** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D. C.  20549**

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** **

**FORM10-Q**

**(MarkOne)**

**x****                             ****QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

**Forthe quarterly period ended June 30, 2007**

**OR**

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

**Forthe transition period from                     to                      **

**CommissionFile Number: 333-115186**

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exact name ofregistrant 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 East**                                                    |
| **Geyserville,  California 95441**                                            |
| **(707)  857-2777**                                                           |
| (Address,  including zip code, and telephone number,                          |
|  including area code, of registrant’s  principal executive offices) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes  x     No  o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

| Yes  o  Large  Accelerated - Filer |   | o  Accelerated  - Filer |   | x  Non  Accelerated Filer |
|--------------------------------------------------------|--------|-----------------------------------|--------|-------------------------------------|

 

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

Yes  o    No  x

 

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**RIVER ROCKENTERTAINMENT AUTHORITYINDEX TO FORM 10-Q**
| Item          | ** ** | ** **                                                                                                                                                     | ** ** | **Description** | ** ** | ** ** | ** ** |
|---------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------|------------|
|          |       |                                                                                                                                                           |       |            |       |
|          | ** ** | **PART  I — FINANCIAL INFORMATION**                                                                                                                       | ** ** | ** **      | ** ** |
|          |       |                                                                                                                                                           |       |            |       |
| 1.            |       | Condensed Financial Statements (unaudited)                                                                                                                     |       |            |       |
|          |       | Condensed  Balance Sheets- June 30, 2007 and December 31, 2006                                                                                                 |       |            |       |
|          |       | Condensed Statements of Revenues, Expenses and Changes  in Fund Deficit-Three-Months ended June 30, 2007 and 2006 and Six-Months  ended June 30, 2007 and 2006 |       |            |       |
|          |       | Condensed Statements of Cash Flows- Six-Months ended  June 30, 2007 and 2006                                                                                   |       |            |       |
|          |       | Notes to unaudited Condensed Financial Statements                                                                                                              |       |            |       |
| 2.            |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                    |       |            |       |
| 3.            |       | Quantitative and Qualitative Disclosures About Market  Risk                                                                                                    |       |            |       |
| 4.            |       | Controls and Procedures                                                                                                                                        |       |            |       |
|          |       |                                                                                                                                                           |       |            |       |
|          | ** ** | **PART  II — OTHER INFORMATION**                                                                                                                          | ** ** | ** **      | ** ** |
|          |       |                                                                                                                                                           |       |            |       |
| 1.            |       | Legal  Proceedings                                                                                                                                             |       |            |       |
| 1A.           |       | Risk  Factors                                                                                                                                                  |       |            |       |
| 5.            |       | Other Information                                                                                                                                              |       |            |       |
| 6.            |       | Exhibits  and Reports on Form 8-K                                                                                                                              |       |            |       |
|          |       |                                                                                                                                                           |       |            |       |
| Signatures    |       |                                                                                                                                                           |       |            |       |
|          |       |                                                                                                                                                           |       |            |       |
| Exhibit Index |       |                                                                                                                                                           |       |            |       |

 

2

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**CAUTIONARYSTATEMENT**

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

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

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

3

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**PART I. FINANCIALINFORMATION**

**ITEM 1. FINANCIALSTATEMENTS (UNAUDITED)**

**RIVERROCK ENTERTAINMENT AUTHORITY(A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)CONDENSED BALANCE SHEETS(Unaudited)**
| ** **                                      | ** ** | **June 30, 2007** | ** **  | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      |       |                        |        |                            |       |
| CURRENT ASSETS:                                 |       |                        |        |                            |       |
| Cash and cash  equivalents                      |       | $                           | 36,581,092  |                            | $          | 32,549,001 |   |
| Restricted cash-current                         |       | 507,360                     |        | 467,997                         |       |
| Accounts receivable                             |       | 354,658                     |        | 203,555                         |       |
| Inventories                                     |       | 151,047                     |        | 160,601                         |       |
| Prepaid expenses and  other current assets      |       | 1,327,666                   |        | 1,396,289                       |       |
| Total current  assets                           |       | 38,921,823                  |        | 34,777,443                      |       |
| RESTRICTED CASH - net  of current               |       | 6,784,690                   |        | 6,780,256                       |       |
|                                            |       |                        |        |                            |       |
| PROPERTY AND EQUIPMENT:                         |       |                        |        |                            |       |
| Buildings and building  improvements            |       | 129,398,324                 |        | 129,245,481                     |       |
| Furniture, fixtures and  equipment              |       | 28,789,961                  |        | 27,110,280                      |       |
|                                            |       |                        |        |                            |       |
| Accumulated  depreciation                       |       | (38,584,576                 | )           | (32,696,126                     | )          |
| Construction in  progress                       |       | 4,546,215                   |        | 4,385,195                       |       |
| Property and  equipment-net                     |       | 124,149,924                 |        | 128,044,830                     |       |
| DEPOSITS AND OTHER  ASSETS                      |       | 4,453,746                   |        | 5,266,658                       |       |
|                                            |       |                        |        |                            |       |
| TOTAL ASSETS                                    |       | $                           | 174,310,183 |                            | $          | 174,869,187 |   |
|                                            |       |                        |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| ** **                                      | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| CURRENT LIABILITIES:                            |       |                        |        |                            |       |
| Accounts payable:                               |       |                        |        |                            |       |
| Trade                                           |       | $                           | 2,953,406   |                            | $          | 2,500,226 |   |
| Construction                                    |       | 507,360                     |        | 467,997                         |       |
| Accrued liabilities                             |       | 6,630,905                   |        | 7,094,168                       |       |
| Current maturities of  long-term debt           |       | 369,561                     |        | 642,413                         |       |
| Total current  liabilities                      |       | 10,461,232                  |        | 10,704,804                      |       |
| LONG-TERM DEBT - net of  current maturities     |       | 198,605,439                 |        | 198,500,275                     |       |
| Total long-term  liabilities                    |       | 198,605,439                 |        | 198,500,275                     |       |
|                                            |       |                        |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES                  |       |                        |        |                            |       |
|                                            |       |                        |        |                            |       |
| FUND DEFICIT:                                   |       |                        |        |                            |       |
| Invested in capital  assets-net of related debt |       | (74,825,076                 | )           | (71,097,858                     | )          |
| Restricted for capital  projects                |       | 7,292,050                   |        | 7,248,253                       |       |
| Unrestricted                                    |       | 32,776,538                  |        | 29,513,713                      |       |
|                                            |       |                        |        |                            |       |
| Total fund deficit                              |       | (34,756,488                 | )           | (34,335,892                     | )          |
|                                            |       |                        |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT              |       | $                           | 174,310,183 |                            | $          | 174,869,187 |   |

 

