (29,164,848 | ) | $ | (16,559,327 | ) | $ | (29,164,848 | ) |

 

The accompanying notes are an integral part of these unauditedfinancial 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)**

 
| ** **                                                 | ** ** | **Nine-Month**         | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                 | ** ** | **Period Ended**  | ** ** |
| ** **                                                 | ** ** | **September 30,** | ** ** |
| ** **                                                 | ** ** | **2008**               | ** ** | **2007** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                      |       |                   |       |   |   |
| Cash received from gaming winnings and  concessions        |       | 97,415,658             |       | $ | 103,921,639 |   |
| Cash paid for salaries and benefits                        |       | (23,309,068            | )          | (21,704,398 | ) |
| Cash paid to suppliers                                     |       | (32,769,123            | )          | (32,446,281 | ) |
| Cash paid for compact revenue sharing trust  fund          |       | (1,001,250             | )          | (1,001,250 | ) |
|                                                       |       |                   |       |   |   |
| Net cash provided by operating activities                  |       | 40,336,217             |       | 48,769,710 |   |
|                                                       |       |                   |       |   |   |
| CASH FLOWS FROM CAPITAL AND RELATED  FINANCING ACTIVITIES: |       |                   |       |   |   |
| Payments of long-term debt                                 |       | (194,954               | )          | (442,184 | ) |
| Purchases of property and equipment                        |       | (22,092,205            | )          | (3,294,353 | ) |
| Change in restricted cash                                  |       | (38,131                | )          | (65,873 | ) |
| Interest paid                                              |       | (9,754,868             | )          | (9,760,167 | ) |
| Credit enhancement fee                                     |       | —                 |       | (12,131,967 | ) |
| Proceeds from sale of assets                               |       | —                 |       | 33,445 |   |
| Other                                                      |       | 113,737                |       | 298,180 |   |
|                                                       |       |                   |       |   |   |
| Net cash used in capital and related  financing activities |       | (31,966,421            | )          | (25,362,919 | ) |
|                                                       |       |                   |       |   |   |
| CASH FLOW FROM INVESTING ACTIVITIES:                       |       |                   |       |   |   |
| Interest Income                                            |       | 981,729                |       | 1,222,251 |   |
|                                                       |       |                   |       |   |   |
| CASH FLOW FROM NON-CAPITAL FINANCING  ACTIVITIES:          |       |                   |       |   |   |
| Distributions to Tribe                                     |       | (10,640,879            | )          | (9,304,800 | ) |
|                                                       |       |                   |       |   |   |
| CHANGE IN CASH AND CASH EQUIVALENTS                        |       | (1,289,354             | )          | 15,324,242 |   |
|                                                       |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS, Beginning of the  period        |       | 46,533,389             |       | 32,549,001 |   |
|                                                       |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS, End of the  period              |       | $                      | 45,244,035 |   | $ | 47,873,243 |   |
|                                                            |            |                        |            |  |  |  |  |

 

The accompanying notes are an integral partof these unaudited financial statements.

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

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

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| RECONCILIATION OF INCOME BEFORE  DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |   |       |       |       |   |
|-------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| Income before Distributions to Tribe                                                                  |   | $          | 20,134,471 |       | $      | 14,475,844 |   |
|                                                                                                  |   |       |       |       |   |
| Adjustments to reconcile operating income  to net cash provided by operating activities:              |   |       |       |       |   |
| Depreciation                                                                                          |   | 7,687,006  |       | 8,892,616  |   |
| Interest expense                                                                                      |   | 15,649,077 |       | 15,654,376 |   |
| Interest income                                                                                       |   | (981,729   | )          | (1,222,251 | )      |
| Credit enhancement fee                                                                                |   | —     |       | 11,348,897 |   |
| Loss (Gain) on sale of assets                                                                         |   | —     |       | (4,547     | )      |
| Changes in operating assets and  liabilities:                                                         |   |       |       |       |   |
| Accounts receivable                                                                                   |   | (438,067   | )          | 19,829     |   |
| Inventories                                                                                           |   | (46,634    | )          | (1,919     | )      |
| Prepaid expenses and other current assets                                                             |   | (62,034    | )          | (69,433    | )      |
| Accounts payable                                                                                      |   | (1,626,221 | )          | (586,184   | )      |
| Accrued liabilities                                                                                   |   | 20,348     |       | 262,482    |   |
| Total adjustments                                                                                     |   | 20,201,746 |       | 34,293,866 |   |
|                                                                                                  |   |       |       |       |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                             |   | $          | 40,336,217 |       | $      | 48,769,710 |   |
|                                                                                                  |   |       |       |       |   |
| SUPPLEMENTARY SCHEDULE OF NONCASH CAPITAL  AND RELATED FINANCING ACTIVITIES:                          |   |       |       |       |   |
| Acquisition of property and equipment  through accounts payable construction                          |   | $          | —     |       | $      | 4,075,839 |   |
|                                                                                                       |        |            |            |            |        |  |  |  |

 

The accompanying notes are an integral part of theseunaudited financial statements.

 

**NOTES TO UNAUDITED FINANCIAL STATEMENTS**

 

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

 

River Rock EntertainmentAuthority (the “Authority”) is a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians (the “Tribe”), a federally recognized Indiantribe. River Rock Casino (the “Casino”) is a governmental development projectof the Authority. The Casino offers Class III gaming (as defined by theIndian Gaming Regulatory Act of 1988, as amended) on tribal land located inGeyserville, California. The legal authority for slot machines and table gamesis provided by the Tribe’s gaming compact with the State of California (the “Compact”),which was entered into in September 1999 and became effective uponapproval by the Secretary of Interior on May 5, 2000.  The Compactexpires on December 31, 2020.

 

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

 

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

 

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**2.****         ****SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

*AccountingStandards*—TheAuthority prepares its financial statements in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”). Thefinancial statements presented are prepared on the accrual basis of accountingfrom the accounts and financial transactions of the Authority. GAAP requiresthe Authority to apply all applicable pronouncements of the GovernmentalAccounting Standards Board (“GASB”). The Authority is also required to followFinancial Accounting Standards Board (“FASB”) Statements and Interpretations,Accounting Principles Board Opinions and Accounting Research Bulletins issuedon or before November 30, 1989, unless those pronouncements conflict withor contradict GASB pronouncements.  The Authority is given the optionwhether to apply all FASB Statements and Interpretations issued after November 30,1989, except for those that conflict with or contradict GASB pronouncements.Accordingly, the Authority has elected to implement non-conflicting FASBStatements and Interpretations issued after November 30, 1989.

 

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

 

The Authority adopted therequired provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157“*Fair Value Measurements*” (“SFAS No. 157”)on January 1, 2008.  SFAS No. 157clarifies the principle that fair value should be based on the assumptionsmarket participants would use when pricing an asset or liability andestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  There was nomaterial impact to the condensed financial statements upon the adoption of SFASNo. 157.  See Note 7.

 

SFAS No. 157establishes a fair value hierarchy for disclosure of the inputs used to measurefair values. This hierarchy prioritizes the inputs into three broad levels.Level 1 inputs are quoted prices (unadjusted) in active markets for identicalassets or liabilities. Level 2 inputs are quoted prices for similar assets andliabilities in active markets or inputs that are observable for similar assetsor liabilities, either directly or indirectly through market corroboration, forsubstantially the full term of the financial instrument. Level 3 inputs areunobservable inputs which reflect assumptions developed by management tomeasure assets and liabilities at fair value. A financial asset or liability’sclassification within the hierarchy is determined based on the lowest levelinput that is significant to the fair value measurement.

 

The Authority adopted theprovisions of SFAS No. 159, “*The FairValue Option for Financial Assets and Financial Liabilities**Including an amendment of FASB Statement No. 115*”(“SFAS No. 159”) on January 1, 2008. SFAS No. 159 provides acompany with the option to measure selected financial instruments and certainother items at fair value at specified election dates. Upon adoption, theAuthority has not elected to apply SFAS No. 159 to measure selectedfinancial instruments and certain other items; therefore, there was no impactto the financial statements upon adoption of SFAS No. 159. Subsequent tothe initial adoption of SFAS No. 159 on January 1, 2008, the Authorityhas not made any elections during the nine months ended September 30,2008.

 

*Use of Estimates*—The preparation of financial statements in conformity with GAAPrequires management to make estimates and assumptions that affect the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from these estimates.

 

*Cash and Cash Equivalents*—The Authority considers all highly liquidinvestments with a maturity of three months or less at date of purchase as cashequivalents. The carrying amount of cash and cash equivalents approximates itsfair value. Cash and cash equivalents include cash on hand, cash on depositwith banks and highly liquid investments. The Federal Deposit Insurance Corporation (“FDIC”) has insured $250,000of the cash on deposit with the banks. The Authority believes that there islittle risk of loss regarding the uninsured amounts of cash and cashequivalents on deposit with the banks.

 

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

 

*Restricted Cash*—Restricted cash consists of estimated construction expenses for threeparking structures, related infrastructure improvements and constructioncontingencies. It also includes funds that are reserved for additionalconstruction contingencies and the funds necessary to develop an approximately18-acre parcel of land adjacent to the Tribe’s reservation. These funds areheld in escrow accounts which are restricted for authorized constructiondisbursements. These escrow accounts are invested in certificates of deposit,which generate interest on a monthly basis. The FDIC has insured $250,000 ofthis balance. The Authority

 

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believes that there islittle risk of loss regarding the uninsured amounts of restricted cash held inthe escrow account. Restricted cash was $7,373,604 and $7,335,473 at September 30,2008 and December 31, 2007, respectively.  As of September 30,2008, restricted cash includes amounts available for construction of $2,766,608and land development funds of $4,606,996.

