**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D. C.  20549**

 

**FORM 10-Q**

 

**(MarkOne)**

**x****  QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934.**

 

**Forthe quarterly period ended March 31, 2008**

 

**OR**

 

**o****  TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934.**

 

**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.) |

 

**3250Highway 128 East**

**Geyserville,California 95441**

**(707) 857-2777**

(Address,including zip code, and telephone number,

including area code, of registrant’s principalexecutive offices)

 

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

Yes    x    No    o

 

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

 

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

 

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

Yes    o    No    x

 

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEXTO FORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                          | ** ** | **Page** |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|----------|
|               |       |                                                                                                                     |       |     |
|               | ** ** | **PART I  – FINANCIAL INFORMATION**                                                                            | ** ** | 4        |
|               |       |                                                                                                                     |       |     |
| 1.                 |       | Condensed  Financial Statements (unaudited)                                                                              |       | 4        |
|               |       | Condensed Balance Sheets-  March 31, 2008 and December 31, 2007                                                |       | 4        |
|               |       | Condensed  Statements of Revenues, Expenses and Changes in Fund Deficit-Three-Months  ended March 31, 2008 and 2007 |       | 5        |
|               |       | Condensed  Statements of Cash Flows- Three-Months ended March 31, 2008 and 2007                                     |       | 6        |
|               |       | Notes to unaudited  Condensed Financial Statements                                                                       |       | 8        |
| 2.                 |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              |       | 16       |
| 3.                 |       | Quantitative  and Qualitative Disclosures About Market Risk                                                              |       | 21       |
| 4.                 |       | Controls and  Procedures                                                                                                 |       | 21       |
|               |       |                                                                                                                     |       |     |
|               | ** ** | **PART II  – OTHER INFORMATION**                                                                               | ** ** | 22       |
|               |       |                                                                                                                     |       |     |
| 1.                 |       | Legal Proceedings                                                                                                        |       | 22       |
| 1A.                |       | Risk Factors                                                                                                             |       | 23       |
| 5.                 |       | Other Information                                                                                                        |       |     |
| 6.                 |       | Exhibits and Reports on  Form 8-K                                                                                   |       | 23       |
|               |       |                                                                                                                     |       |     |
| Signatures         |       | 24                                                                                                                       |
|               |       |                                                                                                                     |       |     |
| Exhibit Index |       | 25                                                                                                                       |

 

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 incorporatedherein by reference) may be considered forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the 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-looking statements,whether as a result of new information, future events, or otherwise. Alldiscussion in this report should be read in conjunction with our financialstatements and the accompanying notes contained in this report.*

 

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

 

*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.FINANCIAL INFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS (UNAUDITED)**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                                      | ** ** | **March 31, 2008** | ** **  | **December 31, 2007** | ** ** |
|-------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **                   | ** **  | ** **                      | ** ** |
|                                            |       |                         |        |                            |       |
| CURRENT ASSETS:                                 |       |                         |        |                            |       |
| Cash and cash  equivalents                      |       | $                            | 55,971,576  |                            | $          | 46,533,389 |   |
| Restricted cash-current                         |       | 466,517                      |        | 466,517                         |       |
| Accounts receivable                             |       | 314,501                      |        | 307,386                         |       |
| Inventories                                     |       | 151,715                      |        | 153,215                         |       |
| Prepaid expenses and  other current assets      |       | 1,501,443                    |        | 1,427,891                       |       |
| Total current  assets                           |       | 58,405,752                   |        | 48,888,398                      |       |
| RESTRICTED CASH  - net of current               |       | 6,885,318                    |        | 6,868,956                       |       |
|                                            |       |                         |        |                            |       |
| PROPERTY AND  EQUIPMENT:                        |       |                         |        |                            |       |
| Buildings and building  improvements            |       | 129,932,871                  |        | 129,642,521                     |       |
| Furniture, fixtures and  equipment              |       | 30,647,094                   |        | 29,969,430                      |       |
|                                            |       |                         |        |                            |       |
| Accumulated  depreciation                       |       | (47,400,521                  | )           | (44,460,665                     | )          |
| Construction in  progress                       |       | 9,277,180                    |        | 9,256,830                       |       |
| Property and  equipment-net                     |       | 122,456,624                  |        | 124,408,116                     |       |
| DEPOSITS AND  OTHER ASSETS                      |       | 4,241,076                    |        | 4,339,002                       |       |
|                                            |       |                         |        |                            |       |
| TOTAL ASSETS                                    |       | $                            | 191,988,770 |                            | $          | 184,504,472 |   |
|                                            |       |                         |        |                            |       |
| **LIABILITIES  AND FUND DEFICIT**               |       |                         |        |                            |       |
|                                            |       |                         |        |                            |       |
| CURRENT  LIABILITIES:                           |       |                         |        |                            |       |
| Accounts payable:                               |       |                         |        |                            |       |
| Trade                                           |       | $                            | 2,788,986   |                            | $          | 3,563,243 |   |
| Construction                                    |       | 466,517                      |        | 466,517                         |       |
| Accrued liabilities                             |       | 11,994,265                   |        | 7,566,821                       |       |
| Current maturities of  long-term debt           |       | 120,597                      |        | 213,172                         |       |
| Total current  liabilities                      |       | 15,370,365                   |        | 11,809,753                      |       |
| LONG-TERM DEBT -  net of current maturities     |       | 198,815,603                  |        | 198,747,638                     |       |
| Total long-term  liabilities                    |       | 198,815,603                  |        | 198,747,638                     |       |
| COMMITMENTS AND  CONTINGENCIES                  |       |                         |        |                            |       |
| FUND DEFICIT:                                   |       |                         |        |                            |       |
| Invested in  capital assets-net of related debt |       | (76,479,576                  | )           | (74,552,694                     | )          |
| Restricted for  capital projects                |       | 7,351,835                    |        | 7,335,473                       |       |
| Unrestricted                                    |       | 46,930,543                   |        | 41,164,302                      |       |
|                                            |       |                         |        |                            |       |
| Total fund  deficit                             |       | (22,197,198                  | )           | (26,052,919                     | )          |
|                                            |       |                         |        |                            |       |
| TOTAL  LIABILITIES AND FUND DEFICIT             |       | $                            | 191,988,770 |                            | $          | 184,504,472 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN FUND DEFICIT**

**(Unaudited)**

** **
| ** **                                      | ** ** | **Three-Month**       | ** **  |
|-------------------------------------------------|------------|-----------------------|-------------|
| ** **                                      | ** ** | **Period Ended** | ** **  |
| ** **                                      | ** ** | **March 31,**    | ** **  |
| ** **                                      | ** ** | **2008**              | ** **  | **2007** | ** ** |
|                                            |       |                  |        |   |   |
| REVENUES:                                       |       |                  |        |   |   |
|                                            |       |                  |        |   |   |
| Casino                                          |       | $                     | 34,730,540  |   | $ | 35,459,655 |   |
| Food,  beverage & retail               |       | 1,899,438             |        | 1,715,042 |   |
| Other                                           |       | 148,552               |        | 159,759 |   |
|                                            |       |                  |        |   |   |
| Gross revenues                                  |       | 36,778,530            |        | 37,334,456 |   |
|                                            |       |                  |        |   |   |
| Promotional allowances                          |       | (3,606,322            | )           | (3,230,052 | ) |
|                                            |       |                  |        |   |   |
| Net revenues                                    |       | 33,172,208            |        | 34,104,404 |   |
|                                            |       |                  |        |   |   |
| OPERATING  EXPENSES:                            |       |                  |        |   |   |
| Casino                                          |       | 5,038,410             |        | 5,194,744 |   |
| Food,  beverage & retail               |       | 1,724,591             |        | 1,442,220 |   |
| Selling, general and  administrative            |       | 10,418,355            |        | 9,836,560 |   |
| Depreciation                                    |       | 2,939,856             |        | 2,928,076 |   |
| Credit enhancement fee                          |       | —                |        | 11,348,897 |   |
| Gaming commission and  surveillance expense     |       | 1,002,143             |        | 675,404 |   |
| Compact revenue sharing  trust fund             |       | 333,750               |        | 333,750 |   |
|                                            |       |                  |        |   |   |
| Total Operating  Expenses                       |       | 21,457,105            |        | 31,759,651 |   |
|                                            |       |                  |        |   |   |
| INCOME FROM  OPERATIONS                         |       | 11,715,103            |        | 2,344,753 |   |
|                                            |       |                  |        |   |   |
| OTHER  EXPENSE-Net                              |       |                  |        |   |   |
| Interest expense                                |       | (5,216,791            | )           | (5,218,434 | ) |
| Interest income                                 |       | 488,476               |        | 367,754 |   |
| Gain on sale of assets                          |       | —                |        | 4,547 |   |
| Other income (expense)  - net                   |       | (8,667                | )           | (559 | ) |
|                                            |       |                  |        |   |   |
| Other  expense-net                              |       | (4,736,982            | )           | (4,846,692 | ) |
|                                            |       |                  |        |   |   |
| INCOME (LOSS)  BEFORE DISTRIBUTIONS TO TRIBE    |       | 6,978,121             |        | (2,501,939 | ) |
|                                            |       |                  |        |   |   |
| DISTRIBUTIONS TO  TRIBE                         |       | (3,122,400            | )           | (3,060,000 | ) |
|                                            |       |                  |        |   |   |
| NET INCOME  (LOSS) AFTER DISTRIBUTIONS TO TRIBE |       | 3,855,721             |        | (5,561,939 | ) |
|                                            |       |                  |        |   |   |
| FUND  DEFICIT-Beginning of period               |       | (26,052,919           | )           | (34,335,892 | ) |
|                                            |       |                  |        |   |   |
| FUND DEFICIT-End  of period                     |       | $                     | (22,197,198 | ) | $ | (39,897,831 | ) |