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

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**RIVERROCK ENTERTAINMENT AUTHORITY(A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT(Unaudited)**
| ** **                                      | ** ** | **Three-Month Period Ended June 30,** | ** **  | **Six-Month Period Ended June 30,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|-------------|---------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                                  | ** **  | **2006**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| REVENUES:                                       |       |                                                      |        |                                                    |       |   |   |   |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Casino                                          |       | $                                                         | 36,214,863  |                                                    | $          | 32,351,668 |   | $ | 71,674,518 |   | $ | 64,872,575 |   |
| Food, beverage & retail                     |       | 1,799,801                                                 |        | 1,504,620                                               |       | 3,514,843 |   | 2,964,192 |   |
| Other                                           |       | 160,903                                                   |        | 144,882                                                 |       | 320,662 |   | 297,737 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Gross revenues                                  |       | 38,175,567                                                |        | 34,001,170                                              |       | 75,510,023 |   | 68,134,504 |   |
| Promotional allowances                          |       | (3,403,337                                                | )           | (2,940,273                                              | )          | (6,633,389 | ) | (5,466,161 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Net revenues                                    |       | 34,772,230                                                |        | 31,060,897                                              |       | 68,876,634 |   | 62,668,343 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| OPERATING  EXPENSES:                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Casino                                          |       | 4,980,815                                                 |        | 4,970,006                                               |       | 10,175,559 |   | 10,009,347 |   |
| Food, beverage & retail                     |       | 1,414,075                                                 |        | 1,468,256                                               |       | 2,856,295 |   | 2,968,124 |   |
| Selling, general and administrative             |       | 11,095,648                                                |        | 9,608,317                                               |       | 20,932,208 |   | 20,998,670 |   |
| Depreciation                                    |       | 2,996,689                                                 |        | 2,871,417                                               |       | 5,924,765 |   | 5,731,950 |   |
| Credit enhancement fee                          |       | —                                                    |        | 1,859,210                                               |       | 11,348,897 |   | 3,461,627 |   |
| Gaming commission and surveillance expense      |       | 820,394                                                   |        | 725,991                                                 |       | 1,495,798 |   | 1,448,732 |   |
| Compact revenue sharing trust fund              |       | 333,750                                                   |        | 333,750                                                 |       | 667,500 |   | 667,500 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Total Operating Expenses                        |       | 21,641,371                                                |        | 21,836,947                                              |       | 53,401,022 |   | 45,285,950 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| INCOME FROM  OPERATIONS                         |       | 13,130,859                                                |        | 9,223,950                                               |       | 15,475,612 |   | 17,382,393 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| OTHER  EXPENSE-Net                              |       |                                                      |        |                                                    |       |   |   |   |   |
| Interest expense                                |       | (5,217,465                                                | )           | (5,220,851                                              | )          | (10,435,899 | ) | (10,445,483 | ) |
| Interest income                                 |       | 350,534                                                   |        | 211,474                                                 |       | 718,288 |   | 402,978 |   |
| Gain (Loss) on sale of assets                   |       | —                                                    |        | (37,709                                                 | )          | 4,547 |   | (41,093 | ) |
| Other income (Expense) - net                    |       | (185                                                      | )           | (125                                                    | )          | (744 | ) | (112 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Other expense - net                             |       | (4,867,116                                                | )           | (5,047,211                                              | )          | (9,713,808 | ) | (10,083,710 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| INCOME BEFORE  DISTRIBUTIONS TO TRIBE           |       | 8,263,743                                                 |        | 4,176,739                                               |       | 5,761,804 |   | 7,298,683 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| DISTRIBUTIONS TO  TRIBE                         |       | (3,122,400                                                | )           | (3,060,000                                              | )          | (6,182,400 | ) | (6,060,000 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| NET INCOME  (LOSS) AFTER DISTRIBUTIONS TO TRIBE |       | 5,141,343                                                 |        | 1,116,739                                               |       | (420,596 | ) | 1,238,683 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| FUND  DEFICIT-Beginning of period               |       | (39,897,831                                               | )           | (40,303,110                                             | )          | (34,335,892 | ) | (40,425,054 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| FUND DEFICIT-End  of period                     |       | $                                                         | (34,756,488 | )                                                       | $          | (39,186,371 | ) | $ | (34,756,488 | ) | $ | (39,186,371 | ) |

 

The accompanying notes arean integral part of these unaudited financial statements.

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**RIVERROCK ENTERTAINMENT AUTHORITY(A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)CONDENSED STATEMENTS OF CASH FLOWS(Unaudited)**
| ** **                                                 | ** ** | **Six-Month**         | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **Period Ended** | ** ** |
| ** **                                                 | ** ** | **June 30,**     | ** ** |
| ** **                                                 | ** ** | **2007**              | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                     |       |                  |       |   |   |
| Cash received from gaming winnings and concessions         |       | $                     | 68,725,531 |   | $ | 63,079,845 |   |
| Cash paid for salaries and benefits                        |       | (14,269,595           | )          | (14,139,101 | ) |
| Cash paid to suppliers                                     |       | (20,339,846           | )          | (22,372,724 | ) |
| Cash paid for compact revenue sharing trust fund           |       | (667,500              | )          | (667,500 | ) |
|                                                       |       |                  |       |   |   |
| Net cash provided by operating activities                  |       | 33,448,590            |       | 25,900,520 |   |
|                                                       |       |                  |       |   |   |
| CASH FLOWS FROM  CAPITAL AND RELATED FINANCING ACTIVITIES: |       |                  |       |   |   |
| Proceeds from long term financing                          |       | —                |       | 156,747 |   |
| Payments of long-term debt                                 |       | (336,312              | )          | — |   |
| Purchases of property and equipment                        |       | (2,019,394            | )          | (2,928,227 | ) |
| Change in restricted cash                                  |       | (43,797               | )          | 169,001 |   |
| Interest paid                                              |       | (9,756,426            | )          | (9,766,011 | ) |
| Credit enhancement fee                                     |       | (12,131,967           | )          | (3,664,461 | ) |
| Proceeds from sale of assets                               |       | 33,445                |       | 5,600 |   |
| Other                                                      |       | 302,064               |       | 77,703 |   |
|                                                       |       |                  |       |   |   |
| Net cash used in capital and related financing  activities |       | (23,952,387           | )          | (15,949,648 | ) |
|                                                       |       |                  |       |   |   |
| CASH FLOW FROM  INVESTING ACTIVITIES:                      |       |                  |       |   |   |
| Interest Income                                            |       | 718,288               |       | 402,978 |   |
|                                                       |       |                  |       |   |   |
| CASH FLOW FROM  NON-CAPITAL FINANCING ACTIVITIES:          |       |                  |       |   |   |
| Distributions to Tribe                                     |       | (6,182,400            | )          | (6,060,000 | ) |
|                                                       |       |                  |       |   |   |
| CHANGE IN CASH  AND CASH EQUIVALENTS                       |       | 4,032,091             |       | 4,293,850 |   |
|                                                       |       |                  |       |   |   |
| CASH AND CASH  EQUIVALENTS, Beginning of the period        |       | 32,549,001            |       | 17,649,658 |   |
|                                                       |       |                  |       |   |   |
| CASH AND CASH  EQUIVALENTS, End of the period              |       | $36,581,092           |       | $ | 21,943,508 |   |
|                                                            |            |                       |            |  |  |  |  |

 

The accompanyingnotes are an integral part of these unaudited financial statements.

6

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**RIVERROCK ENTERTAINMENT AUTHORITY(A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)CONDENSED STATEMENTS OF CASH FLOWS(Unaudited)**
| RECONCILIATION  OF INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING  ACTIVITIES: |   |       |      |       |       |
|--------------------------------------------------------------------------------------------------------|--------|------------|-----------|------------|------------|
| Income before  Distributions to Tribe                                                                  |   | $          | 5,761,804 |       | $          | 7,298,683 |   |
|                                                                                                   |   |       |      |       |       |
| Adjustments to  reconcile operating income to net cash provided by operating activities:               |   |       |      |       |       |
| Depreciation                                                                                           |   | 5,924,765  |      | 5,731,950  |       |
| Interest expense                                                                                       |   | 10,435,899 |      | 10,445,483 |       |
| Interest income                                                                                        |   | (718,288   | )         | (402,978   | )          |
| Credit enhancement fee                                                                                 |   | 11,348,897 |      | 3,461,627  |       |
| Loss (Gain) on sale of assets                                                                          |   | (4,547     | )         | 41,093     |       |
| Changes in operating assets and liabilities:                                                           |   |       |      |       |       |
| Accounts receivable                                                                                    |   | (151,103   | )         | (72,140    | )          |
| Inventories                                                                                            |   | 9,554      |      | 6,339      |       |
| Prepaid expenses and other current assets                                                              |   | 68,623     |      | 205,382    |       |
| Accounts payable                                                                                       |   | 453,180    |      | (1,218,900 | )          |
| Accrued liabilities                                                                                    |   | 319,806    |      | 403,981    |       |
| Total  adjustments                                                                                     |   | 27,686,786 |      | 18,601,837 |       |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                             |   | 33,448,590 |      | $          | 25,900,520 |   |
| Acquisition of  property and equipment through accounts payable construction                           |   | $          | 39,363    |       | $          | — |   |

 

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

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**RIVER ROCKENTERTAINMENT AUTHORITY(A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)**

**NOTES TO UNAUDITEDFINANCIAL STATEMENTS**

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

River RockEntertainment Authority (the “Authority”) is a governmental instrumentality ofthe Dry Creek Rancheria Band of Pomo Indians (the “Tribe”), a federallyrecognized Indian tribe. River Rock Casino (the “Casino”) is a governmentaldevelopment project of the Authority. The Casino offers Class III gaming (asdefined by the Indian Gaming Regulatory Act) 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 upon approval bythe Secretary of Interior on May 5, 2000.  The Compact expires onDecember 31, 2020.