 

*Propertyand Equipment*—Propertyand equipment 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:        |   | 21  years |
|-------------------------------------|--------|-----------|
| Furniture, fixtures and  equipment: |   | 5  years  |

 

The Authority evaluates itsproperty and equipment for impairment in accordance with the FASB’s SFAS No. 144,“*Accounting**for the Impairment or Disposal of Long-Lived Assets.” *When events or circumstancesindicate that an asset should be reviewed for impairment, the Authoritycompares the undiscounted cash flows derived from the asset or asset group tothe net carrying value. If impairment is indicated, the impairment loss ismeasured by the amount in which the carrying value of the asset or asset groupexceeds its fair value. Fair value is measured by comparable sales, solicitedoffers or discounted cash flow models. We did not have any recorded impairmentsin the statement of revenues, expenses and changes in fund deficit for theperiods presented.

 

*Depositsand Other Assets*—Asof September 30, 2008 and December 31, 2007, deposits and otherassets include $3,152,566 and $3,918,837 in unamortized bond discount, legalfees and other issuance costs related to the issuance of the Authority’s 9 3⁄4%Senior Notes due 2011 (the “Senior Notes”) under the Indenture, dated November 7,2003 (the “Indenture”); $0 and $350,485 of deferred financing fees; $95,000 and$41,883 of equipment deposits; $195,529 and $11,372 of performance deposits and$15,900 and $16,425 of rental deposits.  Deferred loan costs are amortizedusing the effective interest method to interest expense over the term of therelated financial arrangement.

 

*AccruedLiabilities*—Accruedliabilities consist of accrued interest, accrued payroll and other accruedliabilities.

 

*AccruedProgressive Slot Jackpots*—Accrued progressive slot jackpots consist of estimates for prizesrelating to various games that have accumulated jackpots. The Authority hasrecorded the cost of these anticipated payouts as a reduction of Casinorevenues, and the cost is included as a component of accrued liabilities.

 

*AccruedSlot Players Club*—Inaccordance with Emerging Issues Task Force Issue No. 00-22, “*Accounting for ‘Points’ and Certain Other Time-basedor Volume-Based Sales Incentive Offers and Offers for Free Products or Servicesto Be Delivered in the Future*,” the Authority has recorded aliability related to prizes and cash incentives earned by the members of ourPlayers Club and have adjusted the liability for the estimated future breakage.The Authority has recorded the cost of the estimated redemption of theliability related to prizes as an operating expense and the estimatedredemption of the liability related to cash as promotional allowance in theaccompanying statements of revenues, expenses and changes in fund deficit.

 

*CasinoRevenues*—Inaccordance with industry practice, the Authority recognizes as Casino revenuethe net win from gaming activities, which is the difference between gaming winsand losses. Casino revenues are net of accruals for anticipated payouts ofprogressive slot jackpots.

 

*Food,Beverage and Retail Revenues*—The Authority recognizes as food, beverage and retail revenues theproceeds from its food, beverage and gift shop sales. The Authority continuesto distribute non-alcoholic beverages without cost in the gaming area forplaying guests.

 

*OtherRevenues*—Otherrevenues are comprised of commissions on ATM machine transactions.

 

*PromotionalAllowances*—The retailvalue of food and beverages provided to customers without charge or at adiscount is included in food, beverage and retail revenues and then deducted aspromotional allowances. Such amounts that are included in food, beverage, andretail revenues for the three months ended September 30, 2008 and 2007were $633,093 and $744,844, respectively. The amounts included in food,beverage and retail revenues for the nine months ended September 30, 2008and 2007 were $2,818,284 and $1,921,226, respectively.  The amounts included in Casino revenues arealso deducted as promotional allowances.  The distribution of electroniccoupons (“e-coupons”) to customers is included in Casino revenues and is alsodeducted as promotional allowances. The total e-coupons for three months ended September 30,2008 and 2007 were $2,500,648 and $2,465,560, respectively.  The total e-coupons for the nine months endedSeptember 30, 2008 and 2007 were $7,190,358 and $7,048,971,respectively.  The redemption of cashincentives earned by the Players Club members is also recorded as promotionalallowances. The cost of cash and non-cash incentives for the three months endedSeptember 30, 2008 and 2007 was $826,107 and $460,278, respectively, andfor the nine months ended September 30, 2008 and 2007 was $2,191,782 and$1,333,874, respectively.

 

*Food and Beverage Expenses*—Foodand beverage expenses include cost of goods sold related to providing food andbeverage to our customers. The estimated costs of providing complimentaryservices are reclassified from food, beverage and retail costs to Casinoexpenses.  The estimated costs of such complementary services were $1.3million and $1.4 million for the three months ended September 30, 2008 and2007, respectively.  The costs of such complimentary services were $3.1million and $3.8 million for the nine months ended September 30, 2008 and 2007,respectively.

 

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*AdvertisingCosts*—Advertisingcosts are expensed the first time advertising takes place. Advertising costsincluded in selling, general and administrative expenses were $1,071,092 and$1,338,520 for the three months ended September 30, 2008 and 2007,respectively.  Advertising costs for thenine months ended September 30, 2008 and 2007 were $5,028,228 and$4,892,457, respectively.

 

*GamingCommission & Surveillance Expenses*—The Authority pays for various expenses forthe Tribal Gaming Commission and Surveillance.  Tribal Gaming Commissionexpenses are reported as Gaming Commission and surveillance expense on thestatements of revenues, expenses and changes in fund deficit. Gaming Commissionand Surveillance expenses for the three months ended September 30, 2008and 2007 were $806,583 and $747,961, respectively.  For the nine monthsended September 30, 2008 and 2007, Gaming Commission and surveillanceexpenses were $2,662,483 and $2,243,759, respectively.

 

*IncomeTaxes*—As agovernmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians, afederally recognized Indian tribe, the Authority is a non-taxable entity forpurposes of federal and state income taxes.

 

*Distributionsto Tribe*—Distributionsto Tribe are made up of permitted payments under the covenants of theIndenture.  They are included in the statements of revenues, expenses andchanges in fund deficit as distributions to Tribe allowed pursuant to theIndenture.  Total distributions to the Tribe for the three months ended September 30,2008 and 2007 were $3,254,791 and $3,122,400, respectively.  Total distributions to the Tribe for the ninemonths ended September 30, 2008 and 2007 were $10,640,879 and $9,304,800,respectively.

 

InMay 2008, the Authority concluded that it had not previously distributedto the Tribe the maximum allowable amount of service payments that arepermitted by the Indenture (the “Service Payments” and each a “Service Payment”).Under the Indenture, the Authority was restricted from being able to make itsfirst Service Payment to the Tribe until the 90th day following thecompletion of the Expansion Project (as defined in the Indenture).  In April 2005,the Authority made it first Service Payment to the Tribe on the 90thday following the completion of the Expansion Project in the amount of$500,000.  Service Payments are subject to an annual escalation of 4%under the Indenture.  The Authority had applied the 4% escalator oneach of the anniversaries of the first Service Payment. However, the Indenturedefines Service Payments as “payments to the Tribe by the Authority in anamount of up to $500,000 per month, commencing with the first full month afterthe date of issuance of the Senior Notes, which amount shall increase by 4% perannum on each anniversary of the first date of such month...”  The Authorityhas concluded that the escalator should have been applied on the firstanniversary of the issuance of the Senior Notes and not on the firstanniversary of the completion of the Expansion Project and that, although theAuthority was restricted from making the Service Payments by other covenants ofthe Indenture, the 4% escalator could have been applied to increase theamount of the first permitted Service Payments.  By applying the escalatoron each anniversary of the issuance of the Senior Notes, the first permittedService Payment could have been in the amount of $520,000, not $500,000. Further, since the Indenture permits the Authority to make Service Payments tothe Tribe that it could have, but did not previously make, theAuthority has determined to apply the escalator as permitted by theIndenture and calculate the amount that could have been paid to the Tribe butwas not by failing to apply the escalator on earliestdates permitted by the Indenture. On May 7, 2008, the Authorityissued payment to the Tribe in the amount of $1,008,901 as the amount ofService Payments that could have been paid by applying the escalator on theearliest dates permitted by the Indenture.  Further, the Authority hasrecalculated the current amount of the permitted monthly Service Payments to be$584,929.28.  In December 2008, the Authority intends to again applythe 4% escalator and increase the monthly Service Payments to $608,326.45.

 

**3.****         ****CERTAIN RISKS ANDUNCERTAINTIES**

 

The Authority’s operationsare dependent on the continued licensing and qualification of the Authority bythe Tribal Gaming Commission. Such licensing and qualification are reviewedperiodically by the Tribal Gaming Commission and regulatory agencies of theState of California. The Authority believes that no events or circumstanceshave arisen that would have an adverse effect on the Casino’s ability tocontinue its licensing and qualification by the Tribal Gaming Commission orregulatory agencies of the State of California to operate the Authority.

 

**4.****         ****RELATED PARTIES**

 

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

 

The Authority pays forvarious expenses for the following departments operated by the Tribe:  Tribal Gaming Commission, surveillance, plantoperations, human resources and warehouse. These departmental expenses include but are not limited to payroll andrelated expenses, legal, and other operational expenses.

 

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Total amounts billed by theTribe to the Casino for these departments, excluding Tribal Gaming Commissionand surveillance, were $814,705 and $1,387,313 for the three months ended September 30,2008 and 2007, respectively. They are recorded as a component of selling,general and administrative expenses. Total expenses for these departments were $2,561,272 and $2,996,146 forthe nine months ended September 30, 2008 and 2007, respectively.

 

 The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. TribalGaming Commission and surveillance expenses are recorded in Gaming Commissionand surveillance expenses on the statements of revenues, expenses and changesin fund deficit.  Gaming Commission and surveillance expenses for thethree months ended September 30, 2008 and 2007 were $806,853 and $747,961,respectively.  Gaming Commission andsurveillance expenses for the nine months ended September 30, 2008 and2007 were $2,662,483 and $2,243,759, respectively.

