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**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D. C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

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

 

**For thequarterly period ended March 31, 2009**

 

**OR**

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

** **

**For thetransition period from to**

 

**CommissionFile Number: 333-115186**

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

(Exact name of registrantas specified in its charter)

 

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

 

**3250Highway 128 EastGeyserville, California 95441(707) 857-2777**

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

 

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

 

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

 

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

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

 

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

 

 

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEX TOFORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                            | ** ** | ** ** |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|               |       |                                                                                                                                       |       |       |
| ** **         | ** ** | **PART I  – FINANCIAL INFORMATION**                                                                                              | ** ** | ** ** |
|               |       |                                                                                                                                       |       |       |
| 1.                 |       | Unaudited  Condensed Financial Statements                                                                                                  |       | 4          |
|               |       | Unaudited Condensed Balance Sheets-March 31, 2009  and December 31, 2008                                                         |       | 4          |
|               |       | Unaudited  Condensed Statements of Revenues, Expenses and Changes in Net Assets (Deficit)  Three-Months ended March 31, 2009 and 2008 |       | 5          |
|               |       | Unaudited Condensed Statements of Cash  Flows-Three-Months ended March 31, 2009 and 2008                                              |       | 6          |
|               |       | Notes to Unaudited Condensed Financial Statements                                                                                          |       | 8          |
| 2.                 |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                |       | 17         |
| 3.                 |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                |       | 22         |
| 4T.                |       | Controls and  Procedures                                                                                                                   |       | 22         |
|               |       |                                                                                                                                       |       |       |
| ** **         | ** ** | **PART II  – OTHER INFORMATION**                                                                                                 | ** ** | ** ** |
|               |       |                                                                                                                                       |       |       |
| 1.                 |       | Legal  Proceedings                                                                                                                         |       | 22         |
| 1A.                |       | Risk  Factors                                                                                                                              |       | 23         |
| 6.                 |       | Exhibits                                                                                                                                   |       | 26         |
|               |       |                                                                                                                                       |       |       |
| Signatures         |       |                                                                                                                                       |       | 27         |
|               |       |                                                                                                                                       |       |       |
| Exhibit Index |       | 27                                                                                                                                         |

 

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**CAUTIONARYSTATEMENT**

 

*Except for the historical financialinformation contained herein, the matters discussed in this report on Form 10-Q(as well as documents incorporated herein by reference) may be consideredforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”).  Such forward-looking statements are basedupon current expectations that involve risks and uncertainties and includedeclarations regarding the intent, belief or current expectations of us and ourmanagement and may be signified by the words “believes,” “anticipates,” “plans,”“expects,” “intends” and similar expressions. Our actual results and the timingof certain events may differ significantly from the results discussed in theforward-looking statements. All forward-looking statements in this document arebased on information available to us as of the date hereof, and we assume noobligation to update any such forward-looking statements, whether as a resultof new information, future events, or otherwise. All discussion in this reportshould be read in conjunction with our financial statements and the accompanyingnotes contained in this report.*

 

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

 

*Our key risks are described in ourannual report on Form 10-K filed with the Securities and ExchangeCommission.*

 

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**PART I. FINANCIAL INFORMATION**