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

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

The accompanyingunaudited condensed financial statements have been prepared from the records ofthe Authority without audit and, in the opinion of management, include alladjustments that are normal and recurring in nature necessary to present fairlythe Authority’s financial position at June 30, 2007, the interim results ofoperations for the three and six month periods ended June 30, 2007 and 2006,and changes in cash flows for the six month periods ended June 30, 2007 and2006. The balance sheet at December 31, 2006, presented herein, has beenderived from the audited financial statements of the Authority for the yearthen ended December 31, 2006.

Accountingpolicies followed by the Authority are described in Note 2 to the auditedfinancial statements for the fiscal year ended December 31, 2006. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted for purposes ofpresenting the interim condensed financial statements. Such statements shouldbe read in conjunction with the audited financial statements, including notesthereto, for the year ended December 31, 2006.

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

There aredifferences 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 separate statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements.  The amount shown as income beforedistributions to Tribe would not be different if the Authority followed allFASB pronouncements to determine net income and would be the most comparableamount to net income computed under FASB pronouncements. The Authority is aseparate fund of the Tribe, a governmental entity, and as such there is noowners’ or shareholders’ (deficit) equity as traditionally represented underFASB pronouncements.  The most comparable measure of owners’ (deficit)equity is presented on the Authority’s balance sheet as fund (deficit) equity.

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

8

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

*Useof Estimates*—The preparation of financial statements inconformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from these estimates.

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

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

*RestrictedCash*—Restricted cash consists of estimated constructionexpenses for three parking structures, related infrastructure improvements andconstruction contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds necessary to develop anapproximately 18-acre parcel of land adjacent to the Tribe’s reservation. Thesefunds are held in escrow accounts which are restricted for authorizedconstruction disbursements. These escrow accounts are invested in CD’s, whichgenerate interest on a monthly basis. The FDIC has insured $100,000 of thisbalance. The Authority believes that there is little risk of loss regarding theuninsured amounts of restricted cash held in the escrow account. Restrictedcash was $7,292,050 and $7,248,253 at June 30, 2007 and December 31, 2006, respectively. As of June 30, 2007, restricted cash includes amounts available forconstruction of $2,735,486 and land development funds of $4,556,564.

*Depositsand Other Assets*—As of June 30, 2007 and December 31, 2006,deposits and other assets include $4,429,684 and $4,940,532 in unamortized bonddiscount, legal fees and other issuance costs related to the issuance of theNotes; $0 and $0 of equipment deposits; $23,162 and $213,218 of performancedeposits and $900 and $112,908 of rental deposits.  Deferred loan costsare amortized using the effective interest method to interest expense over theterm of the related financial arrangement.

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

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

*AccruedSlot Players Club*—In accordance with Emerging Issues TaskForce Issue No. 00-22*, Accounting for “Points”and Certain other* T*ime-based or Volume-basedSales* I*ncentive Offers and Offers for Free Productsor Services to be Delivered in the Future*, the Authority hasrecorded a liability related to prizes and cash incentives earned by themembers of the Authority’s Players Club and have adjusted the liability for theestimated future breakage. The Authority has recorded the cost of the estimatedredemption of the liability related to prizes as an operating expense and theestimated redemption of the liability related to cash as promotional allowancein the accompanying statements of revenues, expenses and changes in funddeficit.

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

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

*OtherRevenues*—Other revenues are comprised of commissions on ATMand vending machine transactions.

*PromotionalAllowances*—The retail value of food and beverages provided tocustomers without charge or at a discount is included in Food, beverage andretail revenues and then deducted as promotional allowances. Such amounts thatare included in Food, beverage and retail revenues for the three months endedJune 30, 2007 and 2006 were $610,311 and $497,198, respectively.  The amounts included in Food, beverage andretail revenues for the six months ended June 30, 2007 and 2006 were $1,176,382and $999,031, respectively.  The amountsincluded in casino revenues are also deducted as promotional allowances. The distribution of 

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electronic coupons(e-coupons) to customers is included in Casino revenues and is also deducted aspromotional allowances.  The total e-coupons for the three months endedJune 30, 2007 and 2006 were $2,355,193 and $2,093,299, respectively.  The total e-coupons for the six months endedJune 30, 2007 and 2006 were $4,583,411 and $3,741,419, respectively.  The redemption of cash incentives earned bythe Players Club members is also recorded as promotional allowances. The costof cash incentives for the three months ended June 30, 2007 and 2006 were$437,833 and $349,776, respectively, and for the six months ended June 30, 2007and 2006 were $873,596 and $725,711, respectively.

*Foodand Beverage Costs*—Food and beverage costs included costsassociated with food and beverage, excluding amounts reclassified as Casinoexpenses.  The estimated costs of providing complimentary services arereclassified from Food and beverage to Casino expenses.  The estimated costsof such services were $1,222,233 and $963,699 for the three months ended June30, 2007 and 2006, respectively.  The costs of such services were$2,401,941 and $2,029,444 for the six months ended June 30, 2007 and 2006,respectively.

*AdvertisingCosts*—Advertising costs are expensed the first timeadvertising takes place. Advertising costs included in Selling, general andadministrative expenses were $2,479,432 and $1,191,438 for the three monthsended June 30, 2007 and 2006, respectively. Advertising costs for the six months ended June 30, 2007 and 2006 were$3,643,937 and $3,423,414, respectively.

*GamingCommission & Surveillance Expenses*—The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission expenses are reported as Gaming Commission andsurveillance expense on the Statements of Revenues, Expenses and Changes inFund Deficit. Gaming Commission and surveillance expenses for the three monthsended June 30, 2007 and 2006 were $820,394 and $725,991, respectively.  Gaming Commission and surveillance expensesfor the six months ended June 30, 2007 and 2006 were $1,495,798 and $1,448,732,respectively.

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

*Distributionsto Tribe*—Distributions to Tribe are made up of permittedpayments.  They are included in the Statements of Revenues, Expenses andChanges in Fund Deficit as distributions to Tribe allowed pursuant to theIndenture for the Notes.  Monthly permitted payments increased by $20,800from $1,020,000 to $1,040,800 in April 2007.  Total distributions to theTribe for the three months ended June 30, 2007 and 2006 were $3,122,400 and$3,060,000, respectively.  Totaldistributions to the Tribe for the six months ended June 30, 2007 and 2006 were$6,182,400 and $6,060,000, respectively.

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

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

**4.****                             RELATEDPARTIES**

The Authority hasbeen constructed on federal land beneficially owned by the Tribe. The Authoritydoes not pay the Tribe for the use of the land.

Commencing January1, 2004, the Authority paid for various expenses for the following departmentsoperated by the Tribe: Tribal Gaming Commission, surveillance, plantoperations, human resources, purchasing and warehousing.  On January 1,2005, the Authority operated the Purchasing and Warehouse departments, andcontinued to pay expenses for the other departments operated by theTribe.  These departmental expenses include but are not limited to payrolland related expenses, legal and other operational expenses.  Underdirection of the River Rock Entertainment Authority Board and the TribalCouncil, the Tribe assumed responsibility of the Purchasing and Warehousedepartments on May 8, 2006.  The expenses associated with the Purchasingand Warehouse departments incurred by the Tribe are included in these amountsand will be reimbursed to the Tribe by the Authority as with other Tribaldepartments.