 

The Tribe has incurredexpenses on behalf of the Authority that relate to the master planning for theproposed resort and Tribal infrastructure that benefit the Authority. The Authorityreimbursed $7,616,661 to the Tribe for these expenses on September 9,2008. These expenses were capitalized and reflected inconstruction-in-progress. The reimbursed costs consisted primarily ofengineering and design costs related to the proposed master plan development,including electrical, HVAC, landscaping, interior design services andconsulting fees for legal, branding, feasibility and public relations services.While the Tribe has not made any additional request to the Authority for reimbursement,it may request additional reimbursements from the Authority in the future.While the Authority has no obligation to pay such amounts when requested, andany such reimbursement would need to be approved by management and the Board ofDirectors of the Authority, there is a possibility that such request forreimbursement may be made by the Tribe. Prior to making any reimbursementpayment, the Authority will consider various factors, including, but notlimited to, whether the costs incurred were actually related to the masterplanning, whether such costs are beneficial to the gaming business andexpansion plans of the Authority, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture.

 

**5.****              ****DEVELOPMENT AND LOAN AGREEMENT**

 

The Tribe entered into aDevelopment and Loan Agreement with Dry Creek Casino, LLC (“DCC”) on August 26,2001, which has been amended from time to time (as amended, the “DevelopmentAgreement”). In consideration of DCC providing credit enhancement and otherservices under the Development Agreement, the Tribe was obligated to pay DCC aCredit Enhancement Fee (the “Credit Enhancement Fee”). The Credit EnhancementFee was defined as 20% of the Authority’s net income before distributions tothe Tribe plus depreciation and amortization plus annual interest on $25.0million principal amount of the Senior Notes less revenues from sales ofalcoholic beverages. The Credit Enhancement Fee was required to be paid monthlyfor a period of five years commencing on June 1, 2003.

 

TheAuthority had the right to terminate the Development Agreement by exercising abuy-out option (the “Buy-Out Option”) and did so on January 31, 2007.  Subsequently on March 2, 2007, the Authorityand DCC signed a mutual agreement to fix the amounts due to DCC in respect ofsuch exercise to the sum of $11.4 million, less the amount paid after theAuthority exercised the Buy-Out Option of $737,491. The net payment of$10,612,509 was made in March 2007 and expensed in full in the threemonths ended March 31, 2007.  CreditEnhancement Fee expense was $0 and $11,348,897 for the nine months ended September 30,2008 and 2007, respectively.

 

**6.****         ****CASH AND CASH EQUIVALENTSAND RESTRICTED CASH**

 

Cash and cash equivalentsand restricted cash consisted of the following as of September 30, 2008and December 31, 2007:

 
| ** **                                           | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                                                 |       |                             |       |                            |       |
| Operating Accounts                                   |       | $                                | 20,903,222 |                            | $          | 6,352,843 |   |
| Money Market Accounts                                |       | 19,150,562                       |       | 3,000,298                       |       |
| Short Term Investments                               |       | —                           |       | 31,013,947                      |       |
| Cash on hand                                         |       | 5,190,251                        |       | 6,166,301                       |       |
|                                                 |       |                             |       |                            |       |
| Cash and cash equivalents                            |       | 45,244,035                       |       | 46,533,389                      |       |
| Restricted cash                                      |       | 7,373,604                        |       | 7,335,473                       |       |
|                                                 |       |                             |       |                            |       |
| Total cash and cash equivalents and  restricted cash |       | $                                | 52,617,639 |                            | $          | 53,868,862 |   |

 

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The Authority’s cash inbanks and cash equivalents (the “Investments”) are categorized by level ofcredit risk assumed by the Authority. Category 1 includes Investments thatare insured or registered or for which the Investments are held by theAuthority or its agent in the Authority’s name. Category 2 includesuninsured and unregistered Investments for which the Investments are held bythe counterparty’s trust department or agent in the Authority’s name.Category 3 includes uninsured and unregistered Investments for which theInvestments are held by the counterparty’s agent but not in the Authority’sname. At September 30, 2008, the Authority had Category 2 Investments of$20,903,222 cash in banks ($250,000 of which applies to Category 1, FDICinsured funds) and $19,150,562 in money market accounts, and Category 3Investments of $7,373,604 restricted cash in bank ($250,000 of which applies toCategory 1, FDIC insured funds). The money market account consists ofshort-term, highly liquid cash equivalents and investments.  

 

**7.****         ****FAIR VALUE MEASUREMENTS**

 

The following tablesummarizes the basis used to measure certain assets and liabilities at fairvalue on a recurring basis, under the applicable provisions of SFAS No. 157:

 
| ** **               | ** ** | ** **            | ** ** | **Fair Value Measurements at Reporting Date, Using:** | ** ** |
|--------------------------|------------|-----------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **               | ** ** | ** **            | ** ** | **Quoted Prices**                                                              | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **            | ** ** | **in Active**                                                                  | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **               | ** ** | ** **            | ** ** | **Markets for**                                                                | ** ** | **Observable** | ** ** | **Observable** | ** ** |
| ** **               | ** ** | **September 30** | ** ** | **Identical Items**                                                            | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| ** **               | ** ** | **2008**              | ** ** | **(Level 1)**                                                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Financial Assets:        |       |                  |       |                                                                                |       |   |   |   |   |
| Money Market Instruments |       | $                     | 19,150,562 |                                                                                | $          | 19,150,562 |   | $ | — |   | $ | — |   |
|                          |            |                       |            |                                                                                     |            |  |  |  |  |  |  |  |  |

 

**8.****         ****PROPERTY AND EQUIPMENT**

 

Property and equipment at December 31,2007 and September 30, 2008 consisted of the following:

 
| ** **                        | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**           | ** ** |
|-----------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|------------------------|------------|
| ** **                        | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **September 30,** | ** ** |
| ** **                        | ** ** | **2007**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2008**               | ** ** |
| ** **                        | ** ** | ** **            | ** **  | ** **    | ** ** | ** **       | ** ** | ** **             | ** ** |
| Buildings and improvements        |       | $                     | 129,642,521 |          | $          | 605,120          |       | $                      | —     |   | $ | 130,247,641 |   |
| Furniture, fixtures and equipment |       | 29,969,430            |        | 3,727,248     |       | —           |       | 33,696,678             |       |
| Less accumulated depreciation     |       | (44,460,665           | )           | (7,687,006    | )          | —           |       | (52,147,671            | )          |
|                              |       | 115,151,286           |        | (3,354,638    | )          |             |       | 111,796,648            |       |
| Construction in progress          |       | 9,256,830             |        | 17,293,321    |       | —           |       | 26,550,151             |       |
| Property and equipment—net   |       | $                     | 124,408,116 |          | $          | 13,938,683       |       | $                      | —     |   | $ | 138,346,799 |   |

 

Construction in progressconsists of payments or amounts owed to various vendors related to the Authority’smaster plan development and land improvements. Substantially all of theAuthority’s personal property is pledged as collateral to secure itsdebt.  At September 30, 2008 and 2007, the Authority had $415,640 and$415,640 in capital lease assets with related accumulated depreciation of$265,480 and $182,998, respectively.

 

**9.****         ****ACCRUED LIABILITIES**

 

Accrued liabilitiesconsisted of the following as of September 30, 2008 and December 31,2007:

 

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| ** **                                 | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2008**               | ** ** | **2007**              | ** ** |
|                                       |       |                   |       |                  |       |
| Accrued in-house progressive slot jackpots |       | $                      | 1,522,983  |                  | $          | 1,081,121 |   |
| Accrued payroll and related benefits       |       | 2,118,991              |       | 2,296,131             |       |
| Accrued interest                           |       | 8,125,000              |       | 3,250,000             |       |
| Accrued other expenses                     |       | 695,195                |       | 939,569               |       |
| Total accrued liabilities                  |       | $                      | 12,462,169 |                  | $          | 7,566,821 |   |

 

**10.****      ****LONG-TERM DEBT**

 

Long-term debt consisted ofthe following as of September 30, 2008 and December 31, 2007:

 
| ** **                                                                                      | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2008**               | ** **  | **2007**              | ** ** |
| ** **                                                                                      | ** ** | ** **             | ** **  | ** **            | ** ** |
| 9-3/4% Senior Notes, net of unamortized  issue discount of $1,039,851 and $1,292,789. Due 2011. |       | $                      | 198,960,149 |                  | $          | 198,707,212 |   |
| Vehicles Notes                                                                                  |       | 8,777                  |        | 15,306                |       |
| Slot machine Notes                                                                              |       | —                 |        | 102,192               |       |
| Capital leases obligations                                                                      |       | 49,868                 |        | 136,100               |       |
|                                                                                            |       |                   |        |                  |       |
| Total Long-Term Debt                                                                            |       | 199,018,794            |        | 198,960,810           |       |
| Less: current portion                                                                           |       | (55,719                | )           | (213,172              | )          |
|                                                                                            |       |                   |        |                  |       |
| Total long-term debt - net of current  maturities                                               |       | $                      | 198,963,075 |                  | $          | 198,747,638 |   |

 

On November 7, 2003,the Authority issued the Senior Notes. The proceeds were utilized to fund anexpansion project, which included three parking structures, relatedinfrastructure improvements, repayment of various debt and advances and fundpayment of various accruals and payables, as well as to increase cash on hand.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.

 

**11.****      ****LEASES**

 

The Authority leases aSprung structure, which is accounted for as an operating lease. Since theexpiration of the lease on August 17, 2007, the Authority has maintainedthe lease payments on a month to month basis. The monthly lease fee is $36,230 per month.  The lease expense was $108,690 and $108,690 forthe three months ended September 30, 2008 and September 30, 2007,respectively.