 

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

 

5

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
| ** **                                                 | ** ** | **Three-Month**       | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **Period Ended** | ** ** |
| ** **                                                 | ** ** | **March 31,**    | ** ** |
| ** **                                                 | ** ** | **2008**              | ** ** | **2007** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                     |       |                  |       |   |   |
| Cash received from  gaming winnings and concessions        |       | $                     | 33,165,093 |   | $ | 33,961,189 |   |
| Cash paid for salaries  and benefits                       |       | (7,882,528            | )          | (7,537,632 | ) |
| Cash paid to suppliers                                     |       | (11,603,503           | )          | (9,947,052 | ) |
| Cash paid for compact  revenue sharing trust fund          |       | (333,750              | )          | (333,750 | ) |
|                                                       |       |                  |       |   |   |
| Net cash provided  by operating activities                 |       | 13,345,312            |       | 16,142,755 |   |
|                                                       |       |                  |       |   |   |
| CASH FLOWS FROM  CAPITAL AND RELATED FINANCING ACTIVITIES: |       |                  |       |   |   |
| Payments of long-term  debt                                |       | (108,922              | )          | (295,509 | ) |
| Purchases of property  and equipment                       |       | (988,364              | )          | (696,633 | ) |
| Change in restricted  cash                                 |       | (16,362               | )          | (21,466 | ) |
| Interest paid                                              |       | (2,056                | )          | (3,697 | ) |
| Credit enhancement fee                                     |       | —                |       | (12,131,967 | ) |
| Proceeds from sale of  assets                              |       | —                |       | 33,445 |   |
| Other                                                      |       | (157,497              | )          | 292,593 |   |
|                                                       |       |                  |       |   |   |
| Net cash used in  capital and related financing activities |       | (1,273,201            | )          | (12,823,234 | ) |
|                                                       |       |                  |       |   |   |
| CASH FLOW FROM  INVESTING ACTIVITIES:                      |       |                  |       |   |   |
| Interest Income                                            |       | 488,476               |       | 367,754 |   |
|                                                       |       |                  |       |   |   |
| CASH FLOW FROM  NON-CAPITAL FINANCING ACTIVITIES:          |       |                  |       |   |   |
| Distributions to Tribe                                     |       | (3,122,400            | )          | (3,060,000 | ) |
|                                                       |       |                  |       |   |   |
| CHANGE IN CASH  AND CASH EQUIVALENTS                       |       | 9,438,187             |       | 627,275 |   |
|                                                       |       |                  |       |   |   |
| CASH AND CASH  EQUIVALENTS, Beginning of the period        |       | 46,533,389            |       | 32,549,001 |   |
|                                                       |       |                  |       |   |   |
| CASH AND CASH  EQUIVALENTS, End of the period              |       | $                     | 55,971,576 |   | $ | 33,176,276 |   |

 

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

 

6

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| Income (Loss)  before Distributions to Tribe                                             |   | $         | 6,978,121  |       | $      | (2,501,939 | )      |
|------------------------------------------------------------------------------------------|--------|-----------|------------|------------|--------|------------|--------|
|                                                                                     |   |      |       |       |   |
| Adjustments to  reconcile operating income to net cash provided by operating activities: |   |      |       |       |   |
| Depreciation                                                                             |   | 2,939,856 |       | 2,928,076  |   |
| Interest expense                                                                         |   | 5,216,791 |       | 5,218,434  |   |
| Interest income                                                                          |   | (488,476  | )          | (367,754   | )      |
| Credit  enhancement fee                                                                  |   | —    |       | 11,348,897 |   |
| Gain on sale of  assets                                                                  |   | —    |       | (4,547     | )      |
| Changes in  operating assets and liabilities:                                            |   |      |       |       |   |
| Accounts receivable                                                                      |   | (7,115    | )          | (143,215   | )      |
| Inventories                                                                              |   | 1,500     |       | 11,122     |   |
| Prepaid expenses and  other current assets                                               |   | (73,552   | )          | 9,919      |   |
| Accounts payable                                                                         |   | (774,257  | )          | (289,938   | )      |
| Accrued liabilities                                                                      |   | (447,556  | )          | (66,300    | )      |
| Total adjustments                                                                        |   | 6,367,191 |       | 18,644,694 |   |
|                                                                                     |   |      |       |       |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                               |   | $         | 13,345,312 |       | $      | 16,142,755 |   |

 

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

 

7

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

** **

**NOTES TO UNAUDITED FINANCIALSTATEMENTS**

 

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

 

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

 

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

 

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

 

The Casino has been fully operational since April 1,2003.

 

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

 

Accounting Standards—The Authority preparesits financial statements in accordance with accounting principles generallyaccepted in the United States of America (“generally accepted accountingprinciples”). The financial statements presented are prepared on the accrualbasis of accounting from the accounts and financial transactions of theAuthority. Generally accepted accounting principles require the Authority toapply all applicable pronouncements of the Governmental Accounting StandardsBoard (“GASB”). The Authority is also required to follow Financial AccountingStandards Board (“FASB”) Statements and Interpretations, Accounting Principles,Board Opinions and Accounting Research Bulletins issued on or before November 30,1989, unless those pronouncements conflict with or contradict GASBpronouncements.  The Authority is giventhe option whether to apply all FASB Statements and Interpretations issuedafter November 30, 1989, except for those that conflict with or contradictGASB pronouncements. Accordingly, the Authority has elected to implement nonconflicting FASB Statements and Interpretations issued after November 30,1989.

 

There are differences between financialstatements prepared in accordance with GASB pronouncements and those preparedin accordance with FASB pronouncements. The statements of revenues, expensesand changes in fund deficit is a combined statement under GASB pronouncements,FASB pronouncements allow a statement of income or operations and a separatestatement of owners’ or shareholders’ (deficit) equity, which is wheredistributions to owners would be presented under 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 comparablemeasure of owners’ (deficit) equity is presented on the Authority’s balancesheet as fund (deficit) equity.

 

The Authority adopted therequired provisions of SFAS No. 157, “*Fair Value Measurements*”(“SFAS No. 157”) on January 1, 2008. SFAS No. 157 clarifies theprinciple that fair value should be based on the assumptions marketparticipants would use when pricing an asset or liability and establishes afair value hierarchy that prioritizes the information used to develop thoseassumptions. There was no material impact to the condensed financial statementsupon the adoption of SFAS No. 157. See Note 7.

 

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

 

8

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The Authority adopted the provisions of SFAS No. 159,“*The Fair Value Option for Financial Assets andFinancial Liabilities* Including an amendment of FASB Statement No. 115”(“SFAS No. 159”) on January 1, 2008. SFAS No. 159 provides acompany with the option to measure selected financial instruments and certainother items at fair value at specified election dates. Upon adoption, theAuthority has not elected to apply SFAS No. 159 to measure selectedfinancial instruments and certain other items; therefore, there was no impactto the financial statements upon adoption of SFAS No. 159. Subsequent tothe initial adoption of SFAS No. 159 on January 1, 2008, theAuthority has not made any elections during the three months ended March 31,2008.

 

Use of Estimates—The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from these estimates.