Total expenses forthese departments, excluding Tribal Gaming Commission and surveillance, were$842,168 and $752,388 for the three months ended June 30, 2007 and 2006,respectively. They are recorded as a component of Selling, general andadministrative expenses.  Total expensesfor these departments were $1,608,833 and $1,509,004 for the six months endedJune 30, 2007 and 2006, respectively.

 TheAuthority pays for various expenses for the Tribal Gaming Commission andsurveillance.  Tribal Gaming Commission and surveillance expenses arerecorded in Gaming Commission and surveillance expenses on the Statements ofRevenues, Expenses and Changes in Fund Deficit.  Gaming Commission and surveillanceexpenses for the three months ended June 30, 2007 and 2006 

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were $820,394 and$725,991, respectively.  Gamingcommission and surveillance expenses for the six months ended June 30, 2007 and2006 were $1,495,798 and $1,448,732, respectively.

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

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

The Authority had the right to terminate the Development Agreement byexercising a buy-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 $11,350,000 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 three monthsended March 31, 2007.  CreditEnhancement Fee expense was $0 and $1,859,210 for the three months ended June30, 2007 and 2006, respectively.  CreditEnhancement Fee expense was $11,348,897 and $3,461,627 for the six months endedJune 30, 2007 and 2006, respectively.

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

Cash and cash equivalentsand restricted cash consisted of the following as of June 30, 2007 and December31, 2006:
|                                                      | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Operating  Accounts                                  |       | $                           | 5,943,860  |                            | $          | 5,573,333 |   |
| Money Market  Accounts                               |       | 1,759                       |       | 31,967                          |       |
| Short Term  Investments                              |       | 25,209,270                  |       | 22,304,924                      |       |
| Cash on hand                                         |       | 5,426,203                   |       | 4,638,777                       |       |
|                                                 |       |                        |       |                            |       |
| Cash and cash  equivalents                           |       | 36,581,092                  |       | 32,549,001                      |       |
| Restricted cash                                      |       | 7,292,050                   |       | 7,248,253                       |       |
|                                                 |       |                        |       |                            |       |
| Total cash and cash  equivalents and restricted cash |       | $                           | 43,873,142 |                            | $          | 39,797,254 |   |

 

The Authority’scash in banks and cash equivalents (the “Investments”) are categorized by levelof credit risk assumed by the Authority. Category 1 includes investmentsthat are 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 June 30, 2007, the Authority had $200,000 in Category 1investments, $5,743,860 cash in banks, $1,759 in money market accounts and$25,209,270 in short-term investments, which are Category 2 investments, and$7,292,050 restricted cash in bank over the FDIC insurance limits, which areCategory 3 investments.  Amounts in Category 2 and Category 3 investmentsare invested in short-term, highly liquid cash equivalents andinvestments.  As of June 30, 2007 and December 31, 2006, these amounts arecomposed of money market accounts in the amount of $1,759 and $31,967,respectively, and A1/P1 bonds in the amount of $25,209,270 and $22,304,924,respectively.

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

Property and equipment at December 31, 2006 and June 30, 2007 consistedof the following:
| ** **                         | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**      | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|-------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **June 30,** | ** ** |
| ** **                         | ** ** | **2006**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2007**          | ** ** |
| Buildings and improvements         |       | $                | 129,245,481 |          | $     | 152,843          |       | $            | —     |   | $  | 129,398,324 |   |
| Furniture,  fixtures and equipment |       | 27,110,280            |        | 1,744,894     |       | (65,213          | )          | 28,789,961        |       |
| Less accumulated  depreciation     |       | (32,696,126           | )           | (5,924,765    | )          | 36,315           |       | (38,584,576       | )          |
|                               |       | 123,659,635           |        | (4,027,028    | )          | (28,898          | )          | 119,603,709       |       |
| Construction in progress           |       | 4,385,195             |        | 161,020       |       | —           |       | 4,546,215         |       |
| Property and equipment—net    |       | $                | 128,044,830 |          | $     | (3,866,008       | )          | $            | (28,898    | ) | $  | 124,149,924 |   |

 

Construction inprogress consists of payments or amounts owed to various vendors related to theAuthority’s master plan development and land improvements. Substantially all ofthe Authority’s personal property is pledged as collateral to secure itsdebt.  At June 30, 2007 and 2006, the Authority had $376,840 and $279,022in capital lease assets with related accumulated depreciation of $155,103 and$81,776, respectively.

**8.****                             ACCRUEDLIABILITIES**

Accrued liabilities consisted of the following as of June 30, 2007 andDecember 31, 2006:

|                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Accrued in-house  progressive slot jackpots |       | $                 | 977,441    |                  | $          | 779,409 |   |
| Accrued payroll  and related benefits       |       | 2,205,753         |       | 2,005,731             |       |
| Accrued interest                            |       | 3,250,000         |       | 3,250,000             |       |
| Accrued credit  enhancement fees            |       | —            |       | 783,070               |       |
| Accrued other  expenses                     |       | 197,711           |       | 275,958               |       |
| Total accrued  liabilities                  |       | $                 | 6,630,905  |                  | $          | 7,094,168 |   |

 

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

Long-term debt consisted of the following as of June 30, 2007 andDecember 31, 2006:

|                                                                                                  | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                       | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| 9-3/4% Senior  Notes, net of unamortized issue discount of $1,461,413 and $1,630,039. Due  2011. |       | $                 | 198,538,587 |                  | $          | 198,369,961 |   |
| Vehicles Notes                                                                                   |       | 20,372            |        | 25,439                |       |
| Capital leases  obligations                                                                      |       | 416,041           |        | 747,288               |       |
| Total Long-Term  Debt                                                                            |       | 198,975,000       |        | 199,142,688           |       |
| Less: current  portion                                                                           |       | (369,561          | )           | (642,413              | )          |
| Total long-term debt -  net of current maturities                                                |       | $                 | 198,605,439 |                  | $          | 198,500,275 |   |

 

On November 7, 2003, the Authority issued the Notes.The proceeds were utilized to fund an expansion project, which included threeparking structures, related infrastructure improvements, repayment of variousdebt and advances and fund payment of various accruals and payables, as well asto increase cash on hand. The proceeds were also utilized to fund a landpurchase and settle litigation.  The Notes are collateralized by a firstpriority pledge of the Authority’s revenue and substantially all of theexisting and future tangible and intangible personal property. Before November1, 2007, the Authority may redeem the Notes, in whole or in part, at aredemption price equal to 100% of their principal amount plus a make-wholepremium and accrued and unpaid interest. On or after November 1, 2007, theAuthority may redeem the Notes, in whole or in part, at a redemption price thatis at a premium to the principal amount of the Notes (expressed as percentagesof principal amount), plus accrued and unpaid interest.

**10.****                      LEASES**

The Authorityleases a Sprung structure, which is accounted for as an operating lease. Suchlease expense was $108,690 and $108,690 for the three months ended June 30,2007 and 2006, respectively.  This leaseexpense was $217,380 and $237,910 for the six months ended June 30, 2007 and2006, respectively.  The Authority renewed the lease agreement onAugust 17, 2005 for $36,230 per month for twenty four months ending August 17,2007.

On October 1,2003, the Tribe entered into a five year operating lease agreement for officeand warehouse space to replace existing facilities.  Prior to the Tribetaking control over the Purchasing and Warehouse departments, the Authorityreimbursed the Tribe for lease fees allocated based on the square footageutilized.  Since May 2006, when the Tribe assumed responsibility for thePurchasing and Warehouse departments, the Authority no longer reimburses theTribe lease fees as a separate transaction.  The reimbursement is madethrough the reimbursement of Tribal department’s monthly allotment andquarterly reconciliations.  The Authorityreimbursed the Tribe for such lease fees in the amount of $0 and $128,718 forthe three months ended June 30, 2007 and 2006, respectively, and $0 and$256,681 for the six months ended June 30, 2007 and 2006, respectively.