 

On February 21, 2007,the Authority entered into a one year operating lease for office andpromotional space commencing February 21, 2007 and expiring February 20,2008.  The monthly lease fee was $600 permonth.  On February 21, 2008, theAuthority extended the lease for three years, commencing on February 21,2008 and expiring on February 20, 2011. The extended lease fee is $625 per month for the first year, withadjustments for the Consumer Price Index, and property taxes in the second andthird years.

 

On August 30, 2007, theAuthority entered into a five year operating lease agreement for office andshowroom space commencing October 1, 2007 and expiring on September 30,2012.  The monthly lease fee is $16,630.

 

On September 1, 2004,the Authority entered into a five year capital lease to purchase two licensesto operate three-card poker tables in the amount of $120,000.  The capitallease is at 7.20% interest with monthly lease fees of $2,390 and a $1 buyout atthe end of the lease term, expiring August 31, 2009.

 

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On April 25, 2006, theAuthority entered into a thirty six month capital lease to purchase 5 Deck MatePoker shufflers in the amount of $61,827.  The capital lease is at 7.92%interest with monthly lease fees of $1,937 and a $1 buyout at the end of thelease term.

 

On August 1, 2006 theAuthority entered into a thirty six month capital lease to purchase 2 licensesto operate Pai Gow poker tables in the amount of $38,800.  The capital lease is at 4.26% interest withmonthly lease fees of $1,150 and a $1 buyout at the end of the lease term,expiring July 31, 2009.

 

The three leases enteredinto on July 31, 2005 for the 13 Multi-dech shufflers, the 6 King shufflers andthe 4 Ace shufflers expired in July 2008.

 

Lease expenses were $62,379and $47,093 for the three months ended September 30, 2008 and 2007,respectively, and $187,278 and $306,949 for the nine months ended September 30,2008 and 2007, respectively.  Lease expensesare included in General and Administrative expenses in the accompanyingstatements of revenues, expenses and changes in fund deficit.

 

**12.****                     ****LEGAL MATTERS**

** **

*Runyan Litigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed suit against us, theCasino and Mr. Harvey Hopkins, the Chairman of the Tribe and a member ofour Board, in the Sonoma County Superior Court. Mr. Runyan’s complaintasserted causes of actions for breach of contract, wrongful termination inviolation of public policy, intentional interference with contract andintentional infliction of emotional distress. He sought unspecifiedcompensatory and punitive damages. Mr. Runyan alleged that he waswrongfully terminated from his employment because he opposed certain allegedactions on the part of the defendants, including contracts for constructionwork allegedly performed on the reservation by affiliates of the Tribe and Mr. Hopkins.Mr. Runyan claimed that the work violated the Indenture and that Mr. Runyanwas forced to resign from his employment in violation of public policy afterprotesting that the alleged work violated the Indenture, the Compact, and theSecurities Exchange Act of 1934. He also claimed that the defendants unlawfullydiscriminated against him in connection with his status as a debtor under theBankruptcy Code. We believed that Mr. Runyan’s lawsuit is based onerroneous information and is without merit, and we and the Tribe vigorouslydefended against it. We and the other defendants intend to file a motion for anorder of dismissal of Mr. Runyan’s lawsuit. See Note 15 for subsequentevent discussion.

 

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

 

**13.****                     ****COMPACT REVENUE SHARINGTRUST FUND**

 

The Compact requires the Authorityto pay a quarterly fee to the State of California’s revenue sharing trust fund,based on the number of licensed gaming devices operated by the Tribe. Revenuesharing trust fund fees assessed were $333,750 and $333,750 for the threemonths ended September 30, 2008 and 2007, respectively, $1,001,250 and$1,001,250 for the nine months ended September 30, 2008 and 2007,respectively.

 

**14.****                     ****COMMITMENTS ANDCONTINGENCIES**

 

The Authority is anunincorporated instrumentality of the Tribe formed pursuant to an adopted lawof the Tribe. While the Authority is not a separate corporation or other legalentity distinct from the Tribe, this tribal law allows the Authority to own andoperate its business. This tribal law also provides that the Authority’sobligations and other liabilities are not those of the Tribe and that theobligations and liabilities of the Tribe are not those of the Authority. Thislaw is untested and generally has no direct counterpart in other areas of thelaw. If this law should prove to be ineffective at limiting the Authority’sliability, the Authority’s business and assets could become subject to claimsasserted against the Tribe or its assets. Similarly, the Authority would beliable for such claims if the Tribe waived its sovereign immunity to an extentthat allowed enforcement of such claims against the Authority’s business orassets.

 

On March 18, 2008, theTribe and the Sonoma County Board of Supervisors entered into a memorandum ofagreement (“MOA”) that is expected to settle several long-standing legaldisputes between Sonoma County and the Tribe and provide a binding frameworkfor resolving future disputes.  Pursuant to the MOA, the Tribe has agreedto pay the County up to $75 million in mitigation fees over the next 12 years tooffset the potential losses and impacts to the County resulting from the Tribe’svarious ongoing projects and to support the services being provided by theCounty.  In addition to the mitigation fees, the Tribe will pay a fee inlieu of the County’s Transient Occupancy Tax in the amount of 9% of the rentalcollected on occupied hotel rooms, to be paid quarterly and

 

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continuing for five yearsafter the later to occur of the termination of the MOA, as may be extended, orthe Tribe’s Compact with the State (which is now terminable in 2020 at theearliest), which fees may be applied to programs and services that serve topromote tourism in the County. Such in lieu fees could total as much as $25million during the term of the MOA.

 

**15.  SUBSEQUENT EVENTS**

 

On October 17, 2008,the judge of the Sonoma County Superior Court signed an Order dismissing thelawsuit filed by Norman Runyan against us, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of our Board.

 

On November 3, 2008,the Authority reimbursed the Tribe $13,500,000 for capital costs related to themaster plan for the planned resort and related infrastructure construction.

 

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

 

The following discussion andanalysis of our financial condition and results of operations should be read inconjunction with the accompanying financial statements and related notesincluded 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,comprehensive food and beverage offerings and goods for sale in our gift shop.

 

**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 ongoing basis, we evaluate those estimates,including those related to asset impairment, accruals for our promotional slotclub, compensation and related benefits, revenue recognition, allowance fordoubtful accounts, contingencies and litigation. These estimates are based onthe information that is currently available to us and on various otherassumptions that we believe to be reasonable under the circumstances. Actualresults could vary from those estimates under different assumptions orconditions. We believe that the following critical accounting policies affectsignificant judgments and estimates used in the preparation of our financialstatements:

 

· Casino Revenues – In accordance withindustry practice, casino revenue is recognized as the net win from gamingactivities, which is the difference between gaming wins and losses. Casinorevenues are net of accruals for anticipated payouts of progressive slotjackpots.

 

· Property and Equipment – Property andequipment are stated at cost. Depreciation and amortization are computed usingthe straight-line method over the estimated useful lives of the assets asfollows:

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

 

· We evaluate our property and equipment forimpairment in accordance with the Financial Accounting Standards Board’sStatement of Financial Accounting Standards No. 144, “*Accounting for the Impairment or Disposal ofLong-Lived Assets*.”  Whenevents or circumstances indicate that an asset should be reviewed forimpairment, we compare the undiscounted cash flow derived from the asset orasset group to the net carrying value. If an impairment is indicated, the impairmentloss is measured by the amount in which the carrying value of the asset orasset group exceeds its fair value. Fair value is measured by comparable sales,solicited offers or discounted cash flow models.

 

· Accrued Progressive Slot Jackpots – Accruedprogressive slot jackpots consist of estimates for prizes relating to variousgames that have accumulated jackpots. We have recorded the cost of theseanticipated payouts as a reduction of casino revenues and the cost is includedas a component of accrued liabilities.

 

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· Contingencies – We assess our exposure toloss contingencies, including legal matters, and provide for an exposure if itis judged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of September 30, 2008, we have determined that no accrualsfor claims and legal actions are required. If circumstances surrounding claimsand legal actions change, the addition of accruals for such items in futureperiods may be required, which accruals may be material.

 

· Fair Value Measurements - The Authorityadopted the required provisions of SFAS No. 157 on January 1, 2008.SFAS No. 157 clarifies the principle that fair value should be based onthe assumptions market participants would use when pricing an asset or liabilityand establishes a fair value hierarchy that prioritizes the information used todevelop those assumptions. There was no material impact to the condensedfinancial statements upon the adoption of SFAS No. 157.

 

SFAS No. 157establishes a fair value hierarchy for disclosure of the inputs used to measurefair values. This hierarchy prioritizes the inputs into three broad levels.Level 1 inputs are quoted prices (unadjusted) in active markets for identicalassets or liabilities. Level 2 inputs are quoted prices for similar assets andliabilities in active markets or inputs that are observable for similar assetsor liabilities, either directly or indirectly through market corroboration, forsubstantially the full term of the financial instrument. Level 3 inputs areunobservable inputs which reflect assumptions developed by management tomeasure assets and liabilities at fair value. A financial asset or liability’sclassification within the hierarchy is determined based on the lowest levelinput that is significant to the fair value measurement.

 

The Authority adopted theprovisions of SFAS No. 159 on January 1, 2008. SFAS No. 159provides a company with the option to measure selected financial instrumentsand certain other items at fair value at specified election dates. Uponadoption, the Authority has not elected to apply SFAS No. 159 to measureselected financial instruments and certain other items; therefore, there was noimpact to the financial statements upon adoption of SFAS No. 159.Subsequent to the initial adoption of SFAS No. 159 on January 1,2008, the Authority has not made any elections during the nine months ended September 30,2008.