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

**RIVERROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                                     | ** ** | **March 31, 2009** | ** **  | **December 31, 2008** | ** ** |
|------------------------------------------------|------------|-------------------------|-------------|----------------------------|------------|
| **ASSETS**                                     | ** ** | ** **              | ** **  | ** **                 | ** ** |
|                                           |       |                    |        |                       |       |
| CURRENT ASSETS:                                |       |                    |        |                       |       |
| Cash and cash equivalents                      |       | $                       | 32,815,274  |                       | $          | 27,348,392 |   |
| Accounts receivable                            |       | 265,506                 |        | 68,486                     |       |
| Inventories                                    |       | 143,818                 |        | 169,022                    |       |
| Prepaid expenses and other current assets      |       | 1,038,435               |        | 1,238,195                  |       |
|                                           |       |                    |        |                       |       |
| Total current assets                           |       | 34,263,033              |        | 28,824,095                 |       |
|                                           |       |                    |        |                       |       |
| RESTRICTED CASH                                |       | 7,092,020               |        | 7,090,273                  |       |
|                                           |       |                    |        |                       |       |
| CAPITAL ASSETS:                                |       |                    |        |                       |       |
| Buildings and building improvements            |       | 130,378,197             |        | 130,357,841                |       |
| Furniture, fixtures and equipment              |       | 36,054,207              |        | 34,143,554                 |       |
| Accumulated depreciation                       |       | (56,859,526             | )           | (54,484,916                | )          |
| Construction in progress                       |       | 47,576,240              |        | 45,599,195                 |       |
|                                           |       |                    |        |                       |       |
| Capital assets-net                             |       | 157,149,118             |        | 155,615,674                |       |
|                                           |       |                    |        |                       |       |
| DEPOSITS AND OTHER ASSETS                      |       | 2,735,810               |        | 3,039,529                  |       |
|                                           |       |                    |        |                       |       |
| TOTAL ASSETS                                   |       | $                       | 201,239,981 |                       | $          | 194,569,571 |   |
|                                           |       |                    |        |                       |       |
| **LIABILITIES AND NET ASSETS (DEFICIT)**       |       |                    |        |                       |       |
|                                           |       |                    |        |                       |       |
| CURRENT LIABILITIES:                           |       |                    |        |                       |       |
| Accounts payable:                              |       |                    |        |                       |       |
| Trade                                          |       | $                       | 2,124,359   |                       | $          | 3,045,712 |   |
| Accrued liabilities                            |       | 12,770,653              |        | 8,102,078                  |       |
| Current maturities of long-term debt           |       | 24,079                  |        | 45,011                     |       |
|                                           |       |                    |        |                       |       |
| Total current liabilities                      |       | 14,919,091              |        | 11,192,801                 |       |
|                                           |       |                    |        |                       |       |
| LONG-TERM DEBT - net of current maturities     |       | 199,128,774             |        | 199,045,924                |       |
|                                           |       |                    |        |                       |       |
| COMMITMENTS AND CONTINGENCIES                  |       |                    |        |                       |       |
|                                           |       |                    |        |                       |       |
| NET ASSETS (DEFICIT):                          |       |                    |        |                       |       |
| Invested in capital assets-net of related debt |       | (42,003,735             | )           | (43,475,261                | )          |
| Restricted for capital projects                |       | 7,092,020               |        | 7,090,273                  |       |
| Unrestricted                                   |       | 22,103,831              |        | 20,715,834                 |       |
|                                           |       |                    |        |                       |       |
| Total net assets (deficit)                     |       | (12,807,884             | )           | (15,669,154                | )          |
|                                           |       |                    |        |                       |       |
| TOTAL LIABILITIES AND NET ASSETS (DEFICIT)     |       | $                       | 201,239,981 |                       | $          | 194,569,571 |   |

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

 