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

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

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

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

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

Lease expenseswere $117,139 and $251,620 for the three months ended June 30, 2007 and 2006,respectively, and $259,856 and $499,186 for the six months ended June 30, 2007and 2006, respectively.  Lease expensesare included in general and administrative expenses in the accompanyingstatements of revenues, expenses and changes in fund deficit.  Expected remaining payments under operatingleases are $57,956, $42,623, $42,457, and $14,153 for the years ending December31, 2007, 2008, 2009, 

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and 2010, respectively.Expected remaining payments under capital leases are $56,490, $88,762 and$26,246 for the years ending December 31, 2007, 2008 and 2009, respectively.

**11.****                      LEGALMATTERS**

*Sonoma County Fire MarshalInspection Case*

     On October 7, 2002, the Sonoma County FireChief (the “County Fire Chief”) filed an ex parte application for an inspectionwarrant in the Superior Court of the State of California for the County ofSonoma, seeking to inspect the casino. The Tribe believes that there is nobasis for the County’s Fire Chief to assert jurisdiction over the Tribe’slands, which are governed by tribal and federal law and the Compact. On October9, 2002, the Tribe removed the case to the United States District Court for theNorthern District of California. The County Fire Chief moved to remand, whichsuch motion was denied by the court and subsequently moved for summaryjudgment. The Tribe moved to dismiss under Federal Rules of Civil procedure12(b)(6) and 12(b)(7). On December 9, 2004, the Court issued an order grantingin part and denying in part the Tribe’s 12(b)(6) motion and denying the CountyFire Chief’s summary judgment motion. The order reaffirmed the Court’s priorruling denying the remand of that Public Law 280 does not authorize the CountyFire Chief to inspect the casino. On March 1, 2005, the Court issued an ordergranting in part and denying in part the Tribe’s 12(b)(7) motion. On March 4,2005, the Tribe moved for summary judgment, and on April 29, 2005, the Courtgranted the Tribe’s motion and entered judgment for the Tribe and against theCounty Fire Chief and ordered the file closed. The County Fire Chief filed a Notice of Appeal on May 26, 2005, at theNinth Circuit Court of Appeals.

     On April 5, 2007, the Ninth Circuit Courtof Appeals affirmed the district court in an unpublished opinion, ruling forthe Tribe on all issues. On May 29, 2007, the Ninth Circuit denied the CountyFire Chief’s petition for rehearing or rehearing en banc.  The County Fire Chief has throughapproximately August 29, 2007 within which to file a petition for certiorariwith the United States Supreme Court, but has not as of this date indicatedwhether or not he intends to do so.

*California Department ofAlcoholic Beverage Control*

     In September 2004, the Department ofAlcoholic Beverage Control (“ABC”) denied the Tribe’s application for a liquorlicense based on a building code interpretation by a state officer who waslater determined to lack jurisdiction to make a code determination, and did sowithout consulting the Tribe’s building code official having jurisdiction. TheTribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which the ABC did as of October 2005, pending a hearing on the protests. TheABC has received approximately 65 protests to issuance of the license fromvarious citizens and local government officials. The ABC had scheduled ahearing on those protests in May 2007, which was continued by stipulation of theparties to August 2007, because the Tribe and various protestants are engagedin settlement discussions with respect to certain protest issues. The Tribeintends to vigorously defend its application and believes the protests arewithout merit.

     We are involved in other litigation anddisputes from time to time in the ordinary course of business with vendors andpatrons. The Authority believes that the aggregate liability, if any, arisingfrom such litigation or disputes will not have a material adverse effect on itsresults of operations, financial condition or cash flows.

**12.****                      COMPACTREVENUE SHARING TRUST FUND**

The Compactrequires the Authority to pay a quarterly fee to the State of California’srevenue sharing trust fund, based on the number of licensed gaming devicesoperated by the Tribe. Revenue sharing trust fund fees assessed were $333,750for the three months ended June 30, 2007 and 2006, respectively, and $667,500for the six months ended June 30, 2007 and 2006, respectively.

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

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

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS.**

     Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with the accompanying financialstatements and related notes included in Item 1 of this report.

**Overview**

          Weare an unincorporated governmental instrumentality of the Tribe that owns andoperates the River Rock Casino.  We offerClass III slot and video 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 non-alcoholic beverageofferings and goods for sale in our gift shop.

**CriticalAccounting Policies and Estimates**

We have identifiedcertain critical accounting policies and estimates that affect our moresignificant judgments and estimates used in the preparation of our financialstatements. The preparation of our financial statements, in conformity withaccounting principles generally accepted in the United States of America,requires that we make estimates and judgments that affect the reported amountsof assets and liabilities, revenues and expenses, and related disclosures ofcontingent assets and liabilities. On an on-going basis, we evaluate those estimates,including those related to asset impairment, accruals for our promotional slotclub, compensation and related benefits, revenue recognition, 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 with industrypractice, casino revenue is recognized as the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots.

·  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 theImpairment or Disposal of Long-Lived Assets. When events or circumstances indicate that an asset should be reviewedfor impairment, we compare the undiscounted cash flow derived from the asset orasset group to the net carrying value. If an impairment is indicated, theimpairment loss is measured by the amount in which the carrying value of theasset or asset group exceeds its fair value. Fair value is measured bycomparable 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.

·  Contingencies — We assess our exposure to losscontingencies, including legal matters, and provide for an exposure if it isjudged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of June 30, 2007, we have determined that no accruals for claimsand legal actions are required. If circumstances surrounding claims and legalactions change, the addition of accruals for such items in future periods maybe required, which accruals may be material.

AccountingStandards — There are differences between financial statements prepared inaccordance with Governmental Accounting Standards Board (“GASB”) pronouncementsand those prepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statements of revenues, expenses and changes in funddeficit are a combined statement under GASB pronouncements. FASB pronouncementsallow a statement of income or operations and a statement of owners’ orshareholders’ (deficit) equity, which is where distributions to owners would bepresented under FASB pronouncements. The amount shown on our statements ofrevenues, expenses and changes in fund deficit as income before distributionsto the Tribe, would not be different if we followed all FASB pronouncements todetermine net income, and would be the most comparable amount to net incomecomputed under FASB pronouncements. We are an unincorporated instrumentalitycreated by tribal law and accounted for as a separate fund of the Tribe.  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.

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**Resultsof Operations**

**Comparisonof the three months ended June 30, 2007 and 2006**

     *Net revenues.*   Netrevenues for the three months ended June 30, 2007 increased by $3.8 million to$34.8 million, from $31.0 million, for the three months ended June 30,2006. Our net revenues for the three months ended June 30, 2007 werepositively impacted by the return of normal access to the casino following thereopening of the Highway 128 Bridge in Geyserville which was closed for thefirst 8 months of 2006 due to flood damage. We also saw positive impacts to the volume and length of play fromupgrades to our slot machine mix. Approximately 95.7% of our net revenues, netof promotional allowances, were from our gaming activities in the secondquarter 2007. We generated $29.6 million, or 85.1% of our net revenues, fromgaming devices, net of respective promotional allowances of $2.7 million, and$3.8 million, or 10.9% of our net revenues, from table games, net ofpromotional allowance of $0.1 million, for the three months ended June 30,2007, compared to $26.4 million from gaming devices, or 85.2% of our netrevenues, net of respective promotional allowances of $2.4 million, and $3.5million from table games, net of respective promotional allowances of $51,000,or 11.3% of our net revenues, for the three months ended June 30, 2006. Our winper slot machine per day was $206 in the second quarter 2007, which increasedby $21 from $185, in the second quarter 2006.  The change in win per slotmachine per day has increased due to the removal of 30 slot machines from thefloor as well as changes to our slot machine mix.