 

Accounting Standards – Thereare differences between financial statements prepared in accordance with GASBpronouncements and those prepared in accordance with FASB pronouncements. Thestatements of revenues, expenses and changes in fund deficit are a combinedstatement under GASB pronouncements. FASB pronouncements allow a statement ofincome or operations and a statement of owners’ or shareholders’ (deficit)equity, which is where distributions to owners would be presented under FASBpronouncements. The amount shown on our statements of revenues, expenses andchanges in fund deficit as income before distributions to the Tribe, would notbe different if we followed all FASB pronouncements to determine net income,and would be the most comparable amount to net income computed under FASBpronouncements. We are an unincorporated instrumentality created by tribal lawand accounted for as a separate fund of the Tribe.  As such, there is no owners’ or shareholders’(deficit) equity as traditionally represented under FASB pronouncements. Themost comparable measure of owners’ (deficit) equity presented on our balancesheet would be Fund Deficit.

 

**Results ofOperations**

 

**Comparisonof the three months ended September 30, 2008 and 2007**

 

*Netrevenues*. Netrevenues for the three months ended September 30, 2008 decreased by $2.7million to $32.3 million, from $35.0 million, for the three months ended September 30,2007.  The decrease in net revenues is attributable to the continuingindustry-wide slow down in the gaming and entertainment industry during thethird quarter of 2008.  Approximately 96.0%of our net revenues, net of promotional allowances, were from our gamingactivities in the third quarter of 2008. We generated $27.5 million, or 85.1%of our net revenues from gaming devices, net of respective promotionalallowances of $3.2 million, and $3.5 million, or 10.8% of our net revenues,from table games, net of promotional allowances of $0.1 million for thethree months ended September 30, 2008, compared to $29.6 million fromgaming devices, or 84.6% of our net revenues, net of respective promotionalallowances of $2.9 million, and $4.0 million, or 11.4% of net revenues, fromtable games, net of respective promotional allowances of $48,395 for the threemonths ended September 30, 2007. Our win per slot machine per day was $194in the three months ended September 30, 2008, which decreased by $11 from$205 in the three months ended September 30, 2007.  The decrease innet win per machine per day is attributable to the general market slow downmentioned above.

 

We generated $1.3 million,net of promotional allowance of $0.6 million, in food, beverage and retailsales for the three months ended September 30, 2008, compared to $1.2million, net of promotional allowances of $0.8 million, in food, beverage andretail sales for the three months ended September 30, 2007.

 

The promotional allowances forgaming devices include Players Club points (e-coupons) in the amount of $2.5million for the three months ended September 30, 2008, and $2.5 millionfor the three months ended September 30, 2007.

 

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*Promotionalallowances*.Promotional allowances for the three months ended September 30, 2008 were$4.0 million, or 12.4% of net revenues, compared to $3.7 million, or10.6% ofnet revenues, for the three months ended September 30, 2007.

 

*Operatingexpenses*. Operatingexpenses for the three months ended September 30, 2008 were $20.1 million,or 62.2% of net revenues, compared to $21.6 million, or 61.7% of net revenues,for the three months ended September 30, 2007.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities. Casinoexpense for the three months ended September 30, 2008 was $5.2 millioncompared to $5.3 million for the three months ended September 30,2007.  Casino expense as a percentage ofCasino revenues, net of promotional allowances, increased by 1 percentage pointfrom 15.8% to 16.8% for the three months ended September 30, 2008. Casinoexpenses decreased due to the cost saving measures to adjust for the decline incustomer demand. In addition, we have reduced wide-area progressive fees andcosts by replacing those machines with machines that we have purchased.

 

Food, beverage and retailexpense for the three months ended September 30, 2008 was $1.7 million, or130.8% of food, beverage and retail revenue, net of promotional allowances,compared to $1.3 million, or 108.3% of food, beverage and retail revenue, netof promotional allowances for the three months ended September 30, 2007.Our food, beverage and retail expense ratio is significantly higher than theindustry average because we have utilized these amenities as an opportunity tobuild customer loyalty rather than as a source of income.  The increase in food, beverage and retailexpenses as percentage of food, beverage and retail revenues, net ofpromotional allowances, for the three months ended September 30, 2008,results from rising food costs. Food and beverage expenses have increased dueto large purchases of smallware, china and silverware, and upscale linens, aswell as increased laundry services.

 

Selling, general andadministrative expense for the three months ended September 30, 2008decreased by $1.2 million to $9.8 million, or 30.3% of net revenues, from $11.0million, or 31.4% of net revenues, for the three months ended September 30,2007. The decrease in selling, general and administrative expenses is primarilydue to the change in our marketing strategy. We have reduced our advertisingand have increased our direct mail campaign.

 

Depreciation expense forthree months ended September 30, 2008 was $2.3 million compared to $3.0million for the three months ended September 30, 2007.  Depreciation expense was computed using thestraight-line method over the useful life of property, plant and equipment. Nowthat the casino is over five years old, much of its original equipment has beenfully depreciated.

 

Gaming Commission and surveillanceexpense for the three months ended September 30, 2008 was $0.8 millioncompared to $0.7 for the three months ended September 30, 2007.

 

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 operated by us. Revenue sharingtrust fund fees assessed were $0.3 million for the three months ended September 30,2008 and 2007, respectively.

 

*Incomefrom operations.*Income from operations for the three months ended September 30, 2008 was$12.2 million, or 37.8% of net revenues, compared to $13.4 million, or 38.3% ofnet revenues, for the three months ended September 30, 2007.  Thedecrease in income from operations is attributable to the industry-wide slowdown in the gaming and entertainment industry.

 

*Otherexpense, net.* Otherexpense, net for the three months ended September 30, 2008 was $5.0million, or 15.5% of net revenues, compared to $4.7 million or 13.4% of netrevenues, for the three months ended September 30, 2007.  Otherexpense, net included $5.2 million of interest expense for the three monthsended September 30, 2008 and 2007, respectively.  No interest costs were capitalized in 2008 or2007.

 

*Incomebefore distributions to the Tribe*. Income before distributions to the Tribe for the three months ended September 30,2008 decreased by $1.5 million to $7.2 million, or 22.3% of net revenues, from$8.7 million, or 24.9% of net revenues, for the three months ended September 30,2007.

 

*Distributionsto the Tribe*.Distributions to the Tribe for the three months ended September 30, 2008increased by $0.2 million to $3.3 million, compared to $3.1 million, for thethree months ended September 30, 2007.

 

**Comparisonof the nine months ended September 30, 2008 and 2007**

 

*Netrevenues*. Netrevenues for the nine months ended September 30, 2008 decreased by $6.0million to $97.9 million, from $103.9 million, for the nine months ended September 30,2007. The decrease in net revenues is attributable to the continuing industry-wideslow down in the gaming and entertainment industry.  Approximately 96.8% of our net revenues, netof promotional allowances, were from gaming activities in the nine months endedSeptember 30, 2008.  We generated$83.3 million, or 85.1% of our net revenues from gaming devices, net ofpromotional allowances of $9.6 million, and $11.5 million, or 11.1% of ournet revenues, from table games, net of promotional allowances of negative $0.2 millionfor the nine months ended September 30, 2008, compared to $88.4 millionfrom gaming devices, or 85.1% of our net revenues, from gaming devices, net ofrespective promotional allowances of $8.2 million, and $11.4 million, or 11.0%of our net revenues, from table games, net of respective promotional allowancesof $0.2 million for the nine months ended September 30, 2007. Our win perslot machine per day was $195 in the first nine months of 2008, which decreased

 

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by $11 from $206, in thefirst nine months of 2007. The decrease in net win per machine per day isattributable to the general market slow down in our industry.

 

We generated $3.1 million,net of promotional allowance of $2.8 million, for the nine months ended September 30,2008 and $3.6 million, net of promotional allowances of $1.9 million, in food,beverage and retail sales for the nine months ended September 30,2007.  The retail value of our food and beverage provided to customerswithout charge is included in gross revenues and then deducted as promotionalallowances.

 

The promotional allowancesfor gaming devices include Players Club points (e-coupons) in the amount of$7.2 million for the nine months ended September 30, 2008, and $7.0 million forthe nine months ended September 30, 2007.

 

*Promotionalallowances*.Promotional allowances for the nine months ended September 30, 2008 were$12.2 million, or 12.5% of net revenues, compared to $10.3 million, or 9.9% ofnet revenues for the nine months ended September 30, 2007.  The increase in promotional allowances isprimarily the result of the increase in complementary soft drinks to thepatrons on the gaming floor.

 

*Operatingexpenses*. Operatingexpenses for the nine months ended September 30, 2008 were $63.0 million,or 64.4% of net revenues, compared to $75.0 million, or 72.2% of net revenues,for the nine months ended September 30, 2007. The decrease in operatingexpenses is primarily due to no longer having to pay the credit enhancement feein the nine months ended September 30, 2008 and expensing $10.6 millionrepresenting the credit enhancement fee buy-out in the nine months ended September 30,2007 as more fully described below.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities. Casinoexpense for the nine months ended September 30, 2008 was $15.1 million, or15.9% of Casino revenue, net of promotional allowances, compared to $15.5million, or 16.6% of Casino revenue, net of promotional allowances, for thenine months ended September 30, 2007.

 

Food, beverage and retailexpense for the nine months ended September 30, 2008 was $4.6 million, or 148.4%of food, beverage and retail revenue, net of promotional allowances, comparedto $4.1 million, or 115.9% of food, beverage and retail revenue, net ofpromotional allowances, for the nine months ended September 30, 2007. Ourfood, beverage and retail expense ratio is significantly higher than theindustry average because we have utilized these amenities as an opportunity tobuild customer loyalty rather than as a source of income. The increase in food,beverage, and retail costs is attributable to an increase in sales and a newliquor license and replacement and maintenance of food and beverage smallwares,linens and china and silverware.