**STATEMENTS OF REVENUES, EXPENSES ANDCHANGES IN NET ASSETS (DEFICIT)**

**(Unaudited)**

 
| ** **                                 | ** ** | **Three-Month  Period Ended  March 31,** | ** **  |
|--------------------------------------------|------------|-----------------------------------------------|-------------|
| ** **                                 | ** ** | **2009**                                      | ** **  | **2008** | ** ** |
|                                       |       |                                          |        |   |   |
| OPERATING REVENUES:                        |       |                                          |        |   |   |
|                                       |       |                                          |        |   |   |
| Casino                                     |       | $                                             | 29,952,516  |   | $ | 31,874,310 |   |
| Food, beverage and retail                  |       | 1,425,886                                     |        | 1,319,185 |   |
| Other                                      |       | 128,836                                       |        | 148,552 |   |
|                                       |       |                                          |        |   |   |
| Gross revenues                             |       | 31,507,238                                    |        | 33,342,047 |   |
|                                       |       |                                          |        |   |   |
| Promotional allowances                     |       | (45,742                                       | )           | (169,839 | ) |
|                                       |       |                                          |        |   |   |
| Net revenues                               |       | 31,461,496                                    |        | 33,172,208 |   |
|                                       |       |                                          |        |   |   |
| OPERATING EXPENSES:                        |       |                                          |        |   |   |
| Casino                                     |       | 4,172,882                                     |        | 5,038,410 |   |
| Food, beverage and retail                  |       | 2,062,378                                     |        | 1,724,591 |   |
| Selling, general and administrative        |       | 10,259,064                                    |        | 10,418,355 |   |
| Depreciation                               |       | 2,374,610                                     |        | 2,939,856 |   |
| Gaming commission and surveillance expense |       | 865,501                                       |        | 1,002,143 |   |
| Compact revenue sharing trust fund         |       | 333,750                                       |        | 333,750 |   |
|                                       |       |                                          |        |   |   |
| Total operating expenses                   |       | 20,068,185                                    |        | 21,457,105 |   |
|                                       |       |                                          |        |   |   |
| INCOME FROM OPERATIONS                     |       | 11,393,311                                    |        | 11,715,103 |   |
|                                       |       |                                          |        |   |   |
| NON-OPERATING EXPENSE-Net                  |       |                                          |        |   |   |
| Interest expense                           |       | (5,215,500                                    | )           | (5,216,791 | ) |
| Interest income                            |       | 8,438                                         |        | 488,476 |   |
| Other income (expense) - net               |       | —                                        |        | (8,667 | ) |
|                                       |       |                                          |        |   |   |
| Non-operating expense-net                  |       | (5,207,062                                    | )           | (4,736,982 | ) |
|                                       |       |                                          |        |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | 6,186,249                                     |        | 6,978,121 |   |
|                                       |       |                                          |        |   |   |
| DISTRIBUTIONS TO TRIBE                     |       | (3,324,979                                    | )           | (3,122,400 | ) |
|                                       |       |                                          |        |   |   |
| NET INCOME AFTER DISTRIBUTIONS TO TRIBE    |       | 2,861,270                                     |        | 3,855,721 |   |
|                                       |       |                                          |        |   |   |
| NET ASSETS (DEFICIT)-Beginning of period   |       | (15,669,154                                   | )           | (26,052,919 | ) |
|                                       |       |                                          |        |   |   |
| NET ASSETS (DEFICIT)-End of period         |       | $                                             | (12,807,884 | ) | $ | (22,197,198 | ) |

 

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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,** | ** **       |
|--------------------------------------------------------------|------------|------------------------------------------|------------------|
| ** **                                                   | ** ** | **2009**                                 | ** **       | **2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                        |       |                                     |             |   |   |
| Cash received from gaming winnings and concessions           |       | $                                        |  31,264,476 |   | $ |  33,165,093 |   |
| Cash paid for salaries and benefits                          |       | (8,030,206                               | )                | (7,882,528 | ) |
| Cash paid to suppliers                                       |       | (10,198,251                              | )                | (11,603,503 | ) |
| Cash paid for compact revenue sharing trust fund             |       | (333,750                                 | )                | (333,750 | ) |
|                                                         |       |                                     |             |   |   |
| Net cash provided by operating activities                    |       | 12,702,269                               |             | 13,345,312 |   |
|                                                         |       |                                     |             |   |   |
| CASH FLOWS USED IN CAPITAL AND RELATED FINANCING ACTIVITIES: |       |                                     |             |   |   |
| Payments of long-term debt                                   |       | (56,577                                  | )                | (108,922 | ) |
| Purchases of capital assets                                  |       | (3,908,054                               | )                | (988,364 | ) |
| Change in restricted cash                                    |       | (1,747                                   | )                | (16,362 | ) |
| Interest paid                                                |       | (762                                     | )                | (2,056 | ) |
| Other                                                        |       | 48,294                                   |             | (157,497 | ) |
|                                                         |       |                                     |             |   |   |
| Net cash used in capital and related financing activities    |       | (3,918,846                               | )                | (1,273,201 | ) |
|                                                         |       |                                     |             |   |   |
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:                 |       |                                     |             |   |   |
| Interest Income                                              |       | 8,438                                    |             | 488,476 |   |
|                                                         |       |                                     |             |   |   |
| CASH FLOWS USED IN NON-CAPITAL FINANCING ACTIVITIES:         |       |                                     |             |   |   |
| Distributions to Tribe                                       |       | (3,324,979                               | )                | (3,122,400 | ) |
|                                                         |       |                                     |             |   |   |
| CHANGE IN CASH AND CASH EQUIVALENTS                          |       | 5,466,882                                |             | 9,438,187 |   |
|                                                         |       |                                     |             |   |   |
| CASH AND CASH EQUIVALENTS, Beginning of the period           |       | 27,348,392                               |             | 46,533,389 |   |
|                                                         |       |                                     |             |   |   |
| CASH AND CASH EQUIVALENTS, End of the period                 |       | $                                        |  32,815,274 |   | $ |  55,971,576 |   |