 

Cash and Cash Equivalents—The Authorityconsiders all highly liquid investments with a maturity of three months or lessat date of purchase as cash equivalents. The carrying amount of cash and cashequivalents approximates its fair value. Cash and cash equivalents include cashon hand, cash on deposit with banks and highly liquid investments.  The Federal Deposit Insurance Corporation (“FDIC”)has insured $100,000 of the cash on deposit with the banks. The Authoritybelieves that there is little risk of loss regarding the uninsured amounts ofcash and cash equivalents on deposit with the banks.

 

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

 

*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 authorized constructiondisbursements. These escrow accounts are invested in CD’s, which generateinterest on a monthly basis. The FDIC has insured $100,000 of this balance. TheAuthority believes that there is little risk of loss regarding the uninsuredamounts of restricted cash held in the escrow account. Restricted cash was$7,351,835 and $7,335,473 at March 31, 2008 and December 31, 2007,respectively.  As of March 31, 2008, restricted cash includes amountsavailable for construction of $2,758,315 and land development funds of$4,593,520.

 

*Propertyand Equipment*—Property and equipment are stated at cost.Depreciation and amortization are computed using the straight-line method overthe estimated useful lives of the assets as follows:

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

 

The Authority evaluatesits property and equipment for impairment in accordance with the FASB’sStatement of Financial Accounting Standards (“SFAS”) No. 144, *Accounting**for the Impairment orDisposal of Long-Lived Assets*. When events or circumstances indicatethat an asset should be reviewed for impairment, the Authority compares theundiscounted cash flows derived from the asset or asset group to the netcarrying value. If impairment is indicated, the impairment loss is measured bythe amount in which the carrying value of the asset or asset group exceeds itsfair value. Fair value is measured by comparable sales, solicited offers ordiscounted cash flow models. We did not have any recorded impairments in thestatement of revenues expenses and change in fund deficit for the periodspresented.

 

*Depositsand Other Assets*—As of March 31, 2008 and December 31,2007, deposits and other assets include $4,013,897 and $4,269,321 inunamortized bond discount, legal fees and other issuance costs related to theissuance of the Notes; $95,000 and $41,883 of equipment deposits; $116,277 and$11,372 of performance deposits and $15,900 and $16,425 of rentaldeposits.  Deferred loan costs are amortized using the effective interestmethod to interest expense over the term 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 jackpotsconsist of 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 othertime-based or volume-based sales incentive offers and offers for free productsor services to be delivered in the future, the Authority has recorded aliability related to prizes and cash incentives earned by the members of ourPlayers Club and have adjusted the liability for the estimated future breakage.The Authority has recorded the cost of the estimated redemption of theliability related to prizes as an operating expense and the estimatedredemption of the liability related to cash as promotional allowance in theaccompanying statements of revenues, expenses and changes in fund deficit.

 

*CasinoRevenues*—In accordance with industry practice, the Authorityrecognizes as casino revenue the net win from gaming

 

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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 ended March 31,2008 and 2007 were $750,092 and $566,071, respectively.  The distributionof electronic coupons (e-coupons) to customers is included in Casino revenuesand is also deducted as promotional allowances.  The total e-coupons forthe three months ended March 31, 2008 and 2007 were $2,270,175 and$2,228,218, respectively.   The redemption of cash incentives earnedby the Players Club members is also recorded as promotional allowances. Thecost of cash incentives for the three months ended March 31, 2008 and 2007were $586,055 and $435,763, respectively.

 

*Foodand Beverage Costs*—Food and beverage costs include costsassociated with food and beverage, excluding amounts reclassified as Casinoexpense.  The estimated costs of providing complimentary services arereclassified from Food and beverage to Casino expenses.  The estimatedcosts of such services were $947,915 and $1,179,708 for the three months ended March 31,2008 and 2007, respectively.

 

*AdvertisingCosts*—Advertising costs are expensed the first timeadvertising takes place. Advertising costs included in selling, general andadministrative expenses were $1,491,199 and $1,164,506 for the three monthsended March 31, 2008 and 2007, respectively.

 

*GamingCommission & Surveillance Expenses*—The Authoritypays for various expenses for the Tribal Gaming Commission andsurveillance.  Tribal Gaming Commission expenses are reported as GamingCommission and surveillance expense on the Statement of Revenues, Expenses andChanges in Fund Deficit. Gaming Commission and Surveillance expenses for thethree months ended March 31, 2008 and 2007 were $1,002,143 and $675,404,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 Statement 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 tothe Tribe for the three months ended March 31, 2008 and 2007 were$3,122,400 and $3,060,000, 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 has beenconstructed on federal land beneficially owned by the Tribe. The Authority doesnot pay the Tribe for the use of the land.

 

The Authority pays forvarious expenses for the following departments operated by the Tribe: TribalGaming Commission, surveillance, plant operations, human resources, purchasingand warehousing.   These departmentalexpenses include but are not limited to payroll and related expenses, legal andother operational expenses.

 

Total amounts billed bythe Tribe for these departments, excluding Tribal Gaming Commission andsurveillance, were $822,626 and $766,665 for the three months ended March 31,2008 and 2007, respectively. They are recorded as a component of Selling,general and administrative expenses.

 

The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission and surveillance expenses are being recorded in GamingCommission and surveillance expenses on the Statement of Revenues, Expenses andChanges in Fund Deficit.  Gaming Commission and surveillance expenses forthe three months ended March 31, 2008

 

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and 2007 were $1,002,143and $675,404, respectively.

 

The Tribe has incurredexpenses on behalf of the Authority that relate to the master planning of theproposed resort and Tribal infrastructure that benefit the Authority. TheAuthority did not reimburse to the Tribe for any of these expenses in the threemonths ended March 31, 2008. The Tribe has incurred at total of $16.6million in unreimbursed costs relating to the master planning of the proposedresort. While the Tribe has not made any request to the Authority forreimbursement of such amount, it may request reimbursement from the Authorityin the future. While the Authority has no obligation to pay such amounts whenrequested and any such reimbursement would need to be approved by managementand the Board of Directors of the Authority, there is a possibility that suchrequest for reimbursement may be made by the Tribe. Prior to making anyreimbursement payment, the Authority will consider various factors, including,but not limited to, whether the costs incurred were actually related to themaster planning, whether such costs are beneficial to the gaming business andexpansion plans of the Authority, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the indenture for the Authority’s senior notes.

 

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

 

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

 

The Authority had the right toterminate the Development Agreement by exercising a buy-out option (the “Buy-OutOption”) and did so on January 31, 2007. Subsequently on March 2, 2007, the Authority and DCC signed amutual agreement to fix the amounts due to DCC in respect of such exercise tothe sum of $11,350,000 less the amount paid after the Authority exercised thebuy-out option of $737,491. The net payment of $10,612,509 was made in March 2007and expensed in full in the three months ended March 31, 2007.  Credit Enhancement Fee expense was $0and $11,348,897 for the three months ended March 31, 2008 and 2007,respectively.

 

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

 

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

 
| ** **                                           | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                                                 |       |                         |       |                            |       |
| Operating  Accounts                                  |       | $                            | 11,251,103 |                            | $          | 6,352,843 |   |
| Money Market  Accounts                               |       | 7,377,093                    |       | 3,000,298                       |       |
| Short Term  Investments                              |       | 32,637,417                   |       | 31,013,947                      |       |
| Cash on hand                                         |       | 4,705,963                    |       | 6,166,301                       |       |
|                                                 |       |                         |       |                            |       |
| Cash and cash  equivalents                           |       | 55,971,576                   |       | 46,533,389                      |       |
| Restricted cash                                      |       | 7,351,835                    |       | 7,335,473                       |       |
|                                                 |       |                         |       |                            |       |
| Total cash and  cash equivalents and restricted cash |       | $                            | 63,323,411 |                            | $          | 53,868,862 |   |

 

The Authority’s cash inbanks and cash equivalents (the “Investments”) are categorized by level ofcredit risk assumed by the Authority. Category 1 includes investments thatare insured or registered or for which the investments are held by theAuthority or its agent in the Authority’s name. Category 2 includesuninsured and unregistered investments for which the investments are held bythe counterparty’s trust department or agent in the Authority’s name.Category 3 includes uninsured and unregistered investments for which theinvestments are held by the counterparty’s agent but not in the Authority’sname. At March 31, 2008, the Authority had $200,000 in Category 1investments, $11,051,103 cash in banks, $7,377,093 in money market accounts and$32,637,417 in short-term investments, which are Category 2 investments, and$7,351,835 restricted cash in bank over the FDIC insurance limits, which areCategory 3 investments.  Amounts in Category 2 and Category 3investments are invested in short-term, highly liquid cash equivalents andinvestments.  As of March 31, 2008 and December 31, 2007, theseamounts are composed of money market accounts in the amount of $7,377,093 and$3,000,298, respectively, and A1/P1 bonds in the amount of $32,637,417 and$31,013,947, respectively.