 

Selling, general andadministrative expense for the nine months ended September 30, 2008increased by $0.1 million to $32.0 million, or 32.7% of net revenues, from$31.9 million, or $30.7% of net revenues, for the nine months ended September 30,2007.  The increase in selling, generaland administrative expense is attributable to increases in advertising andpromotional costs.

 

Depreciation expense for thenine months ended September 30, 2008 and 2007 was $7.7 million and $8.9million, respectively.  Depreciationexpense was computed using the straight-line method over the useful life ofproperty, plant and equipment. The decrease in depreciation expense is due tothe full depreciation of certain assets purchased in early 2003.

 

The Credit Enhancement Feewas $0 for the nine months ended September 30, 2008, compared to $11.3million, or 10.9% of net revenues, for the nine months ended September 30,2007.  The decrease is due to thetermination of the Development Agreement pursuant to the Authority’s exerciseof the buy-out option on January 31, 2007.

 

Gaming Commission andsurveillance expense for the nine months ended September 30, 2008 and 2007was $2.7 million and $2.2 million, respectively.  The Gaming Commission isreimbursed in full by the Authority for all expenses related to the regulationof the Casino.

 

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 operated by the Tribe. Revenuesharing trust fund fees assessed were $1.0 million for the nine months ended September 30,2008 and 2007, respectively.

 

*Incomefrom operations.*Income from operations for the nine months ended September 30, 2008 was $34.8million, or 35.5% of net revenues, compared to $28.9 million, or 27.8% of netrevenues, for the nine months ended September 30, 2007.  The increasein income from operations is attributable to the buy-out of the CreditEnhancement Fee for in 2007.

 

*Otherexpense, net.* Otherexpense, net for the nine months ended September 30, 2008 was $14.7million, or 15.0% of net revenues, compared to $14.4 million, or 13.9% of netrevenues, for the nine months ended September 30, 2007.  Otherexpense, net included interest expense of $15.6 million and $15.7 million forthe nine months ended September 30, 2008 and 2007, respectively.

 

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Other expense, net alsoincluded interest income of $1.0 million and $1.2 million for the nine monthsended September 30, 2008 and 2007, respectively. No interest costs werecapitalized in 2008 or 2007.

 

*Incomebefore distributions to the Tribe*. Income before distributions to the Tribe for the nine months ended September 30,2008 increased by $5.6 million to $20.1 million, or 20.5% of net revenues, from$14.5 million, or 14.0% of net revenues, for the nine months ended September 30,2007.

* *

*Distributionsto the Tribe*.Distributions to the Tribe for the nine months ended September 30, 2008increased by $1.3 million to $10.6 million, compared to $9.3 million, for thenine months ended September 30, 2007. The increase is due to annualincreases in the Service Payments permitted by the Indenture and a one-timecatch up distribution to the Tribe of $1.0 million of Service Paymentsthat could have been previously distributed to the Tribe.

 

**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.

 

As of September 30,2008, we spent $1.2 million on the development of an approximately 18-acreparcel of land adjacent to the Tribe’s reservation (referred to as the “DuganProperty”) which is expected to include an additional access road to ourCasino. We have $4.6 million remaining in a restricted account funded from theproceeds of our Senior Notes for the development of the Dugan Property.

 

Our capital expenditures forthe nine months ended September 30, 2008 and 2007 were $21.6 million and$3.3 million, respectively.  Thisincrease is partly attributable to the September 2008 payment of $7.6 millionto reimburse costs paid by the Tribe for engineering and design costs relatedto the master plan development of our planned resort, including electrical,HVAC, landscaping, interior design services and consulting fees for legal,branding, feasibility and public relations services. We have reflected thereimbursed amount as construction in progress in our balance sheet.  Other capital expenditures include $1.6 millionfor the new accounting system packet and implementation, $1.5 million for slotpurchases, $0.4 for the establishment of our new Geyserville offices.

 

As of September 30,2008, we had cash and cash equivalents, net of restricted cash of $45.2 million,compared to $46.5 million, as of December 31, 2007. As of September 30,2008, we had restricted cash of $7.4 million, compared to $7.3 million, as of December 31,2007. Our principal source of liquidity during the nine months ended September 30,2008 consisted of cash flow from operating activities. Net cash provided byoperating activities for the nine months ended September 30, 2008 was $40.3million, a decrease of $8.5 million, from $48.8 million in 2007.

 

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

 

Net cash used for capitaland related financing activities for the nine months ended September 30,2008 was $32.0 million, compared to $25.4 million, for the nine months ended September 30,2007. This increase was primarily attributable to payments made to the Tribefor infrastructure improvements partially offset by the elimination of therequirement to pay the Credit Enhancement Fee.

 

Cash flow from investingactivities for the nine months ended September 30, 2008 decreased by $0.2million to $1.0 million, from $1.2 million, for the nine months ended September 30,2007.

 

Cash flow used innon-capital financing activities for the nine months ended September 30,2008 was $10.6 million, an increase of $1.3 million, from $9.3 million, for thenine months ended September 30, 2007.  Cash flow used in non-capitalfinancing activities consisted of distributions to the Tribe.  Theincrease is due to annual increases in the Service Payments permitted by theIndenture and a one-time catch up distribution to the Tribe of$1.0 million of Service Payments that could have been previouslydistributed to the Tribe.

 

We believe the existing cashbalances, cash from operations, as well as permitted disbursements from ourrestricted cash escrow accounts will provide adequate funds for our workingcapital needs and debt service requirements for the foreseeable future.  We anticipate that funding for future capitalexpenditures and expansions will derive from additional third party financing.  However, our ability to fund our operations,make capital expenditures, make scheduled debt payments and refinance ourindebtedness depends

 

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on our future operatingperformance and cash flow, which, in turn, are subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond our control. Additionally, the Indenture limits our ability to incuradditional indebtedness.

 

Last year we and the Tribeannounced plans to build a destination resort, which plans are more fullydescribed in our Form 8-K dated June 28, 2007, and exhibits listedtherein.  The proposed project includesthe construction of a casino, hotel and spa, several food and beverage venues,administrative facilities, a garden and terrace plaza, a retail area, and backof house facilities. The proposed project includes three above-ground levelsand a hotel tower (up to eight levels) and two below-ground levels.  We do not currently have adequate liquidityor cash flow to finance the project as proposed.  We will consider various sources of liquidityto finance the first phase of the proposed project, although it cannotbe assured that we will be able to obtain financing or that the interest rateson any financings will be favorable.

 

On March 18, 2008, theTribe and the Sonoma County Board of Supervisors entered into the MOA that,among other things, settled several long-standing legal disputes between SonomaCounty and the Tribe, and will provide a binding framework for resolving futuredisputes.  The MOA enables the Tribe tomove forward with its proposed resort development project, including a new andexpanded “Tuscan-themed” casino and hotel with luxury resort amenities.  A copy of the MOA was filed as an exhibit tothe Authority’s Form 10-K for the fiscal year ending December 31,2007.  Under the MOA, the County agreedto drop its opposition to the Tribe’s application for a liquor license and on May 29,2008, the California Department of Alcoholic Beverage Control issued a liquorlicense to our gaming and entertainment facility.  However, the Tribe has agreed to restrict thesale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m.on weekdays, and to stop serving alcohol altogether at midnight except forFriday and Saturday nights and the nights before holidays. The Tribe has alsoagreed not to serve liquor on the Casino floor, although patrons may bringdrinks purchased at the restaurant or bar on to the Casino floor. Therestrictions may be renegotiated following the first to occur of the three yearanniversary of the MOA or the opening of a hotel, which is anticipated to occurwithin the next two to three years.  Inaddition, the MOA commits the County Sheriff’s Department and Fire Marshall toprovide public safety and fire investigation services to the Casino and theTribe’s future gaming projects on the reservation and provides detailedagreements on off-reservation impact mitigation measures.  Pursuant to the MOA, the County withdrew itsopposition to the Tribe’s application to take into trust an approximately18-acre parcel of land adjacent to the Tribe’s reservation (the “Dugan Property”).  Previously, the trust application had beenapproved by the Department of the Interior, which approval had been opposed bythe County.  Pursuant to the MOA, theTribe has agreed to pay the County $75 million in mitigation fees over the next12 years, subject to adjustment under certain circumstances described in theMOA, to offset the potential losses and impacts to the County resulting fromthe Tribe’s various ongoing projects and to support the services being providedby the County.  The Tribe made an initialpayment of $3.0 million, and an annual payment of $4.5 million on September 30,2008.  In addition, the Tribe has agreedto pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of9% of the rental charges collected on occupied hotel rooms.  Such fees are required to be paid quarterlyuntil five years after the later to occur of the termination of the MOA, as maybe extended, or the Tribe’s Compact with the State.

 

**ContractualObligations as of September 30, 2008**

 

Contractual obligations andcommitment amounts as of September 30, 2008 have not materially changedfrom the prior quarter.

 

**Regulationand Taxes**

 

We are subject to extensiveregulation by the Tribes 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.

 

In September 2004, theDepartment of Alcoholic Beverage Control (“ABC”) denied the Tribe’s applicationfor a liquor license based on a building code interpretation by a state officerwho was later determined to lack jurisdiction to rule on the matter,and which conflicted with a contrary determination by the Tribe’s buildingcode official having jurisdiction. The Tribe appealed and, in May 2005, anAdministrative Law Judge ruled for the Tribe and recommended that the ABCreverse itself and approve the license, which the ABC did as of October 2005,pending a hearing on the protests.  After delays for discovery and thesetting of a new hearing, the protests were taken under advisement by theAdministrative Law Judge.  Meanwhile, the Tribe engaged in negotiationswith the major protesters, which included the County of Sonoma, the AlexanderValley Association, several public officials, and a number of individuals.