     Wegenerated $1.2 million, net of promotional allowance of $0.6 million, in food,beverage and retail sales for the three months ended June 30, 2007, and $1.1million, net of promotional allowances of $0.4 million, in food, beverage andretail sales for the three months ended June 30, 2006.  The retail valueof our food and beverage provided to customers without charge is included ingross revenues and then deducted as promotional allowances.

     *Promotionalallowances.*   Promotional allowances for the three months endedJune 30, 2007 were $3.4 million, or 9.8% of net revenues, compared to $2.9million, or 9.4% of net revenues, for the second quarter 2006. The increase inpromotional allowances is mainly attributable to the expanded use of e-couponson our slot floor from bus patrons.  E-coupons cannot be cashed out andrequires the patron to use their Players Club card.

     *Operatingexpenses.*   Operating expenses for the three months ended June30, 2007 were $21.6 million, or 62.2% of net revenues, compared to $21.8million, or 70.3% of net revenues, for the second quarter 2006. The decrease inoperating expenses is primarily due to no longer having an obligation to paythe credit enhancement fee. Total operating expenses decreased from thesechanges by $0.2 million for the three months ended June 30, 2007 and havedecreased by 8.1% as a percentage of net revenues.

     Casinoexpense includes costs associated with our gaming operations and the allocationof food and beverage expense related to the cost of complimentary activities.Casino expense for the three months ended June 30, 2007 and 2006 remainedconstant at $5.0 million. Casino expense as a percentage of Casino revenues,net of promotional allowances, decreased by 1.6% from 16.3%, to 14.7% for thethree months ended June 30, 2007, due to costs remaining constant whilerevenues have increased.

     Food,beverage and retail expense for the three months ended June 30, 2007 was $1.4million, of food, beverage and retail revenue, net of promotional allowances,compared to $1.5 million of food, beverage and retail revenue, net ofpromotional allowances for the second quarter 2006. Our food, beverage andretail expense ratio is significantly higher than the industry average becausewe have utilized these amenities as an opportunity to build customer loyaltyrather than as a source of income.  Food,beverage and retail expenses as percentage of food, beverage and retailrevenues, net of promotional allowances, for the three months ended June 30,2007, has decreased by 27.7% from 146.5%, to 118.8% due to the $0.6 millionincrease in gross revenues and a $0.1 million increase in promotional allowances.

     Selling,general and administrative expense for the three months ended June 30, 2007 increasedby $1.5 million to $11.1 million, or 31.9% of net revenues, from $9.6 million,or 30.9% of net revenues, for the second quarter 2006. The increase in selling,general and administrative expense is attributable to an increase inadvertising costs associated with the expansion of our marketing and advertisinginitiatives.

     Depreciationexpense for three months ended June 30, 2007 and 2006 was $3.0 million and $2.9million, respectively.  Depreciationexpense was computed using the straight-line method over the useful life ofproperty, plant and equipment.

     Wehave been paying the credit enhancement fee since June 2003. The creditenhancement fee was $0 for three months ended June 30, 2007, compared to $1.9million, or 6.1% of net revenues, for the second quarter of 2006.  The decrease is due to the termination of theDevelopment Agreement with Dry Creek Casino, LLC (“DCC”) by exercising thebuy-out option on January31, 2007.  On March 2, 2007, we signed anagreement with DCC to fix the amounts due DCC in respect of such exercise tothe sum of $11.4 million less the amount paid after we exercised the buy-outoption of $0.7 million. The net payment of $10.6 million was made in March 2007and expensed in full in the first quarter of 2007.

     GamingCommission and surveillance expense for the three months ended June 30, 2007and 2006 was $0.8 million and $0.7 

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million, respectively.

The Compactrequires us to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by the Tribe.Revenue sharing trust fund fees assessed were $333,750 for the three monthsended June 30, 2007 and 2006, respectively.

     *Income from operations.*   Income fromoperations for the three months ended June 30, 2007 was $13.1 million, or 37.8%of net revenues, compared to $9.2 million, or 29.7% of net revenues, for thesecond quarter of 2006.  The increase in income from operations isattributable to increased gaming and concession revenues as well as thereduction of quarterly expenses attributable to the credit enhancement feebuy-out.

     *Other expense, net.  *Other expense,net for the three months ended June 30, 2007 decreased to $4.9 million, or 14.1%of net revenues, from $5.0 million, or 16.1% of net revenues, for the secondquarter of 2006.  Other expense, net included $5.2 million of interestexpense for the three months ended June 30, 2007, compared to $5.2 million ofinterest expense for the second quarter of 2006.  No interest costs were capitalized in 2007 or2006.

     *Income (Loss) before distributions to the Tribe*.   Incomebefore distributions to the Tribe for the three months ended June 30, 2007increased by $4.1 million to $8.3 million, or 23.8% of net revenues, from $4.2million, or 13.5% of net revenues, in the second quarter of 2006.

     *Distributions to the Tribe*.   Distributionsto the Tribe for the three months ended June 30, 2007 increased by $0.1 millionto $3.1 million, compared to $3.0 million, for the three months ended June 30,2006.

**Comparisonof the six months ended June 30, 2007 and 2006**

*Netrevenues*.   Net revenues for the six months ended June30, 2007 increased by $6.2 million to $68.9 million, from $62.7 million, forthe six months ended June 30, 2006.  Ournet revenues for the six months ended June 30, 2007 were positively impacted bythe Highway 128 Bridge reopening in Geyserville which was closed for the first8 months of 2006 due to flood damage.  Wealso saw positive impacts to slot revenues from increased volume and length ofplay from our slot machine mix upgrade.  Approximately 95.9% of our net revenues, net of promotional allowances,were from our gaming activities in the first six months of 2007. We generated$58.8 million, or 85.3% of our net revenues, from gaming devices, net ofrespective promotional allowances of $5.3 million, and $7.4 million, or 10.7%of our net revenues, from table games, net of promotional allowance of $0.1million, for the six months ended June 30, 2007, compared to $53.2 million fromgaming devices, or 84.8% of our net revenues, net of respective promotionalallowances of $4.4 million, and $7.2 million from table games, net ofrespective promotional allowances of $0.1 million, or 11.5% of our netrevenues, for the six months ended June 30, 2006. Our win per slot machine perday was $207 in the first six months of 2007, which increased by $20 from $187,in the first six months of 2006.  The increase in win per slot machine perday is attributed to the removal of 30 slot machines from the floor as well aschanges to our slot machine mix.

     Wegenerated $2.3 million, net of promotional allowance of $1.2 million, for thesix months ended June 30, 2007, and $2.0 million, net of promotional allowancesof $1.0 million, in food, beverage and retail sales for the six months endedJune 30, 2006.  The retail value of our food and beverage provided tocustomers without charge is included in gross revenues and then deducted aspromotional allowances.

*     Promotionalallowances*.   Promotional allowances for the six monthsended June 30, 2007 were $6.6 million, or 9.6% of net revenues, compared to$5.5 million, or 8.8% of net revenues, for the first six months of 2006. Theincrease in promotional allowances is attributable to the expanded use ofe-coupons.  E-coupons cannot be cashed out and requires the patron to usetheir Players Club card.

     *Operating expenses*.   Operatingexpenses for the six months ended June 30, 2007 were $53.4 million, or 77.5% ofnet revenues, compared to $45.3 million, or 72.2% of net revenues, for thefirst six months of 2006. The increase in operating expenses is attributable tothe credit enhancement fee buy-out as described in footnote 5 of the unauditedcondensed financial statements.

     Casinoexpense includes costs associated with our gaming operations and the allocationof food and beverage expense related to the cost of complimentary activities.Casino expense for six months ended June 30, 2007 increased to $10.2 million,or 15.4% of Casino revenues, net of promotional allowances, from $10.0 million,or 16.6% of Casino revenues, net of promotional allowances, for the first sixmonths of 2006. The increase in Casino expense is a result of the costsassociated to update the slot floor and the increase in costs associated withcomplimentary beverage services.