 

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**7.****                             FAIRVALUE MEASUREMENTS**

 

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

 
| ** **                | ** ** | **Fair Value Measurements at Reporting Date, Using:** | ** ** |
|---------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | ** **                                                                          | ** ** | **Quoted Prices** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **                                                                          | ** ** | **in Active** | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **                | ** ** | ** **                                                                          | ** ** | **Markets for** | ** ** | **Observable** | ** ** | **Observable** | ** ** |
| ** **                | ** ** | **March 31,**                                                                  | ** ** | **Identical Items** | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| ** **                | ** ** | **2008**                                                                            | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Financial  Assets:        |       |                                                                                |       |   |   |   |   |   |   |
| Money Market  Instruments |       | $                                                                                   | 7,377,093  |   | $ | 7,377,093 |   | $ | — |   | $ | — |   |
| Certificates of  Deposit  |       | 10,494,083                                                                          |       | 10,494,083 |   |   |   |   |   |
| Commercial Paper          |       | 19,157,417                                                                          |       | 19,157,417 |   |   |   |   |   |
| Corporate Bonds           |       | 2,985,918                                                                           |       | 2,985,918 |   |   |   |   |   |
|                      |       | $                                                                                   | 40,014,511 |   | $ | 40,014,511 |   | $ | — |   | $ | — |   |

 

**8.****                             PROPERTYAND EQUIPMENT**

 

Property and equipment atDecember 31, 2007 and March 31, 2008 consisted of the following:

 
| ** **                         | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**       | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|--------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **March 31,** | ** ** |
| ** **                         | ** ** | **2007**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2008**           | ** ** |
|                               |       |                  |        |          |       |             |       |               |       |
| Buildings and improvements         |       | $                     | 129,642,521 |          | $          | 290,350          |       | $                  | —     |   | $ | 129,932,871 |   |
| Furniture,  fixtures and equipment |       | 29,969,430            |        | 677,664       |       |             |       | 30,647,094         |       |
| Less accumulated  depreciation     |       | (44,460,665           | )           | (2,939,856    | )          | —           |       | (47,400,521        | )          |
|                               |       |                  |        |          |       |             |       |               |       |
|                               |       | 115,151,286           |        | (1,971,842    | )          |             |       | 113,179,444        |       |
| Construction in progress           |       | 9,256,830             |        | 20,350        |       | —           |       | 9,277,180          |       |
|                               |       |                  |        |          |       |             |       |               |       |
| Property and equipment—net    |       | $                     | 124,408,116 |          | $          | (1,951,491       | )          | $                  | —     |   | $ | 122,456,624 |   |

 

Construction in progressconsists of payments or amounts owed to various vendors related to theAuthority’s master plan development and land improvements. Substantially all ofthe Authority’s personal property is pledged as collateral to secure itsdebt.  At March 31, 2008 and 2007, the Authority had $415,639 and$376,636 in capital lease assets with related accumulated depreciation of$223,916 and $136,210, respectively.

 

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**9.          ACCRUEDLIABILITIES**

 

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

 
| ** **                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2008**           | ** ** | **2007**              | ** ** |
|                                        |       |               |       |                  |       |
| Accrued in-house  progressive slot jackpots |       | $                  | 1,016,195  |                  | $          | 1,081,121 |   |
| Accrued payroll  and related benefits       |       | 2,155,482          |       | 2,296,131             |       |
| Accrued interest                            |       | 8,125,000          |       | 3,250,000             |       |
| Accrued other  expenses                     |       | 697,588            |       | 939,569               |       |
| Total accrued  liabilities                  |       | $                  | 11,994,265 |                  | $          | 7,566,821 |   |

 

**10.****                      LONG-TERMDEBT**

 

Long-term debt consistedof the following as of March 31, 2008 and December 31, 2007:

 
| ** **                                                                                       | ** ** | **March 31,** | ** **        | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|--------------------|-------------------|-----------------------|------------|
| ** **                                                                                       | ** ** | **2008**           | ** **        | **2007**              | ** ** |
|                                                                                             |       |               |              |                  |       |
| 9-3/4% Senior  Notes, net of unamortized issue discount of $1,208,476 and $1,292,789. Due  2011. |       | $                  |  198,791,524 |                  | $          |  198,707,212 |   |
| Vehicles Notes                                                                                   |       | 12,773             |              | 15,306                |       |
| Slot machine  Notes                                                                              |       | 27,995             |              | 102,192               |       |
| Capital leases  obligations                                                                      |       | 103,908            |              | 136,100               |       |
| Total Long-Term  Debt                                                                            |       | 198,936,200        |              | 198,960,810           |       |
| Less: current  portion                                                                           |       | (120,597           | )                 | (213,172              | )          |
|                                                                                             |       |               |              |                  |       |
| Total long-term  debt - net of current maturities                                                |       | $                  | 198,815,603       |                  | $          | 198,747,638 |   |

 

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

 

**11.****                      LEASES**

 

The Authority leases asprung structure, which is accounted for as an operating lease. Such leaseexpense was $108,690 and $108,690 for the three months ended March 31,2008 and 2007, respectively.  The Authority renewed the leaseagreement on August 17, 2005 for $36,230 per month for twenty four monthsending August 17, 2007. Since the expiration of the lease on August 17,2007, the Authority has maintained the lease payments on a month to monthbasis.

 

On October 1, 2003, the Tribe entered into anoperating lease agreement for office and warehouse space to replace existingfacilities.  Prior to the Tribe takingcontrol over the Purchasing and Warehouse departments, the Authority reimbursedthe Tribe lease fees allocated based on the square footage utilized.  Since May 2006, when the Tribe assumedresponsibility for the Purchasing and Warehouse departments, the Authority nolonger reimbursed the Tribe lease fees as a separate transaction.  This reimbursement is made through thereimbursement of Tribal departments’ monthly allotment and quarterlyreconciliations.  The Authorityreimbursed

 

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the Tribe for such lease fees in the amount of $109,657and $73,632 for the three months ended March 31, 2008 and 2007,respectively.

 

On February 21, 2007 the Authority enteredinto a one year operating lease for office and promotional space commencing February 21,2007 and expiring February 20, 2008. The monthly lease fee was $600 per month.  On February 21, 2008, the Authorityextended the lease for three years, commencing on February 21, 2008 andexpiring on February 20, 2011.  Theextended lease fee is $625 per month for the first year, with adjustments forthe Consumer Price Index and property taxes in the second and third years.

 

On August 30, 2007, the Authority entered intoa five year operating lease agreement for office and showroom space commencing October 1,2007 and expiring on September 30, 2012. The monthly lease fee is $16,630. Lease expenses for the quarter ended March 31, 2008 totaled $49,890.

 

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 7.25%interest with monthly lease fees of $2,390 and a $1 buyout at the end of thelease term, expiring August 31, 2009.

 

On July 31, 2005,the Authority entered into a thirty six month capital lease to purchase 13Multi-deck shufflers in the amount of $88,307.  The capital lease is at4.08% interest with monthly lease fees of $2,730 and a $1 buyout at the end ofthe lease term, expiring July 31, 2008.

 

On July 31, 2005,the Authority entered into a thirty six month capital lease to purchase 6 Kingshufflers in the amount of $61,422.  The capital lease is at 7.09%interest with monthly lease fees of $1,899 and a $1 buyout at the end of thelease term, expiring July 31, 2008.

 

On July 31, 2005,the Authority entered into a thirty six month capital lease to purchase 4 Aceshufflers in the amount of $45,283.  The capital lease is at 7.09%interest with monthly lease fees of $1,400 and a $1 buyout at the end of thelease term, expiring July 31, 2008.

 

On April 25, 2006, theAuthority entered into a thirty six month capital lease to purchase 5 DECK MATEpoker shuffles in the amount of $61,833.  The capital lease is at 7.92%interest with monthly lease fees of $1,937 and a $1 buyout at the end of thelease term, expiring April 30, 2009.

 

On August 1, 2006the Authority entered into a 36 month capital lease to purchase 2 licenses tooperate Pai Gow poker tables in the amount of $38,800.  The capital leaseis at 4.26% interest with monthly lease fees of $1,150 and a $1 buyout at theend of the lease term, expiring July 31, 2009.