 

On March 18, 2008, theTribe and the Sonoma County Board of Supervisors entered into a memorandum ofagreement (“MOA”).  The MOA commits theCounty Sheriff’s Department and Fire Marshall to provide public safety and fireservices to the Casino and the Tribe’s future gaming projects on thereservation and provides detailed agreements on off-reservation impactmitigation measures.  Pursuant to theMOA, the County withdrew its opposition to the Tribe’s application to take intotrust an approximately 18-acre parcel of land adjacent to the Tribe’sreservation (the “Dugan Property”). Previously, the trust application had been approved by the Department ofthe Interior, which approval had been opposed by the County.  Pursuant to the MOA, the Tribe

 

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has agreed to pay the County$75 million in mitigation fees over the next 12 years, subject to adjustmentunder certain circumstances described in the MOA, to offset the potentiallosses and impacts to the County resulting from the Tribe’s various ongoingprojects and to support the services being provided by the County.  The Tribe made an initial payment of $3.0million, and annual payment of $4.5 million on September 30, 2008. Inaddition, the Tribe has agreed to pay a fee in lieu of the County’s TransientOccupancy Tax in the amount of 9% of the rental charges collected on occupiedhotel rooms.  Such fees are required tobe paid quarterly until five years after the later to occur of the terminationof the MOA, as may be extended, or the Tribe’s Compact with the State.

 

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 ourgaming facility operations. Since many of our patrons drive up from Santa Rosaand San Francisco, changes in specific prices, such as fuel and transportationprices, relative to the general rate of inflation may have a material adverseeffect on the casino industry in general.

 

**Seasonality**

 

We anticipate that activityat our gaming facility may be modestly seasonal with stronger results expectedduring the summer due in part to the relatively higher levels of tourism duringsuch times 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 quarter maynot 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 September 30,2008, we had not invested in derivative or foreign currency-based financialinstruments.  Additionally, we primarily have invested in short-term,fixed rate debt.  As such, we do not believe we have material exposure tomarket risk.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

We maintain disclosurecontrols and procedures that are designed to ensure that the informationrequired to be disclosed in our reports filed with, or furnished to theSecurities Exchange Commission, (the “SEC”) pursuant to the Exchange Act, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules, regulations and forms, and that such information isaccumulated and communicated to our management, including our Chief ExecutiveOfficer, Chief Financial Officer and Chief Operations Officer, as appropriate,to allow timely decisions regarding required disclosure based on the definitionof “disclosure controls and procedures” in Rule 13a-15(e) and 15d-15(e) ofthe Exchange Act.  Our disclosurecontrols and procedures are designed to provide reasonable assurances ofachieving its objectives.  The Authoritycarried out an evaluation, under the supervision and with the participation ofthe Authority’s management, including the Authority’s Chief Executive Officerand Chief Financial Officer of the Authority’s disclosure controls andprocedures pursuant to Exchange Act Rule 13a-15(b). Based upon suchevaluation, the Authority’s Chief Executive Officer and Chief Financial Officerconcluded that the Authority’s disclosure controls and procedures are noteffective in timely alerting them to information relating to the Authorityrequired to be included in the Authority’s Exchange Act reports. See below fordiscussion of material weaknesses in the Authority’s controls over financialreporting.

 

As of the end of the periodcovered by our Annual Report for the year ended December 31, 2007,management performed, with the participation of our Chief Executive Officer andChief Financial Officer, an evaluation of the effectiveness of our disclosurecontrols and procedures as defined in Rules 13a-15(e) and 15d-15(e) ofthe Exchange Act. Based on this evaluation and the identification of materialweaknesses in internal control over financial reporting, our Chief ExecutiveOfficer and our Chief Financial Officer concluded that, as of December 31,2007, our disclosure controls and procedures were not effective.

 

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**Remediationof Material Weaknesses in Internal Control Over Financial Reporting**

 

We have engaged in, andcontinue to engage in, substantial efforts to address the material weaknessesin our internal controls over financial reporting and the ineffectiveness ofour disclosure controls and procedures.  We are in the process ofremediating these material weaknesses through the following actions:

 

1.               We have implemented our new financialsoftware package which has resolved a major portion of our financial internalcontrol concerns. We have increased our reliance on our owntechnical accounting and reporting resources by purchasing reference materialsand subscribing to a service that provides regular updates and researchcapabilities related to SEC and accounting pronouncements.  We intend to engage external consultants withappropriate SEC and GAAP expertise to assist in financial statement review,filing of SEC reports, policy and procedure compilation assistance and otherrelated advisory services before the end of the fourth quarter of 2008.

 

2.               We have commenced bi-weekly meetings withcertain key employees and executives of the responsible inter-governmentalTribal capital projects and expenses, in order to develop strategies so thatimproved communication is maintained between the Authority and the Tribe.  The primary purpose of these meetings is togather all data necessary to gain the understanding necessary to accountproperly for Construction in Progress (“CIP”) and inter-governmental expensesprior to the commencement of a contract with a selected vendor for CIP projectsand prior to our quarterly or annual closing process. We intend to employ aProject Monitor that will work directly with CIP vendors to monitor actualproject costs as compared to budget and to estimate future costs in order toensure completeness of accrued liabilities.

 

3.               The accounting department has compiled adetailed closing checklist so that reconciliations of significant accounts areperformed at a level that will appropriately identify errors.  The checklist is intended to provide detailedsteps to be followed so that account reconciliations are performed completelyand accurately at the close of quarterly and annual filing periods.  Finance and Accounting employees arereviewing reconciliations and are required to sign each step as evidence of thecompletion of their review.

 

The foregoing initiativesare designed to enable us to improve our internal controls over financialreporting.  Management is committed to continuing efforts aimed at fullyachieving an operationally effective system of internal controls.  Theremediation efforts noted above are subject to our internal control assessment,testing and evaluation process.

 

**Changes toInternal Controls Over Financial Reporting**

 

We continue to test ourinternal controls so as to make improvements to the weaknesses that we haveidentified and to determine whether there are other procedures that we canimplement to improve our financial reporting processes.  We believe that we have implemented controlsand procedures to correct the practices that led to certain restatements of ourprior financial statements.

 

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

 

*RunyanLitigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed suit against us, theCasino and Mr. Harvey Hopkins, the Chairman of the Tribe and a member ofour Board, in the Sonoma County Superior Court. Mr. Runyan’s complaintasserted causes of actions for breach of contract, wrongful termination in violationof public policy, intentional interference with contract and intentionalinfliction of emotional distress. He sought unspecified compensatory andpunitive damages. Mr. Runyan alleged that he was wrongfully terminatedfrom his employment because he opposed certain alleged actions on the part ofthe defendants, including contracts for construction work allegedly performedon the reservation by affiliates of the Tribe and Mr. Hopkins. Mr. Runyanclaimed that the work violated the Indenture and that Mr. Runyan wasforced to resign from his employment in violation of public policy afterprotesting that the alleged work violated the Indenture, the Compact, and theSecurities Exchange Act of 1934. He also claimed that the defendants unlawfullydiscriminated against him in connection with his status as a debtor under theBankruptcy Code. We believed that Mr. Runyan’s lawsuit is based onerroneous information and is without merit, and we and the Tribe vigorouslydefended against it. We and the other defendants filed a motion to dismiss thelawsuit and on October 17, 2008, the Sonoma County Superior Court issuedan order dismissing Mr. Runyan’s lawsuit.

 

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

 

**ITEM 1A.             RISK FACTORS**

 

There have been no materialchanges from the risk factors previously disclosed in our Form 10-K otherthan the following:

 

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

 

The gaming industry is verycompetitive. We face or will face competition from existing and proposedCalifornia Indian gaming facilities in the surrounding area, and elsewhere inCalifornia, and with casino gaming in Nevada, including gaming facilities thatcould be located closer to the San Francisco Bay area. We also compete withcard rooms located in the surrounding area, and other forms of gaming that arelegal in California, including on and off-track wagering and the CaliforniaState Lottery, as well as with non-gaming leisure activities. The availabilityof such alternative gaming and non-gaming activities may increase in thefuture. Many of our competitors have substantially greater resources and namerecognition than our Casino. In addition, we may also face competition in ourmarket from new facilities that may be built by other Indian tribes in thefuture.

 

Federal and California lawcurrently permits Class III casino gaming only on federally recognizedtribal lands pursuant to compacts negotiated with the State of California andapproved by the U.S. Secretary of the Interior. Class II gaming for tribesis permitted only on federally recognized tribal lands. There are currently 55tribes operating 56 compacted gaming facilities in the State of California. Theclosest existing competitors are the Hopland Sho-ka-wah Casino, locatedapproximately 35 miles north of the Tribe’s reservation, the Konocti VistaCasino, located approximately 45 miles northeast of the Tribe’s reservation,the Thunder Valley Casino, located approximately 124 miles east of the Tribe’sreservation, and Cache Creek Indian Casino and Bingo, located approximately 95miles east of the Tribe’s reservation. In addition, several potentialcompetitors are attempting to develop and open casinos near our Casino.

 

The greatest competition maycome from the proposed Graton Rancheria casino. In April 2003, theFederated Indians of the Graton Rancheria, also known as the Coast Miwoks,announced plans to purchase land in Sonoma County near Highway 37 and LakevilleHighway, approximately 20 miles south of our gaming facility and closer to SanFrancisco than our reservation. The proposed location would lie directlybetween our Casino and the majority of the 7 million population base of the SanFrancisco Bay area. The announced plans include construction of a casino-hotelcomplex that will be managed by Station Casinos, Inc. based in Las Vegas,Nevada. The proposed facility will house approximately 2,000 slot machines, 120card tables and bingo, as well as a 300-room hotel, five restaurants and atheater with up to 2,000 seats. As a result of environmental opposition to thedevelopment of such location, the Federated Indians of the Graton Rancheriaannounced plans to move the proposed casino-hotel complex to a site nearRohnert Park, California. The Rohnert Park City Council has approved anagreement with the Federated Indians of the Graton Rancheria to share withRohnert Park and various community groups, approximately $200.0 million over 20years, to offset the impact of the proposed project.