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| RECONCILIATION OF INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH  PROVIDED BY OPERATING ACTIVITIES: |   |      |             |      |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------|------------------|-----------|--------|
| Income before Distributions to Tribe                                                                  |   | $         | 6,186,249        |      | $      |  6,978,121 |   |
|                                                                                                  |   |      |             |      |   |
| Adjustments to reconcile operating income to net cash provided by  operating activities:              |   |      |             |      |   |
| Depreciation                                                                                          |   | 2,374,610 |             | 2,939,856 |   |
| Interest expense                                                                                      |   | 5,215,500 |             | 5,216,791 |   |
| Interest income                                                                                       |   | (8,438    | )                | (488,476  | )      |
| Changes in operating assets and liabilities:                                                          |   |      |             |      |   |
| Accounts receivable                                                                                   |   | (197,020  | )                | (7,115    | )      |
| Inventories                                                                                           |   | 25,204    |             | 1,500     |   |
| Prepaid expenses and other current assets                                                             |   | 199,760   |             | (73,552   | )      |
| Accounts payable                                                                                      |   | (921,353  | )                | (774,257  | )      |
| Accrued liabilities                                                                                   |   | (172,243  | )                | (447,556  | )      |
| Total adjustments                                                                                     |   | 6,516,020 |             | 6,367,191 |   |
|                                                                                                  |   |      |             |      |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                             |   | $         |  12,702,269 |      | $      |  13,345,312 |   |

 

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

 

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**NOTESTO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

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

 

River Rock Entertainment Authority (the “Authority”) isa governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians(the “Tribe”), a federally recognized Indian tribe. River Rock Casino (the “Casino”)is a governmental instrumentality of the Authority. The Casino offers Class IIIgaming (as defined by the Indian Gaming Regulatory Act of 1988, as amended) ontribal land located in Geyserville, California.The Casino has 1,570 slot and videopoker gaming machines. The legal authority for slot machines and table games isprovided by the Tribe’s gaming compact with the State of California (the “Compact”),which was entered into in September 1999 and became effective uponapproval by the Secretary of Interior on May 5, 2000.  The Compactexpires on December 31, 2020.

 

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

 

The Authority operates as a separate, wholly ownedoperating unit of the Tribe (i.e., a separate enterprise fund of the Tribe) andis not a separate legal entity. These financial statements reflect thefinancial position and activity of only the Authority and do not purport torepresent the financial position and activity of the Tribe.

 

**2.****                               ****BASIS OF PRESENTATION, UNAUDITEDINTERIM FINANCIAL STATEMENTS**

 

The unaudited condensedfinancial statements of the Authority, presented herein are presented on thesame basis and can be compared to the audited financial statements reported inthe Authority’s annual information in the Authority’s 2008 Annual Report on Form 10-K,filed with the SEC. The accompanying condensed balance sheet as of December 31,2008 has been derived from the audited financial statements included in theAuthority’s Annual Report on Form 10-K for the year ended December 31,2008.

 

River Rock EntertainmentAuthority has made its disclosures in accordance with accounting principlesgenerally accepted in the United States of America as they apply to interimreporting, but condensed or omitted certain information and disclosuresnormally included in notes to financial statements in accordance with theSecurities and Exchange Commission’s rules and regulations. The unauditedcondensed financial statements should be read in conjunction with the financialstatements and the notes thereto in River Rock Entertainment Authority’s AnnualReport on Form 10-K for the year ended December 31, 2008.

 

In the opinion of theAuthority’s management, the accompanying unaudited interim condensed financialstatements contain all adjustments (consisting of normal recurring adjustments)to fairly present the Authority’s condensed financial position as of March 31,2009 and the condensed statements of revenues, expenses and changes in netassets (deficit) and cash flows for the three months ended March 31, 2009and 2008, as applicable. The statements of revenues, expenses and changes innet assets (deficit) and cash flows for the periods ended March 31, 2009and 2008 are not necessarily indicative of the results of operations or cashflows expected for the year or any other period.