     Food,beverage and retail expense for the six months ended June 30, 2007 was $2.9million, or 122.1% of food, beverage and retail revenue, net of promotionalallowances, compared to $3.0 million, or 147.3% of food, beverage and retailrevenue, net of promotional allowances for the first six months of 2006. 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 percentages of expenses to net revenueshas decreased by 25.2%, due to increased revenues while maintaining promotionaland operational costs.

 

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     Selling,general and administrative expense for the six months ended June 30, 2007 was$21.0 million, or 30.5% of net revenues, and $21.0 million, or 33.5% of netrevenues, for the first six months of 2006.

     Depreciation expense for the six monthsended June 30, 2007 and 2006 was $5.9 million and $5.7 million,respectively.  Depreciation expense wascomputed using the straight-line method over the useful life of property, plantand equipment.

     Wehave been paying the credit enhancement fee since June 2003. The creditenhancement fee was $11.3 million, or 16.4% of net revenues, for the six monthsended June 30, 2007, compared to $3.5 million, or 5.6% of net revenues, for thefirst six months of 2006.  The increaseis due to the termination of the Development Agreement with Dry Creek Casino,LLC (“DCC”) by exercising the buy-out option on January 31, 2007.  On Mach 2, 2007, we signed an agreement withDCC to fix the amounts due DCC in respect of such exercise to the sum of $11.4million less the amount paid after we exercised the buy-out option of $0.7million. The net payment of $10.6 million was made in March 2007 and expensedin full in the first quarter of 2007.

     GamingCommission and surveillance expense for six months ended June 30, 2007 and 2006was $1.5 million and $1.4 million, respectively.

The Compactrequires us to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $0.7 million for the sixmonths ended June 30, 2007 and 2006, respectively.

     *Income from operations.*   Income fromoperations for six months ended June 30, 2007 was $15.5 million, or 22.5% ofnet revenues, compared to $17.4 million, or 27.8% of net revenues, for thefirst six months of 2006.  The decrease in income from operations isattributable to the credit enhancement fee buy-out.

     *Other expense, net.* Other expense, net forthe six months ended June 30, 2007 decreased to $9.7 million, or 14.1% of netrevenues, from $10.1 million, or 16.1% of net revenues, for the first sixmonths of 2006.  Other expense, net included $0.7 million of interestincome for the six months ended June 30, 2007, compared to $0.4 million ofinterest income, for the first six months of 2006.  No interest costs were capitalized in 2007 or2006.

     *Income before distributions to the Tribe*.Income before distributions to the Tribe for the six months ended June 30, 2007decreased by $1.5 million to $5.8 million, or 8.4% of net revenues, from $7.3million, or 11.6% of net revenues, in the first six months of 2006.  The net loss before distributions to theTribe is a direct result of the credit enhancement fee buy-out that resulted inan expense of $10.6 million that has been recognized in the six months endedJune 30, 2007.

     *Distributions to the Tribe*. Distributionsto the Tribe for the six months ended June 30, 2007 increased by $0.1 millionto $6.2 million, compared to $6.1 million, for the six months ended June 30,2006.

**Liquidityand Capital Resources**

     Sinceour inception, we have funded our capital expenditures and working capitalrequirements primarily through debt financing, gaming equipment supplierfinancing, other financing and operating cash flow.

    Construction of our Casino andinfrastructure improvements commenced on April 1, 2002. The first portion ofour gaming facility was completed in September 2002. As of June 30, 2007, wehad spent approximately $158.2 million on the planning, development andconstruction of our gaming facility, infrastructure and furniture, fixtures andequipment, excluding the expansion project. We financed the development withborrowings and development advances.

     As of June 30, 2007, we spent $0.8million on the development of an approximately 18-acre parcel of land adjacentto the Tribe’s reservation (referred to as the “Dugan Property”) which isexpected to include an additional access road to our Casino. We have $4.5million remaining in a restricted account funded from the proceeds of our NotesOffering for the development of the Dugan Property.

     Ourcapital expenditures for the six months ended June 30, 2007 and 2006 were $2.0million and $2.9 million, respectively. The decrease in 2007 compared to 2006is attributable to our capital expenditures in 2006 which consisted of a seriesof minor infrastructure improvements that we did not have in the first sixmonths of 2007.

     Asof June 30, 2007, we had cash and cash equivalents, net of restricted cash of$36.6 million, as compared to $32.5 million, as of December 31, 2006. As ofJune 30, 2007, we had restricted cash of $7.3 million, as compared to $7.2million, as of December 31, 2006. Our principal source of liquidity during thesix months ended June 30, 2007 consisted of cash flow from operatingactivities. Net cash provided by operating activities for the six months endedJune 30, 2007 was $33.4 million, an increase of $7.5 million, from $25.9million in 2006. The increase in our net cash provided by operations is aresult of increased cash received from gaming winnings and concessions combinedwith decreased amounts paid to suppliers in 2007.

     Restrictedcash consists of net proceeds from the Notes Offering and investment earningsthereon set aside in construction financing accounts for construction costs forthe three parking structures, related infrastructure improvements andconstruction 

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contingencies. It alsoincludes funds that are reserved for additional construction contingencies andthe funds for the development of the Dugan Property. Our restricted cash isheld in escrow accounts that can only be used for authorized constructiondisbursements until the related projects are completed.

     Netcash used for capital and related financing activities for the six months endedJune 30, 2007 was $24.0 million, compared to $15.9 million, for the six monthsended June 30, 2006. The increase in cash flow used in capital and relatedfinancing activities was primarily for payment of the buy-out settlement of thecredit enhancement fee and interest payments.

     Cash flow from investing activities forthe six months ended June 30, 2007 increased by $0.3 million to $0.7 million,from $0.4 million, for the six months ended June 30, 2006.

     Cash flow used in non-capital financingactivities for the six months ended June 30, 2007 was $6.2 million, an increaseof $0.1 million, from $6.1 million, for the six months ended June 30,2006.  Cash flow used in non-capital financing activities consisted ofdistributions to the Tribe.  The increase is due to a permitted increasein distributions pursuant to the terms of our Indenture for the Notes. Since April 1, 2007, our monthly payments to the Tribe have been in the amountof $1.04 million.

     We believe that existing cash balances,cash from operations, as well as permitted disbursements from our restrictedcash escrow accounts will provide adequate funds for our working capital needsand debt service requirements for the foreseeable future.  Funding for planned capital expenditures andexpansions will come from additional third party financing.  However, our ability to fund our operations,make planned operational capital expenditures, make scheduled debt payments andrefinance our indebtedness depends on our future operating performance and cashflow, which, in turn, are subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control.Additionally, the Indenture limits our ability to incur additionalindebtedness.

      On June 28, 2007, we and the Tribeannounced plans to build a destination resort as more fully described in thepress release (Form 8-K) furnished on June 28, 2007.  The proposed project includes theconstruction of a casino, hotel and spa, several food and beverage venues,parking and storage, administrative facilities, a garden and terrace plaza,balconies and terraces, a retail area, conference facilities, and back of housefacilities. The proposed project includes three above-ground levels and a hoteltower (up to eight levels) and four below-ground levels.  We do not currently have adequate liquidityor cash flow to finance the project as proposed.  We will consider various sources of liquidityin the near future to finance the first phase of the proposed project.