 

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In May 2008, the U.S.Department of Interior published in the Federal Register a notice to take theproposed Rohnert Park site into federal trust on behalf of the GratonRancheria. This represents a significant step towards the development of acasino at Rohnert Park, as do the separate agreements negotiated between the GratonRancheria and Sonoma County and Marin County, whereby the counties pledged tonot challenge the land-into-trust decision and the Graton Rancheria agreed notto build any additional casinos in Sonoma or Marin counties. The U.S.Department of Interior’s land-into-trust decision has, however, been challengedby citizens groups opposed to a casino in Rohnert Park. Under establishedpolicy, the Department will not actually take the land into trust – aprerequisite for gaming to occur there – until the litigation is resolved.Another obstacle facing the proposed Graton Rancheria casino is the ability toobtain financing for the project, as the tribe’s partner, Station Casinos, isfacing difficulties.  Moody’s InvestorService has stated that it believes the company lacks excess cash or liquidityto fund new projects.  The GratonRancheria will also need to enter into a tribal-state compact with the State ofCalifornia before it can operate Class III gaming at the Rohnert Parksite.

 

The Hopland Sho-ka-wah Casinois located several miles east of Highway 101 on Route 175. The facilityfeatures a 40,000 square foot casino offering 550 slot machines, 6 table gamesand a small 3 table poker room. The facility contains a small cafe-type foodand beverage area, a bar and a fine-dining steak house. Entertainment isprovided occasionally, which includes musical acts and boxing. Hopland operatesa small bus program~~;~~ but does not operate a hotel.

 

East of the Sho-ka-wahCasino is the Konocti Casino in Lakeport, California. Lakeport is locatedapproximately 37 miles from Cloverdale with access off Highway 20. The casinohouses 660 slot machines and 8 table games. The facility also offers an 80-roomhotel and marina with small pool as well as a 74-space recreational vehicle park.The food and beverage program includes a small restaurant, buffet and a newfull-service restaurant serving liquor.

 

The Thunder Valley Casinoopened in June 2003 and is located at the intersection of Highway 65 andInterstate 80 just outside of Sacramento, California. The Nevada-style propertyoffers more than 2,600 slot machines and some 100 table games that includeblackjack, baccarat, and a variety of poker games including Let It Ride and PaiGow. The facility features a salon, private dining rooms, bars and butlerservice. In addition, it houses a 500-seat buffet and various fast foodoptions, including Fat Burger, Panda Express and Starbucks, and fine diningoptions such as Austin’s Steakhouse. The facility also features a nightclub andlive entertainment is offered every two weeks. The Thunder Valley Casinorecently announced that it plans to build a new 650-room, 23-story hotelfeaturing a spa, family center and other amenities.  Thunder Valley also plans 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, and has obtained financing for this expansion.

 

The Cache Creek Casino islocated approximately 50 miles west of Sacramento. The Cache Creek Casinorecently expanded its facility to 2,900 slot machines. The casino also housesover 140 table games including blackjack, Texas Hold’em, Pai Gow and CaribbeanStud. The facility also includes a 200-room luxury hotel, 8 restaurant outlets,an entertainment pavilion with seating for 600, a spa and outdoor pool, an18-hole golf course and a 1,883 spot parking structure. The facility is in theprocess of expanding its restaurant offerings, and has recently announced plansto add more shops and parking, and to add 10-story hotel tower with 467 rooms,and a 62,500 square -foot convention center capable of seating 2,300 people.

 

The Lytton Band of PomoIndians currently operates a 70,000 square-foot casino with 1,050 Class IIelectronic bingo machines on the 9-acre site of a card room in San Pablo, nearOakland, California, on land that was placed in trust for the tribe throughcongressional legislation. The Lytton Band signed a compact with GovernorArnold Schwarzenegger for operating Class III casino gaming on the SanPablo site, but the state legislature withheld its approval. In May 2007,legislation was introduced in the U.S. Senate, which has the support of theLytton Band, that would require the Lytton Band to forego any Class IIImachines at the San Pablo site and instead limit itself to operating itsexisting Class II machines. This legislation was passed by the Senate in November 2007and referred to the Committee on Natural Resources of the U.S. House of Representatives,but no further action has been taken.

 

The Twin Pine Casino, ownedand operated by the Middletown Rancheria of Pomo Indians, is locatedapproximately 4 miles off of Highway 29 in Napa County, approximately 34 milesfrom our gaming and entertainment facility. The Twin Pine Casino currentlyoffers 12,000 square feet of gaming space, with more than 400 slot machines and8 table games including blackjack and poker, and houses a café. The MiddletownRancheria has announced plans to add a 60-room hotel and expand the facility toinclude 50,000 square feet of gaming space with approximately 700 slot machinesand 20 table games, three food areas, and a wine tasting room.

 

There are a number of otherIndian tribes, including the Scotts Valley Band of Pomo Indians and theGuidiville Band of Pomo Indians, that have announced preliminary plans todevelop gaming projects in the San Francisco Bay area.

 

The Guidiville Band hopes tohave transferred to it land at the former Point Molate Naval Base in Richmond,California on which it hopes to operate a casino along with a 1,100-room hotel,theater, convention center, and retail shops, but the project is still in itsearly stages, as the land transfer has not been approved and environmentalreviews must be completed.

 

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The Scotts Valley Band hopesto build a 225,000 square-foot casino complex and five-story parking garage ona 29.87-acre site in Contra Costa County, near Richmond, California.  In March 2008, the Bureau of IndianAffairs announced the filing of the Final Environmental Impact Statement forthe proposed project.

 

The Cloverdale Rancheria hasannounced preliminary plans to build a 596,00 square-foot hotel/spa and casinoresort some ten miles north of our Casino on U.S. Highway 101, and they andtheir financial backers have purchased approximately 79 acres for the proposedfacility. The environmental review process for the proposed CloverdaleRancheria project began in July 2008.

 

Each of these proposedprojects faces numerous obstacles in addition to environmental approvals,including the negotiation and approval of a compact with the State ofCalifornia, approval from the U.S. Department of Interior to take the land onwhich the project would be located into federal trust on behalf of the tribe,and determinations from appropriate federal agencies that the tribes mayconduct gaming on these lands pursuant to the Indian Gaming Regulatory Act.

 

We also compete with otherforms of gaming such as statewide lotteries, live and simulcast pari-mutuelwagering and card rooms.

 

In May 2007, GovernorSchwarzenegger proposed that the California State Lottery be leased to aprivate concessionaire to increase its revenue and efficiency. Part of theGovernor’s proposal includes authorizing the use of instant lottery videoterminals that resemble and operate like slot machines at locations includinghorse racing tracks and card rooms. Approval of this proposal would require atwo-thirds affirmative vote of the state legislature and could require aconstitutional amendment to the Constitution of the State of California. Whileit is uncertain whether or when this proposal will be approved, itsimplementation could adversely affect our and other Indian casinos’ competitivepositions.

 

Other initiatives expandingcompetitive forms of gaming have been approved and may, from time to time, beapproved by state or local authorities. Examples include: (i) the passagein California of recent legislation expanding off-site betting on horse racesthrough expanded advance deposit wagering and increased satellite wageringsites; (ii) 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 (iii) theamendment of county laws in Sacramento County, California to expand permittedbingo games by charitable organizations in Sacramento County.

 

These and other initiativesthat might be proposed in various locations could adversely affect ourbusiness.

 

The discussionunder the heading “**Management’s Discussionand Analysis of the Financial Condition and Results of Operations  - Risk Factors**” in the 2007 AnnualReport on form 10-K under the captions “**Wehave a substantial amount of indebtedness that could adversely affect ourfinancial condition and prevent us from fulfilling our obligations under theOutstanding Notes**” and “**We willrequire a significant amount of cash to service our indebtedness and fund ourgaming operations. Our ability to generate cash depends on many factors beyondour control**” is updated as follows to reflect the recent events inthe financial markets:

 

Our ability tomake scheduled principal and interest payments, refinance debt, and fundoperations, and make planned capital expenditures, depends on the levels of ouroperating cash flow and access to the capital markets.  Like many companies, we rely on the capitalmarkets to fund significant capital expenditure plans with long-term debt. Ourability to access the capital markets and the costs and terms of availablefinancing depend on many factors, including changes in our credit ratings, changesin the federal or state regulatory environment, and general economic and marketconditions.  The recent financialdistress experienced at major financial institutions has caused significantdisruption in the capital markets, particularly in the commercial paper marketwhere short-term rates have increased significantly and access generally hascontracted.  Long-term debt rates on bondissuances also have increased significantly since mid-September and the volumeof bond issuances has decreased.  The longersuch conditions persist, the more significant the implications become for us,including the potential that adequate capital is not available to fund ourcapital expansion plans and other planned capital expenditures.  If we are unable, in part or in whole, tofund our planned capital expenditures or obtain financing to refinance ourdebt, there could be a material adverse effect on our results of operations,cash flows and financial condition.

 

**ITEM6.               EXHIBITS**

 
|   |  The  Exhibit Index filed herewith 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: November 19,  2008 |   | RIVER ROCK ENTERTAINMENT  AUTHORITY |
|--------------------------------|--------|-------------------------------------|
|                           |   | (Registrant)                        |
|                           |   |                                |
|                           |   | By:                                 | /s/  Shawn S. Smyth |
|                           |   |                                | Shawn  S. Smyth, |
|                           |   |                                | Chief  Executive Officer |

 

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**EXHIBIT INDEX**

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

 

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

 

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