 

**3.****                   ****SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

*Accounting Standards*—The Authority prepares its financialstatements in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”). The financial statements presented areprepared on the accrual basis of accounting from the accounts and financialtransactions of the Authority. GAAP requires the Authority to apply allapplicable pronouncements of the Governmental Accounting Standards Board (“GASB”).The Authority is also required to follow Financial Accounting Standards Board (“FASB”)Statements and Interpretations, Accounting Principles Board Opinions andAccounting Research Bulletins issued on or before November 30, 1989,unless those pronouncements conflict with or contradict GASBpronouncements.  The Authority is given the option whether to apply allFASB Statements and Interpretations issued after November 30, 1989, exceptfor those that conflict with or contradict GASB pronouncements. Accordingly,the Authority has elected to implement non-conflicting FASB Statements andInterpretations issued after November 30, 1989.

 

There are differences between financial statementsprepared in accordance with GASB pronouncements and those prepared inaccordance with FASB pronouncements. The statements of revenues, expenses andchanges in net assets (deficit) are a combined statement under GASBpronouncements. FASB pronouncements allow a statement of income or operations

 

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and a separate statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements.  The amount shown as income beforedistributions to Tribe would be the most comparable amount to net incomecomputed under FASB pronouncements. The Authority is a separate enterprise fundof the Tribe, a governmental entity, and as such there is no owners’ orshareholders’ (deficit) equity as traditionally represented under FASBpronouncements.  The most comparable measure of owners’ (deficit) equityis presented on the Authority’s balance sheet as net assets (deficit).

 

The Authority adopted the required provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 157 “*Fair Value Measurements*” (“SFAS No. 157”)on January 1, 2008.  SFAS No. 157clarifies the principle that fair value should be based on the assumptionsmarket participants would use when pricing an asset or liability andestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  SFAS No. 157establishes a fair value hierarchy for disclosure of the inputs used to measurefair values. This hierarchy prioritizes the inputs into three broad levels.Level 1 inputs are quoted prices (unadjusted) in active markets for identicalassets or liabilities. Level 2 inputs are quoted prices for similar assets andliabilities in active markets or inputs that are observable for similar assetsor liabilities, either directly or indirectly through market corroboration, forsubstantially the full term of the financial instrument. Level 3 inputs areunobservable inputs which reflect assumptions developed by management tomeasure assets and liabilities at fair value. A financial asset or liability’sclassification within the hierarchy is determined based on the lowest levelinput that is significant to the fair value measurement.  There was no material impact to the Authority’scondensed financial statements upon the adoption of SFAS No. 157.  See Note 8.

 

*Use ofEstimates*—Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of revenuesand expenses during the reporting period. On an ongoing basis, we evaluatethose estimates, including those related to asset impairment, accruals for ourpromotional slot club, compensation and related benefits, revenue recognition,allowance for doubtful accounts, contingencies and litigation. Actual resultscould differ from these estimates.

 

*Cashand Cash Equivalents*—TheAuthority considers all highly liquid investments with a maturity of threemonths or less at date of purchase as cash equivalents. The carrying amount ofcash and cash equivalents approximates its fair value. Cash and cashequivalents include cash on hand, cash on deposit with banks and highly liquidinvestments.  The Federal DepositInsurance Corporation (“FDIC”) has insured $250,000 of the cash on deposit witheach bank. The Authority believes that there is little risk of loss regardingthe uninsured amounts of cash and cash equivalents on deposit with the banks.

 

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

 

*RestrictedAssets*— Funds are set aside as restricted assets, and they are not availablefor current expenses, when constraints placed on their use are legallyenforceable due to either:

 

·                  Externally imposedrequirements by creditors (such as through debt covenants), grantors orcontributors.

·                  Laws or regulations ofother governments.

·                  Constitutional provisionsor enabling legislation.

 

TheAuthority’s policy is to use restricted assets before unrestricted assets forexpenses incurred for which both restricted and unrestricted net assets areavailable.  The Authority’s restricted assets consist of estimatedconstruction expenses for three parking structures, related infrastructureimprovements and construction contingencies. It also includes funds that arereserved for additional construction contingencies and the funds necessary todevelop an approximately 18-acre parcel of land adjacent to the Tribe’sreservation. These funds are held in escrow accounts which are restricted forauthorized construction disbursements. These escrow accounts are invested incertificates of deposit, which generate interest on a monthly basis. The FDIChas insured $250,000 of this balance. The Authority believes that there islittle risk of loss regarding the uninsured amounts of restricted cash held inthe escrow account. Restricted cash was $7,092,020 and $7,090,273 at March 31, 2009 and December 31,2008, respectively.  As of March 31, 2009, restricted cash includesamounts available for construction of $2,769,762 and land development funds of$4,322,258.