 

Lease expenses were$62,520 and $114,476 for the three months ended March 31, 2008 and 2007,respectively.  Lease expenses areincluded in general and administrative expenses in the accompanying statementof revenues, expenses and changes in fund deficit.  Expected remaining payments under operatingleases are $187,138 for the year ending December 31, 2008. Expectedremaining payments under capital leases are $69,726 and $34,183 for the yearsending December 31, 2008 and 2009, respectively.

 

**12.****                      LEGALMATTERS**

 

*Runyan Litigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed suit against us, theCasino and Mr. Harvey Hopkins, the Chairman of the Tribe and a member ofour Board, in the Sonoma County Superior Court. Mr. Runyan’s complaintasserts causes of actions for breach of contract, wrongful termination inviolation of public policy, intentional interference with contract andintentional infliction of emotional distress. He seeks unspecified compensatoryand punitive damages. Mr. Runyan alleges that he was wrongfully terminatedfrom his employment because he opposed certain alleged actions on the part ofthe defendants, including contracts for construction work allegedly performedon the reservation by affiliates of the Tribe and Mr. Hopkins. Mr. Runyanclaims that the work violated the Indenture and that Mr. Runyan was forcedto resign from his employment in violation of public policy after protestingthat the alleged work violated the Indenture, the Compact, and the SecuritiesExchange Act of 1934. He also claims that the defendants unlawfullydiscriminated against him in connection with his status as a debtor under theBankruptcy Code. We believe that Mr. Runyan’s lawsuit is based onerroneous information and is without merit, and we and the Tribe intend tovigorously defend against it.

 

We and the other nameddefendants removed the case to the United States District Court for theNorthern District of California on April 11, 2008.  On April 15,the court issued an order to show cause why the case should not be remanded tothe Sonoma County Superior Court.  We and the other defendants respondedto this order on April 29, and Mr. Runyan responded to our responseon May 7.  The court has yet to decide whether to remand thecase.  On April 18, we and the other defendants filed a motion todismiss the lawsuit for lack of jurisdiction and failure to state aclaim.  Mr. Runyan’s reply to our motion is due June 16, and ahearing on the

 

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motion is set for July 10.

 

*Liquor License*

 

Many of our competitorsserve alcoholic beverages on their premises, but we are still awaiting thefinal outcome of our application for a liquor license.  In September 2004,the Department of Alcoholic Beverage Control (“ABC”) denied the Tribe’sapplication for a liquor license based on a building code interpretation by astate officer who was later determined to lack jurisdiction to rule onthe matter, and which conflicted with a contrary determination by theTribe’s building code official having jurisdiction. The Tribe appealed and, in May 2005,an Administrative Law Judge ruled for the Tribe and recommended that the ABCreverse itself and approve the license, which the ABC did as of October 2005,pending a hearing on the protests.  After delays for discovery and thesetting of a new hearing, the protests were taken under advisement by theAdministrative Law Judge.  Meanwhile, the Tribe engaged in negotiations withthe major protesters, which included the County of Sonoma, the Alexander ValleyAssociation, several public officials, and a number of individuals.

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes. The settlement alsoresolved the County’s and many of the protester’s issues in the ABCmatter.    As a result, the County, the officials, the AlexanderValley Association (“AVA”)  and many of the individual protestorswithdrew  their  objections to theissuance of the ABC license.     In light of thosewithdrawals   and with the support of both the County and AVA, theTribe is now seeking to expedite issuance of an alcohol license.   The ABC has agreed to issue the licensesubject to the conditions agreed upon in the MOA, and subject to theremaining protests, if any, of the earlier individual protestors who havenot yet withdrawn.

 

Under the MOA, the Tribeagreed to restrict the sale of alcohol to wine and beer between the hoursof 10 a.m. and 5 p.m. on weekdays, except for holidays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The restrictions may be renegotiated followingthe first to occur of three years or the opening of a hotel, which is projectedto occur within the next 2 to 3 years.

 

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

 

**13.****                      COMPACTREVENUE SHARING TRUST FUND**

 

The Compact requires theAuthority to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $333,750 for the threemonths ended March 31, 2008 and 2007, respectively.

 

**14.****                      COMMITMENTSAND CONTINGENCIES**

 

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

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.  We believe the MOA willhave significant positive impacts on the future conduct of our business and ourand the Tribe’s ability to develop our expansions plans and construct ourproposed hotel and casino resort.  Pursuant to the MOA, the Tribe hasagreed to pay the County up to $75 million in mitigation fees over the next 12years to offset impacts of the potential losses and impacts to the Countyresulting from the Tribe’s various ongoing projects and are intended to supportthe services being provided by the County.  In addition to the mitigationfees, the Tribe will pay a fee in lieu of the County’s Transient Occupancy Taxin the amount of 9% of the rental collected on occupied hotel rooms, to be paidquarterly and continuing for five years after the later to occur of thetermination of the MOA, as may be extended, or the Tribe’s Compact with theState (which is

 

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now terminable in 2020 at the earliest), which feesmay be applied to programs and services that serve to promote tourism in theCounty. Such in lieu fees could total as much as $25 million during the term ofthe MOA.  It is currently unclear to us what, if any, amounts we will berequested to pay to the Tribe to fund its obligations pursuant to the MOA.

 

**15.****                      SUBSEQUENTEVENTS**

 

Subsequent to the period ended March 31, 2008, the Authorityconcluded that it had not previously distributed to the Tribe the maximumallowable amount of Service Payments that are permitted by the Indenture. Underthe Indenture, the Authority was restricted from being able to make its firstService Payment to the Tribe until the 90th day following thecompletion of the Expansion Project.  In April 2005,the Authority made it first Service Payment to the Tribe on the 90th dayfollowing the completion of the Expansion Project in the amount of $500,000.  Service Payments are subject to an annualescalation of 4% under the Indenture. The Authority had applied the 4% escalator on each of theanniversaries of the first Service Payment. However, the Indenture definesService Payments as “payments to the Tribe by the Authority in an amount of upto $500,000 per month, commencing with the first full month after the date ofissuance of the Notes, which amount shall increase by 4% per annum on eachanniversary of the first date of such month...” The Authority has concluded that the escalator should have been appliedon the first anniversary of the issuance of the Notes and not on the firstanniversary of the completion of the Expansion Project and that, although theAuthority was restricted from making the Service Payment by other covenants ofthe Indenture, the 4% escalator could have been applied to increase theamount of the first permitted Service Payment.  By applying the escalatoron each anniversary of the issuance of the Notes, the first permitted ServicePayment could have been in the amount of $520,000, not $500,000.  Further, since the Indenture permits the Authorityto make Service Payments to the Tribe that it could have, but did not,previously make, the Authority has determined to apply the escalator aspermitted by the Indenture and calculate the amount that could have been paidto the Tribe but was not by failing to apply the escalatoron earliest dates permitted by the Indenture. On May 7, 2008,the Authority issued payment to the Tribe in the amount of $1,008,901 as theamount of Service Payments that could have been paid by applying the escalatoron the earliest dates permitted by the Indenture.  Further, the Authority has recalculated thecurrent amount of the permitted monthly Service Payment to be $584,929.28.  In December 2008, the Authority intendsto again apply the 4% escalator and increase the monthly Service Payments to$608,326.45.

 

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

 

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

 

**Overview**

 

We operate as a separatewholly-owned operating property of the Tribe. We are an unincorporatedgovernmental instrumentality of the Tribe to own and operate the River RockCasino. We offer Class III slot and video poker gaming machines, housebanked table games (including Blackjack, Three card poker, Mini-baccarat andPai Gow poker), Poker, featuring Texas Hold’em, comprehensive food andnon-alcoholic beverage offerings 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 thoseestimates, including those related to asset impairment, accruals for ourpromotional slot club, compensation and related benefits, revenue recognition,allowance for doubtful accounts, contingencies and litigation. These estimatesare based on the information that is currently available to us and on variousother assumptions that we believe to be reasonable under the circumstances.Actual results 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 industry practice, casino revenue isrecognized as the net win from gaming activities, which is the differencebetween gaming wins and losses. Casino revenues are net of accruals foranticipated payouts of progressive slot jackpots.

 

·Property and Equipment – Property and equipment are stated at cost.Depreciation and amortization are computed using the straight-line method overthe estimated useful lives of the assets as follows:

 

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

 

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

 

·Accrued Progressive Slot Jackpots – Accrued progressive slot jackpots consistof estimates for prizes relating to various games that have accumulatedjackpots. We have recorded the cost of these anticipated payouts as a reductionof casino revenues and the cost is included as a component of accruedliabilities.