**ContractualObligations as of June 30, 2007**

     Thefollowing table summarizes our contractual obligations and commitments as ofJune 30, 2007:

|                                 | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-–3 years** | ** ** | **3–5 years** | ** ** |
|---------------------------------|------------|-----------|-------------|-----------------|------------|--------------------------|------------|-------------------------|------------|
| Long-term debt  obligations (a) |       | $         | 200,264,915 |            | $          | 254,675                  |       | $                       | 10,240     |   | $ | 200,000,000 |   |
| Operating lease  obligations    |       | 157,188   |        | 79,351          |       | 77,837                   |       | —                  |       |
| Capital lease  obligations      |       | 171,499   |        | 114,886         |       | 56,613                   |       | —                  |       |
|                            |       |      |        |            |       |                     |       |                    |       |
| Total  obligations (b)          |       | $         | 200,593,602 |            | $          | 448,912                  |       | $                       | 144,690    |   | $ | 200,000,000 |   |

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

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

**Regulationand Taxes**

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

     In September 2004, the Department ofAlcoholic Beverage Control (“ABC”) denied the Tribe’s application for a liquorlicense based on a building code interpretation by a state officer who waslater determined to lack jurisdiction to make a code determination, and did sowithout consulting the Tribe’s building code official having jurisdiction. TheTribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which the ABC did as of October 2005, pending a hearing on the protests. TheABC has received approximately 65 protests to issuance of the license fromvarious citizens and local government officials. The ABC had scheduled ahearing on those protests in May 2007, which was recently continued bystipulation of the parties to August 2007, because the Tribe and variousprotestants are engaged in settlement discussions with respect to certainprotest issues. The Tribe intends to vigorously defend its application andbelieves the protests are 

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without merit.

      Since we are an unincorporatedgovernmental instrumentality of the Tribe located on reservation land held intrust by the United States of America, we are not subject to federal or stateincome taxes. Various efforts have been made in Congress over the past severalyears to enact legislation that would subject the income of tribal governmentalbusiness entities, such as us, to federal income tax. Although no suchlegislation has been enacted, similar legislation could be passed in thefuture. It is not possible to determine with certainty the likelihood ofpossible changes in tax law or in the administration of such law. Such changes,if adopted, could have a material adverse effect on our operating results andcash flow from operations.

**Impactof Inflation**

     Absentchanges in competitive and economic conditions or in specific prices affectingthe casino industry, we do not expect that inflation will have a significantimpact on our gaming facility operations. Changes in specific prices, such asfuel and transportation prices, relative to the general rate of inflation may havea material adverse effect on the casino industry in general.

**Seasonality**

     We anticipate that activity at our gamingfacility may be modestly seasonal with stronger results expected during thesummer due in part to the relatively higher levels of tourism during such timesof the year. In addition, our operations may be impacted by adverse weatherconditions and fluctuations in the tourism business. Accordingly, our resultsmay fluctuate from quarter to quarter and the results of one quarter may not beindicative of results expected from future quarters.

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

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

     Through June 30, 2007, we had not investedin derivative or foreign currency-based financial instruments. Additionally, we primarily have invested in short-term, fixed rate debt. As such, we do not believe we have material exposure to market risk.

**ITEM4.  CONTROLS AND PROCEDURES**

**Evaluationof Disclosure Controls and Procedures**

     We maintain disclosure controls andprocedures that are designed to ensure that the information required to bedisclosed in our reports filed with, or furnished to the SEC, pursuant to theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized and reported within the time periods specified in the SEC’srules, regulations and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer, ChiefFinancial Officer, Chief Operations Officer and Assistant Financial Controller,as appropriate, to allow timely decisions regarding required disclosure basedon the definition of “disclosure controls and procedures” in Rule 13a-15(e) and15d-15(e) of the Exchange Act.  Ourdisclosure controls and procedures are designed to provide reasonableassurances of achieving its objectives.

     Our Chief Executive Officer, ChiefFinancial Officer, and our Assistant Financial Controller have reviewed andevaluated the effectiveness of our disclosure controls and procedures (asdefined in Exchange Act Rules 240.13a -15(e) and 15d — 15(e)) as of June 30,2007. Based on that evaluation they have concluded that our disclosure controlsand procedures as of the end of the period covered by this report are effectivein reaching that level of reasonable assurance.

**Changesto Internal Controls Over Financial Reporting**

**    **There were no changes inthe quarter ended June 30, 2007.  Webelieve that we have implemented controls and procedures to correct thepractices that led to certain restatements of our prior financial statements.

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**PARTII.              OTHER INFORMATION**

** **

**ITEM1.                LEGAL PROCEEDINGS**

* *

*Sonoma County Fire MarshalInspection Case*

     On October 7, 2002, the Sonoma County FireChief (the “County Fire Chief”) filed an ex parte application for an inspectionwarrant in the Superior Court of the State of California for the County ofSonoma, seeking to inspect the casino. The Tribe believes that there is nobasis for the County’s Fire Chief to assert jurisdiction over the Tribe’slands, which are governed by tribal and federal law and the Compact. On October9, 2002, the Tribe removed the case to the United States District Court for theNorthern District of California. The County Fire Chief moved to remand, whichsuch motion was denied by the court and subsequently moved for summaryjudgment. The Tribe moved to dismiss under Federal Rules of Civil procedure12(b)(6) and 12(b)(7). On December 9, 2004, the Court issued an order grantingin part and denying in part the Tribe’s 12(b)(6) motion and denying the CountyFire Chief’s summary judgment motion. The order reaffirmed the Court’s priorruling denying the remand of that Public Law 280 does not authorize the CountyFire Chief to inspect the casino. On March 1, 2005, the Court issued an ordergranting in part and denying in part the Tribe’s 12(b)(7) motion. On March 4,2005, the Tribe moved for summary judgment, and on April 29, 2005, the Courtgranted the Tribe’s motion and entered judgement for the Tribe and against theCounty Fire Chief and ordered the file closed. The County Fire Chief filed a Notice of Appeal on May 26, 2005, at theNinth Circuit Court of Appeals.

     On April 5, 2007, the Ninth Circuit Courtof Appeals affirmed the district court in an unpublished opinion, ruling forthe Tribe on all issues. On May 29, 2007, the Ninth Circuit denied the CountyFire Chief’s petition for rehearing or rehearing en banc.  The County Fire Chief has throughapproximately August 29, 2007 within which to file a petition for certiorariwith the United States Supreme Court, but has not as of this date indicatedwhether or not he intends to do so.

*California Department ofAlcoholic Beverage Control*

     In September 2004, the Department ofAlcoholic Beverage Control (“ABC”) denied the Tribe’s application for a liquorlicense based on a building code interpretation by a state officer who waslater determined to lack jurisdiction to make a code determination, and did sowithout consulting the Tribe’s building code official having jurisdiction. TheTribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which the ABC did as of October 2005, pending a hearing on the protests. TheABC has received approximately 65 protests to issuance of the license fromvarious citizens and local government officials. The ABC had scheduled ahearing on those protests in May 2007, which was continued by stipulation ofthe parties to August 2007, because the Tribe and various protestants areengaged in settlement discussions with respect to certain protest issues. The Tribeintends to vigorously defend its application and believes the protests arewithout merit.

     We are involved in other litigation anddisputes from time to time in the ordinary course of business with vendors andpatrons. The Authority believes that the aggregate liability, if any, arisingfrom such litigation or disputes will not have a material adverse effect on itsresults of operations, financial condition or cash flows.

**ITEM1A.               RISK FACTORS**

There have been nomaterial changes from the risk factors previously disclosed in our Form 10-K.

**ITEM6.  EXHIBITS**

(a)                          Exhibits

The Exhibit Index filed herewith is incorporated herein by reference.

(b)                         Reportson Form 8-K

None

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**SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
| Dated: August 14, 2007 |   | RIVER ROCK ENTERTAINMENT AUTHORITY |
|------------------------|--------|------------------------------------|
|                   |   | (Registrant)                       |
|                   |   |                               |   |   |
|                   |   | By:                                |   | /s/ Shawn S.  Smyth |
|                   |   |                               |   | Shawn S. Smyth, |
|                   |   |                               |   | Chief Executive  Officer |

 

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

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*                    Thiscertification is being furnished solely to accompany this quarterly reportpursuant to 18 U.S.C. Section 1350, and is not being filed for purposes ofSection 18 of the Securities Exchange Act of 1934 and is not to be incorporatedby reference into any filing of River Rock Entertainment Authority whether madebefore or after the date hereof, regardless of any general incorporationlanguage in such filing.

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