 

*Capital Assets*— Capital Assets 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  |   |

 

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

 

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

 

*Evaluation of Long-Lived Assets* — Accounting pronouncement GASB No. 42,“*Accounting and Financial Reporting for Impairmentof Capital Assets and for Insurance Recoveries*”, was effective forthe Authority for the year ended December 31, 2005.  This Statement established accounting andfinancial reporting standards for impairment of capital assets.  The Authority’s capital assets includebuilding and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired ifboth the decline in service utility of the capital asset is large in magnitudeand the event or change in circumstances is outside the normal life cycle ofthe capital asset.  The Authority isrequired to evaluate prominent events or changes in circumstances affectingcapital assets to determine whether impairment of a capital asset hasoccurred.  Common indicators ofimpairment include evidence of physical damage where restoration efforts areneeded to restore service utility, enactment or approval of laws or regulationssetting standards that the capital asset would not be able to meet,technological development or evidence of obsolescence, a change in the manneror expected duration of use of a capital asset or construction stoppage.  This Statement will require the Authority toreport the effects of capital asset impairment in its financial statements whenthey occur, rather than as part of the ongoing depreciation expense for thecapital asset or upon disposal of the capital asset, and to account forinsurance recoveries in the same manner. The Authority’s management has determined that no impairment of capitalassets currently exists.

 

*Capitalized interest —*The interest cost associatedwith major development and construction projects is capitalized and included inthe cost of the asset.  Capitalization ofinterest ceases when the project is substantially complete or when developmentactivity is suspended.  The Authority didnot capitalize any interest for the three months ended March 31, 2009 and2008.

 

*Deposits and Other Assets*—As of March 31, 2009 and December 31,2008, deposits and other assets include $2,641,719 and $2,897,142 in unamortized legal fees and otherissuance costs related to the issuance of the Authority’s 9 3⁄4% Senior Notes due2011 (the “Senior Notes”) under the Indenture, dated November 7, 2003 (the“Indenture”); $78,191 and $126,487 of performance deposits and $15,900 and $15,900 ofrental deposits.  Deferred loan costs are amortized using the effectiveinterest method to interest expense over the term of the related financialarrangement.

 

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

 

*Compensated absences* — All employees of the Authority earn annual leavethat is paid upon termination or retirement. Annual leave is accrued at current rates of compensation.

 

*Accrued Progressive 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.

 

*Accrued Slot Players Club*—In accordance with Emerging Issues TaskForce Issue No. 00-22, “*Accounting for ‘Points’and Certain Other Time-based or Volume-Based Sales Incentive Offers and Offersfor Free Products or Services to Be Delivered in the Future*,” theAuthority has recorded a liability related to free play, prizes and cashincentives earned by the members of our Players Club. The Authority hasrecorded the cost of the estimated redemption of the liability ascontra-revenue in the accompanying statements of revenues, expenses and changesin net assets (deficit).

 

*Contingencies* — We assess our exposure to loss contingencies,including legal matters, and provide for an exposure if it is judged to beprobable and estimable. If the actual loss from a contingency differs frommanagement’s estimate, operating results could be materially impacted. As of March 31,2009, we have determined that no accruals for claims and legal actions arerequired. If circumstances surrounding claims and legal actions change, theaddition of accruals for such items in future periods may be required, whichaccruals may be material.

 

*Authority net assets* — Invested incapital assets, net of related debt, consists of capital assets, net ofaccumulated depreciation, reduced by the outstanding balances of any borrowingsused for the acquisition, construction or improvement of those assets.  Invested in capital assets, net of relateddebt, excludes unspent debt proceeds.

 

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Restricted net assetsrepresent amounts that are appropriated or are legally segregated for aspecific purpose.  Authority net assetsare reported as restricted when there are limitations imposed on its use,either through the enabling legislation adopted by the Authority or throughexternal restrictions imposed by creditors, grantors, laws or regulations ofother governments.

 

*Casino Revenues*—In accordance with industry practice,the Authority recognizes as Casino revenue the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots.

 

*Food, Beverage and Retail Revenues*—The Authority recognizes as food,beverage and retail revenues the proceeds from its food, beverage and gift shopsales. The Authority continues to distribute non-alcoholic beverages withoutcost in the gaming area for playing guests.

 

*Other Revenues*—Other revenues are comprised ofcommissions on ATM machine transactions.