 

·Contingencies – We assess our exposure to loss contingencies, including legal matters,and provide for an exposure if it is judged to be probable and estimable. Ifthe actual loss from a contingency differs from management’s estimate,operating results could be materially impacted. As of March 31, 2007, wehave determined that no accruals for claims and legal actions are required. Ifcircumstances surrounding claims and legal actions change, the addition ofaccruals for such items in future periods may be required, which accruals maybe material.

 

·Fair Value Measurements - The Authority adopted the required provisions of SFASNo. 157, “*Fair Value Measurements*” (“SFAS No.157”) on January 1, 2008. SFAS No. 157 clarifies the principle that fair valueshould be based on the assumptions market participants would use when pricingan asset or liability and establishes a fair value hierarchy that prioritizesthe information used to develop those assumptions. There was no material impactto the condensed financial statements upon the adoption of SFAS No. 157.

 

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

 

 The Authorityadopted the provisions of SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities Including an amendment of FASBStatement No. 115” (“SFAS No. 159”) on January 1, 2008. SFAS No. 159provides a company with the option to measure selected financial instrumentsand certain other items at fair value at specified election dates. Uponadoption, the Authority has not elected to apply SFAS No. 159 to measureselected financial instruments and certain other items; therefore, there was noimpact to the financial statements upon adoption of SFAS No. 159.Subsequent to the initial adoption of SFAS No. 159 on January 1,2008, the Authority has not made any elections during the three months ended March 31,2008.

 

Accounting Standards –There are differences between financial statements prepared in accordance withGovernmental Accounting Standards Board (“GASB”) pronouncements and thoseprepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statement of revenues, expenses and fund deficit is acombined statement under GASB pronouncements. FASB pronouncements allow astatement of income or operations and a statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements. The amount shown on our statement of revenues,expenses and fund deficit as income before distributions to the Tribe, wouldnot be different if we followed all FASB pronouncements to determine netincome, and would be the most comparable amount to net income computed underFASB pronouncements. We are an unincorporated instrumentality created by triballaw 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.

 

**Resultsof Operations**

 

**Comparisonof the three months ended March 31, 2008 and 2007**

 

*Netrevenues*. Net revenues for the three months ended March 31,2008 decreased by $0.9 million to $33.2 million from $34.1 million for thethree months ended March 31, 2007.  The decrease in net revenues isattributable to the industry-wide slowdown in the casino business during thefirst quarter of 2008.  Approximately96.1% of our net revenues, net of promotional allowances, were from our gamingactivities in the first quarter 2008. We generated $28.0 million, or 84.3% ofour net revenues from gaming devices, net of respective promotional allowancesof $2.8 million, and $3.6 million, or 10.8% of our net revenues from tablegames, net of promotional allowance of $47,865, for the three months ended March 31,2008, compared to $29.2 million from gaming devices, or 85.6% of our netrevenues, net of respective promotional allowances of $2.6 million, and $3.6million from table games, net of

 

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respective promotionalallowances of $47,050, for three months ended March 31, 2007. Our win perslot machine per day was $195 in the first quarter 2008, which decreased by $11from $206, in the first quarter 2007.  The decrease in net win per machineper day is attributable to the factor mentioned above.

 

     Wegenerated $1.2 million, net of promotional allowance of $0.8 million, in food,beverage and retail sales for the three months ended March 31, 2008,compared to $0.9 million, net of promotional allowances of $0.6 million, infood, beverage and retail sales for the three months ended March 31,2007.  The retail value of our food and beverage provided to customerswithout charge is included in gross revenues and then deducted as promotionalallowances. Revenues from food, beverage and retail sales were up for thequarter ended March 31, 2008 as compared to March 31, 2007 duelargely to strategic price increases and increased advertising and promotionalitems offered.

 

*     Promotionalallowances*. Promotional allowances for the three months endedMarch 31, 2008 were $3.6 million, or 10.9% of net revenues, compared to$3.2 million, or 9.5% of net revenues, for the first quarter 2007. The increasein 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*. Operating expenses forthe three months ended March 31, 2008 were $21.5 million, or 64.7% of netrevenues, compared to $31.8 million, or 93.1% of net revenues, for the firstquarter 2007. The decrease in operating expenses is attributable to theexpensing of the credit enhancement fee buy-out in the first quarter to 2007 asdescribed in footnote 5 of the unaudited condensed financial statements.

 

     Casino expense includes costs associatedwith our gaming operations and the allocation of food and beverage expenserelated to the cost of complimentary activities. Casino expense for the threemonths ended March 31, 2008 decreased to $5.0 million, or 15.5% of Casinorevenues, net of promotional allowances, from $5.2 million, or 15.6% of Casinorevenues, net of promotional allowances, for the first quarter 2007. Thedecrease in Casino expense resulted from updating our slot floor to fewerparticipation fee machines and a decrease in the expense associated withcomplimentary beverage services.

 

     Food,beverage and retail expense for three months ended March 31, 2008 was $1.7million, or 150.0% of food, beverage and retail revenue, net of promotionalallowances, compared to $1.4 million, or 125.5% of food, beverage and retailrevenue, net of promotional allowances for the first quarter 2007. Our food,beverage and retail expense ratio is significantly higher than the industryaverage because we have utilized these amenities as an opportunity to buildcustomer loyalty rather than as a source of income.

 

     Selling,general and administrative expense for three months ended March 31, 2008increased by $0.6 million to $10.4 million, or 31.4% of net revenues, from $9.8million, or 28.8% of net revenues, for the first quarter 2007. The increase inselling, general and administrative expense is attributable to increases inadvertising costs, resulting from moving the “Dream Car” promotion to the firstquarter of 2008, compared to later in the year in 2007.

 

    Depreciation expense for the three monthsended March 31, 2008 and 2007 was $2.9 million.  Depreciation expense was computed using thestraight-line method over the useful life of property, plant and equipment.

 

     Wehave been paying the credit enhancement fee since June 2003. On March 2, 2007, we signed an agreementwith DCC to fix the amounts due to DCC in respect of such exercise to the sumof $11,350,000 less the amount paid after we exercised the buy-out option of$737,491. The net payment of $10,612,509 was made in March 2007 andexpensed in full in the first quarter of 2007. As a result of the buy-out of the credit enhancement fee, we did not payany credit enhancement fees in the first quarter of 2008, compared to $11.3million, or 33.3% of net revenues, for the first quarter of 2007.

 

     GamingCommission and surveillance expense for three months ended March 31, 2008and 2007 was $1.0 million and $0.7 million, respectively.

 

     The Compact requires us to pay a quarterlyfee to the State of California’s revenue sharing trust fund, based on thenumber of licensed gaming devices operated by the Tribe. Revenue sharing trustfund fees assessed were $333,750 for each three month period ended March 31,2008 and 2007, respectively.

 

     *Income from operations.* Income fromoperations for three months ended March 31, 2008 was $11.7 million, or35.2% of net revenues, compared to $2.3 million, or 6.9% of net revenues, forthe first quarter of 2007.  The increase in income from operations isattributable to the affect of expensing the credit enhancement fee buy-out inthe first quarter of 2007.

 

     *Other expense, net.* Other expense, net forthree months ended March 31, 2008 decreased to $4.7 million, or 14.3% ofnet revenues, from $4.8 million, or 14.2% of net revenues, for the firstquarter of 2007.  Other expense, net included $5.2 million of interestexpense for each of the three months ended March 31, 2008 and 2007,respectively. No interest costs were capitalized in 2008 or 2007.

 

     *Income (loss) before distributions to the Tribe*.Income (loss) before distributions to the Tribe for three months ended March 31,2008 increased by $9.5 million to $7.0 million, or 21.0% of net revenues, froma loss of $2.5 million, or (7.3)% of net revenues, in the first quarter of2007.  The significant increase in incomebefore distributions to the Tribe is a direct result of the credit enhancementfee buy-out that resulted in an expense of $10.6 million in the first quarterof  2007.

 

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     *Distributions to the Tribe*. Distributionsto the Tribe for each of the three months ended March 31, 2008 and 2007were $3.1 million.

 

**Liquidityand Capital Resources**

 

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

 

    Construction of our Casino andinfrastructure improvements commenced on April 1, 2002. The first portionof our gaming facility was completed in September 2002. As of March 31,2008, we had spent approximately $159.6 million on the planning, developmentand construction of our gaming facility, infrastructure and furniture, fixturesand equipment, excluding the expansion project. We financed the developmentwith borrowings and development advances.

 

     As of March 31, 2008, we spent$1.1 million on the development of an approximately 18-acre parcel of landadjacent to the Tribe’s reservation (referred to as the “Dugan Property”) whichis expected to include an additional access road to our Casino. We have $4.6million remaining in a restricted account funded from the proceeds of our NotesOffering for the development of the Dugan Property.

 

     Ourcapital expenditures for the three months ended March 31, 2008 and 2007were $1.0 million and $0.7 million, respectively. The increase in our capitalexpenditures for 2008 includes purchases of new slot machines as well as theexpense from the preliminary stages of an accounting software conversion thatwe did not have in the first quarter of 2007.

 

     Asof March 31, 2008, we had cash and cash equivalents net of restricted cashof $56.0 million, compared to $46.5 million as of December 31, 2007. As ofMarch 31, 2008, we had restricted cash of $7.4 million, compared to $7.3million as of December 31, 2007. Our principal source of liquidity duringthe three months ended March 31, 2008 consisted of cash flow fromoperating activities. Net cash provided by operating activities for the threemonths ended March 31, 2008 was $13.3 million, a decrease of $2.8 million,from $16.1 million, in 2007. The decrease in our net cash provided byoperations is a result of decreased cash received from gaming winnings andconcessions and increased cash paid to suppliers.

 

     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 contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds for the development of theDugan Property. Our restricted cash is held in escrow accounts that can only beused for authorized construction disbursements until the related projects arecompleted.

 

     Netcash used for capital and related financing activities for the three monthsended March 31, 2008 was $1.3 million, compared to $12.8 million, for thethree months ended March 31, 2007. The decrease in cash flow used incapital and related financing activities was primarily the result of the creditenhancement fee buyout in the first quarter of 2007.

 

     Cash flow from investing activities forthe three months ended March 31, 2008 was $0.5 million, compared to $0.4million, for the three months ended March 31, 2007.

 

     Cash flow used in non-capital financingactivities for each of the three months ended March 31, 2008 and 2007 was$3.1 million, respectively.  Cash flow used in non-capital financingactivities consisted of distributions to the Tribe.  Since April 1,2007, our monthly payments to the Tribe have been in the amount of $1.0million. As of May 2008, our monthly payments to the Tribe have increasedto $1.1 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 needs,planned capital expenditures and debt service requirements for the foreseeablefuture. However, our ability to fund our operations, make planned capitalexpenditures, make scheduled debt payments and refinance our indebtednessdepends on our future operating performance and cash flow, which, in turn, aresubject to prevailing economic conditions and to financial, business and otherfactors, some of which are beyond our control. Additionally, the Indenturelimits our ability to incur additional indebtedness.

 

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

 

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The Tribe hasincurred expenses on our behalf that relate to the master planning of theproposed resort and Tribal infrastructure that benefit us. Total expensesincurred and subsequently reimbursed to the Tribe for the years ended December 31,2007 were $4.6 million.

 

The Tribe hasincurred an additional $5.6 million in costs relating to the master planning ofthe proposed resort. While the Tribe has not made any request to us forreimbursement of such amount, it may request reimbursement from us in the future. While we have no obligation to pay such amounts when requested, and any suchreimbursement would need to be approved by management and our Board ofDirectors, there is a possibility that such request for reimbursement may bemade by the Tribe. Prior to making any reimbursement payment, we will considervarious factors, including, but not limited to, whether the costs incurred wereactually related to the master planning, whether such costs are beneficial toour gaming business and expansion plans, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture for the Outstanding Notes.

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.  We believe the MOA willhave significant positive impacts on the future conduct of our business and ourand the Tribe’s ability to develop our expansions plans and construct ourproposed hotel and casino resort.  Pursuant to the MOA, the Tribe hasagreed to pay the County up to $75 million in mitigation fees over the next 12years to offset impacts of the potential losses and impacts to the Countyresulting from the Tribe’s various ongoing projects and are intended to supportthe services being provided by the County.  In addition to the mitigationfees, the Tribe will pay a fee in lieu of the County’s Transient Occupancy Taxin the amount of 9% of the rental collected on occupied hotel rooms, to be paidquarterly and continuing for five years after the later to occur of thetermination of the MOA, as may be extended, or the Tribe’s Compact with theState (which is now terminable in 2020 at the earliest), which fees may beapplied to programs and services that serve to promote tourism in the County.Such in lieu fees could total as much as $25 million during the term of theMOA.  It is currently unclear to us what, if any, amounts we will berequested to pay to the Tribe to fund its obligations pursuant to the MOA.

 

**ContractualObligations as of March 31, 2008**

 

     Contractualobligations and commitment amounts as of March 31, 2008 have notmaterially changed from the prior quarter.

 

**Regulationand Taxes**

 

     We are subject to extensive regulation bythe tribal gaming agency, the California Gambling Control Commission and theNational Indian Gaming Commission. Changes in applicable laws or regulationscould have a significant impact on our operations.

 

     Many of our competitors serve alcoholicbeverages on their premises, but we are still awaiting the final outcome of ourapplication for a liquor license.  In September 2004, the Departmentof Alcoholic Beverage Control (“ABC”) denied the Tribe’s application for aliquor license based on a building code interpretation by a state officer whowas later determined to lack jurisdiction to rule on the matter, andwhich conflicted with a contrary determination by the Tribe’s buildingcode official having jurisdiction. The Tribe appealed and, in May 2005, anAdministrative Law Judge ruled for the Tribe and recommended that the ABCreverse itself and approve the license, which the ABC did as of October 2005,pending a hearing on the protests.  After delays for discovery and thesetting of a new hearing, the protests were taken under advisement by theAdministrative Law Judge.  Meanwhile, the Tribe engaged in negotiationswith the major protesters, which included the County of Sonoma, the AlexanderValley Association, several public officials, and a number of individuals.

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes. The settlement alsoresolved the County’s and many of the protester’s issues in the ABCmatter.    As a result, the County, the officials, the AlexanderValley Association (“AVA”)  and many of the individual protestorswithdrew  their  objections to theissuance of the ABC license.     In light of those withdrawals  and with the support of both the County and AVA, the Tribe is now seekingto expedite issuance of an alcohol license.   The ABC has agreed to issue the licensesubject to the conditions agreed upon in the MOA, and subject to theremaining protests, if any, of the earlier individual protestors who havenot yet withdrawn.

 

Under the MOA, the Tribeagreed to restrict the sale of alcohol to wine and beer between the hoursof 10 a.m. and 5 p.m. on weekdays, except for holidays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The restrictions may be renegotiated followingthe first to occur of three years or the opening of a hotel, which is projectedto occur within the next 2 to 3 years.

 

Since we are anunincorporated governmental instrumentality of the Tribe located on reservationland held in trust by the United States of America, we are not subject tofederal or state income taxes. Various efforts have been made in Congress overthe past several years to enact legislation that would subject the income oftribal governmental business entities, such as us, to federal

 

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income tax. Although nosuch legislation has been enacted, similar legislation could be passed in thefuture. It is not possible to determine with certainty the likelihood ofpossible changes in tax law or in the administration of such law. Such changes,if adopted, could have a material adverse effect on our operating results andcash flow from operations.

 

**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 mayhave a 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 March 31, 2008, we had notinvested in 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.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

     We maintain disclosure controls and procedures thatare designed to ensure that the information required to be disclosed in ourreports filed with, or furnished to the SEC, pursuant to the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules,regulations and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer, ChiefFinancial Officer and Chief Operations Officer, as appropriate, to allow timelydecisions regarding required disclosure based on the definition of “disclosurecontrols and procedures” in Rule 13a-15(e) and 15d-15(e) of theExchange Act.  Our disclosure controlsand procedures are designed to provide reasonable assurances of achieving itsobjectives.  The Company has carried outan evaluation, under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer along with theCompany’s Chief Financial Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures pursuant toExchange Act Rule 13a-15(b). Based upon the foregoing, as of the end ofthe period covered by this quarterly report on Form 10-Q, the Company’sChief Executive Officer along with the Company’s Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are noteffective in timely alerting them to information relating to the Company(including its consolidated subsidiaries) required to be included in theCompany’s Exchange Act reports. See below for discussion of material weaknessesin the Company’s controls over financial reporting.

 

As of the end ofthe period covered by our Annual Report for the year ended December 31,2007, management performed, with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, an evaluation of the effectiveness of ourdisclosure controls and procedures as defined in Rules 13a-15(e) and15d-15(e) of the Exchange Act. Based on this evaluation and theidentification of material weaknesses in internal control over financialreporting, our Chief Executive Officer and our Chief Financial Officerconcluded that, as of December 31, 2007, our disclosure controls andprocedures were not effective.