 

*Promotional Allowances*—The retail value of food and beveragesprovided to customers without charge or at a discount is included in food,beverage and retail revenues and then deducted as promotional allowances. Suchamounts that are included in food, beverage, and retail revenues for the threemonths ended March 31, 2009 and 2008 were $45,742 and $169,839,respectively.

 

*Food and Beverage Expenses*—Food and beverage expensesinclude cost of goods sold related to providing food and beverage to ourcustomers. The estimated costs of providing complimentary services arereclassified from food, beverage and retail costs to Casino expenses.  The estimated costs of such services were$279,041 and $947,951 for the three months ended March 31, 2009 and 2008,respectively.

 

*Advertising Costs*—Advertising costs are expensed the firsttime advertising takes place. Advertising costs included in selling, generaland administrative expenses were $841,976 and $1,491,199 for the three monthsended March 31, 2009 and 2008, respectively.

 

*Gaming Commission andSurveillance Expenses*—The Authority pays for various expenses for the Tribal GamingCommission and Surveillance.  Tribal Gaming Commission expenses arereported as Gaming Commission and surveillance expense on the statements ofrevenues, expenses and changes in net assets (deficit). Gaming Commission andSurveillance expenses for the three months ended March 31, 2009 and 2008were $865,501 and $1,002,143, respectively.

 

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

 

*Distributions to Tribe*—Distributions to Tribe are made up ofpermitted payments under the covenants of the Indenture.  They areincluded in the statements of revenues, expenses and changes in net assets(deficit) as distributions to Tribe allowed pursuant to the Indenture. Total distributions to the Tribe for the three months ended March 31, 2009and 2008 were $3,324,979 and $3,122,400, respectively.

 

*Reclassifications*—Certain prior year balancesin the statements of revenues, expenses and changes in net assets (deficit)have been reclassified to be consistent with current year presentation with nochange to net revenues or net income, including the reclassification ofe-coupons and cash incentives from promotional allowances to casinocontra-revenues.

 

**4.****                               ****PRONOUNCEMENTS ISSUEDBUT NOT YET ADOPTED**

 

The GASB has issued severalpronouncements that have effective dates that may impact future financialpresentations.  Management has notcurrently determined what, if any, impact implementation of the followingstatements may have on the financial statements of the Authority:

 

·                  In July 2007, the GASBissued Statement No. 51, *Accounting and FinancialReporting for Intangible Assets*. This Statement provides needed guidance regarding how to identify,account for and report intangible assets. The new standard characterizes an intangible asset as an asset thatlacks physical substance, is nonfinancial in nature and has an initial usefullife extending beyond a single reporting period.  Examples of intangible assets includeeasements, computer software, water rights, timber rights, patents andtrademarks.  Statement No. 51requires that intangible assets be classified as capital assets (except forthose explicitly excluded from scope of the new standard).  This standard should lead to greaterconsistency among governmental reporting agencies.

 

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The requirements of Statement No. 51 areeffective for financial statements for periods beginning after June 15,2009.

 

·                  In June 2008, the GASBissued Statement No. 53, *Accounting and FinancialReporting for Derivative Instruments*.  This Statement addresses the recognition,measurement and disclosure of information regarding derivative instrumentsentered into by governmental reporting agencies.  The objectives, terms and risks of hedgingderivative instruments are required disclosures.  Disclosures also include a summary ofderivative instrument activity that provides an indication of the location offair value amounts reported on the financial statements.  The requirements of Statement No. 53 areeffective for financial statements for periods beginning after June 15,2009.

 

**5.****                               ****CERTAIN RISKS ANDUNCERTAINTIES**

 

The Authority’s operations are dependent on thecontinued licensing and qualification of the Authority by the Tribal GamingCommission. Such licensing and qualification are reviewed periodically by theTribal Gaming Commission and regulatory agencies of the State of California.The Authority believes that no events or circumstances have arisen that wouldhave an adverse effect on the Casino’s ability to continue its licensing andqualification by the Tribal Gaming Commission or regulatory agencies of theState of California to operate the Authority.

 

**6.****                               ****RELATED PARTIES**

 

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

 

The Authority pays for various expenses for thefollowing departments operated by the Tribe: Tribal Gaming Commission, surveillance, plant operations, humanresources and warehouse.  Thesedepartmental expenses include but are not limited to payroll and relatedexpenses, legal, and other operational expenses.