 

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

 

Wehave engaged in, and continue to engage in, substantial efforts to address thematerial weaknesses in our internal control over financial reporting and theineffectiveness of our disclosure controls and procedures.  We are in theprocess of remediating its material weakness through the following actions:

 

1.     Management has increased our reliance onour own technical accounting and reporting resources by purchasing referencematerials and subscribing to a service that provides regular updates andresearch capabilities related to SEC and accounting 

 

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pronouncements.  Management intends to engage externalconsultants with appropriate SEC and GAAP expertise to assist in financialstatement review, filing of SEC reports, policy and procedure compilationassistance and other related advisory services before the end of the thirdquarter of 2008.

 

2.               Management has begun to have bi-weekly meetings withthe signing officials to inter-governmental Tribal capital projects andexpenses, management is ensuring good communication is maintained between the Authorityand the Tribe.  The purpose of thesemeetings is to gather all data necessary to gain the understanding necessary toaccount properly for Construction in Progress and inter-governmental expensesprior to the commencement of a contract with a selected vendor for CIP projectsand prior to our quarterly or annual closing process.  Management intends to employ a ProjectMonitor that will work directly with Construction in Progress vendors tomonitor actual project costs as compared to budget and to estimate future costsin order to ensure completeness of accrued liabilities.

 

3.               The Controller is in the process of compiling adetailed closing checklist to ensure reconciliations of significant accountsare performed at a level that will appropriately identify errors.  The checklist will provide detailed stepsrequired to ensure account reconciliations are performed completely andaccurately at the close of quarterly and annual filing periods.  Finance and Accounting employees arereviewing reconciliations and are required to sign each step as evidence of thecompletion of their review.

 

4.               Management has hired a Senior Financial Analyst withexperience in accounting for fixed assets that will be tasked to develop fixedasset policies and procedures, including the fixed asset impairment reviewprocedures, and add needed support to our finance staff to ensure fixed assetaccounts are reconciled and reviewed in a timely manner and at a detailed levelto ensure completeness and accuracy.

 

Theforegoing initiatives will enable us to improve our internal controls overfinancial reporting.  Management is committed to continuing efforts aimedat fully achieving an operationally effective system of internalcontrols.  The remediation efforts noted above are subject to our internalcontrol assessment, testing and evaluation process.

 

**Changesto Internal Controls Over Financial Reporting**

 

**    **There were no changes inthe quarter ended March 31, 2008. We believe that we have implemented controls and procedures to correctthe practices that led to certain restatements of our prior financialstatements.

** **

**PART II.              OTHERINFORMATION**

** **

**ITEM 1.                LEGALPROCEEDINGS**

 

*Runyan Litigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed suit against us, theCasino and Mr. Harvey Hopkins, the Chairman of the Tribe and a member ofour Board, in the Sonoma County Superior Court. Mr. Runyan’s complaintasserts causes of actions for breach of contract, wrongful termination inviolation of public policy, intentional interference with contract andintentional infliction of emotional distress. He seeks unspecified compensatoryand punitive damages. Mr. Runyan alleges that he was wrongfully terminatedfrom his employment because he opposed certain alleged actions on the part ofthe defendants, including contracts for construction work allegedly performedon the reservation by affiliates of the Tribe and Mr. Hopkins. Mr. Runyanclaims that the work violated the Indenture and that Mr. Runyan was forcedto resign from his employment in violation of public policy after protestingthat the alleged work violated the Indenture, the Compact, and the SecuritiesExchange Act of 1934. He also claims that the defendants unlawfullydiscriminated against him in connection with his status as a debtor under theBankruptcy Code. We believe that Mr. Runyan’s lawsuit is based onerroneous information and is without merit, and we and the Tribe intend tovigorously defend against it.

 

We and the other nameddefendants removed the case to the United States District Court for theNorthern District of California on April 11, 2008.  On April 15,the court issued an order to show cause why the case should not be remanded tothe Sonoma County Superior Court.  We and the other defendants responded tothis order on April 29, and Mr. Runyan responded to our response on May 7. The court has yet to decide whether to remand the case.  On April 18,we and the other defendants filed a motion to dismiss the lawsuit for lack ofjurisdiction and failure to state a claim.  Mr. Runyan’s reply to ourmotion is due June 16, and a hearing on the motion is set for July 10.

 

*Liquor License*

 

Many of our competitorsserve alcoholic beverages on their premises, but we our still awaiting thefinal outcome of our

 

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application for a liquorlicense.  In September 2004, the Department of Alcoholic BeverageControl (“ABC”) denied the Tribe’s application for a liquor license based on abuilding code interpretation by a state officer who was later determined tolack jurisdiction to rule on the matter, and which conflicted with acontrary determination by  the Tribe’s building code official havingjurisdiction. The Tribe appealed and, in May 2005, an Administrative LawJudge ruled for the Tribe and recommended that the ABC reverse itself and approvethe license, which the ABC did as of October 2005, pending a hearing onthe protests.  After delays for discovery and the setting of a newhearing, the protests were taken under advisement by the Administrative LawJudge.  Meanwhile, the Tribe engaged in negotiations with the majorprotesters, which included the County of Sonoma, the Alexander ValleyAssociation, several public officials, and a number of individuals.

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes. The settlement alsoresolved the County’s and many of the protester’s issues in the ABCmatter.    As a result,  the County, the officials, theAlexander Valley Association (“AVA”)  and many of the individualprotestors withdrew  their  objectionsto the issuance of the ABC license.     In light of thosewithdrawals   and with the support of both the County and AVA, theTribe is now seeking to expedite issuance of an alcohol license.   The ABC has agreed to issue the licensesubject to the conditions agreed upon in the MOA, and subject to theremaining protests, if any, of the earlier individual protestors who havenot yet withdrawn.

 

Under the MOA, the Tribeagreed to restrict the sale of alcohol to wine and beer between the hoursof 10 a.m. and 5 p.m. on weekdays [except for holidays], and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The restrictions may be renegotiated followingthe first to occur of three years or the opening of a hotel, which is projectedto occur within the next 2 to 3 years.

 

     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-Kother than the following:

 

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

 

The gamingindustry is very competitive. We face or will face competition from existingand proposed Indian gaming facilities in the surrounding area, and elsewhere inCalifornia, and with casino gaming in Nevada, including gaming facilities thatcould be located closer to the San Francisco Bay area. We also compete withcard rooms located in the surrounding area, and other forms of gaming that arelegal in California, including on and off-track wagering and the CaliforniaState Lottery, as well as with non-gaming leisure activities, and theavailability of such alternative gaming and non-gaming activities which mayincrease in the future. Many of our competitors have substantially greaterresources and name recognition than our Casino. In addition, we may also facecompetition in our market from new facilities that may be built by other Indiantribes in the future.

 

The greatestcompetition may come from the proposed Graton Rancheria.  In April 2003,the Federated Indians of the Graton Rancheria, also known as the Coast Miwoks,announced plans to purchase land in Sonoma County near Highway 37 and LakevilleHighway, approximately 20 miles south of our gaming facility and closer to SanFrancisco. The proposed location would lie directly between our Casino and themajority of the 7 million population base.  The announced plans includeconstruction of a casino-hotel complex that will be managed by Station Casinos, Inc.based in Las Vegas, Nevada.  The proposed facility will houseapproximately 2,000 slot machines, 120 card tables and bingo, as well as a300-room hotel, five restaurants and a theater with up to 2,000 seats.  Asa result of environmental opposition to the development of such location, theFederated Indians of the Graton Rancheria announced plans to move the proposedcasino-hotel complex to a site near Rohnert Park, California. The Rohnert ParkCity Council has approved an agreement with the Federated Indians of the GratonRancheria to share with Rohnert Park and various community groups,approximately $200.0 million over 20 years, to offset the impact of theproposed project.  Recently, the federalregister has published a notice that the Rohnert Park site for theGraton/Stations casino has been accepted into federal trust on behalf of thetribe. This represents a significant step towards the development of a casinoat Rohnert Park.

 

**ITEM6.                  EXHIBITS**

 

(a)     Exhibits

The Exhibit Indexfiled herewith is incorporated herein by reference.

(b)     Reports on 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: May 15,  2008 | RIVER ROCK  ENTERTAINMENT AUTHORITY |
|---------------------------|-------------------------------------|
|                      | (Registrant)                        |
|                      |                                |   |
|                      | By:                                 |              /s/ Shawn S. Smyth |
|                      |                                | Shawn S. Smyth, |
|                      |                                | Chief Executive Officer |

 

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**EXHIBITINDEX**

 
| **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 beincorporated by reference into any filing of River Rock Entertainment Authoritywhether made before or after the date hereof, regardless of any generalincorporation language in such filing.

 

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