 

Total amounts billed by the Tribe to the Casino for thesedepartments, excluding Tribal Gaming Commission and surveillance, were $879,915and $822,626 for the three months ended March 31, 2009 and 2008,respectively. They are recorded as a component of selling, general andadministrative expenses.

 

The Authority pays for various expenses for the TribalGaming Commission and surveillance. Tribal Gaming Commission andsurveillance expenses are recorded in Gaming Commission and surveillanceexpenses on the statements of revenues, expenses and changes in net assets(deficit).  Gaming Commission and surveillance expenses for the threemonths ended March 31, 2009 and 2008 were $865,501 and $1,002,143,respectively.

 

The Tribe has incurred expenses on behalf of theAuthority that relate to the master planning for the proposed resort and Tribalinfrastructure that benefit the Authority. During the three months ended March 31,2009, the Authority authorized reimbursement of $1,977,045 to the Tribe forthese expenses, of which $1,227,045 was paid before March 31, 2009 and$750,000 was accrued.  These expenseswere capitalized and are reflected in construction-in-progress. The reimbursedcosts consist primarily of engineering and design costs related to the proposedmaster plan development, including electrical, HVAC, landscaping, interiordesign services and consulting fees for legal, branding, feasibility and publicrelations services. While the Tribe has not made any additional request to theAuthority for reimbursement, it may request additional reimbursements from theAuthority in the future. While the Authority has no obligation to pay suchamounts when requested, and any such reimbursement would need to be approved bymanagement and the Board of Directors of the Authority, there is a possibilitythat such request for reimbursement may be made by the Tribe. Prior to makingany reimbursement payment, the Authority will consider various factors,including, but not limited to, whether the costs incurred were actually relatedto the master planning, whether such costs are beneficial to the gamingbusiness and expansion plans of the Authority, the reasonableness of suchcosts, the availability of cash and whether the reimbursement payment is incompliance with the covenants in the Indenture.

 

On April 16, 2008, in a joint effort with theTribe, the Authority pledged a cash gift to Healthcare Foundation, a localhospital, in the amount of $1.8 million. Since May 2008, this cash donation has been provided at the monthlyrate of $30,000 over the course of five years. This cash donation is a gift and not part of any revenue sharingagreement with any state or local government.

 

The Authority reserved 50 recreational vehicle spacesand 10 campsite spaces at Alexander RV Park and Campground for casinoguests.  Alexander RV Park and Campgroundis a wholly owned subsidiary of the Tribe. The cost of

 

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reserving the parking spaces and campsite spaces forthe three months ended March 31, 2009 was $66,150 compared to $63,000 forthe same prior year period.

 

**7.****            ****CASH AND CASH EQUIVALENTS ANDRESTRICTED CASH**

 

Cash and cash equivalents and restricted cashconsisted of the following as of March 31, 2009 and December 31,2008:

 
| ** **                                          | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
|                                                |       |               |       |                  |       |
| Operating accounts                                  |       | $                  | 12,420,521 |                  | $          | 9,221,163 |   |
| Money market accounts                               |       | 16,925,033         |       | 12,157,902            |       |
| Cash on hand                                        |       | 3,469,720          |       | 5,969,327             |       |
|                                                |       |               |       |                  |       |
| Cash and cash equivalents                           |       | 32,815,274         |       | 27,348,392            |       |
| Restricted cash                                     |       | 7,092,020          |       | 7,090,273             |       |
|                                                |       |               |       |                  |       |
| Total cash and cash equivalents and restricted cash |       | $                  | 39,907,294 |                  | $          | 34,438,665 |   |

 

Custodial credit risk fordeposits is the risk that, in event of the failure of a depository financialinstitution, a government will not be able to recover its deposits or will notbe able to recover collateral securities that are in the possession of anoutside party.  The Authority maintains abank account where, at the conclusion of each business day, balances in thisaccount are swept into overnight investments which are either U.S. governmentsecurities (guaranteed) or in U.S. agency securities (governmentsponsored).  The California Code and theAuthority’s investment policy authorize these types of investments.  The deposits were insured by the FDIC up to$100,000 per bank.  On October 3,2008, Congress temporarily increased FDIC deposit insurance from $100,000 to$250,000 per depositor through December 31, 2009.  The Authority’s operating cash and restrictedcash accounts were FDIC insured up to $250,000 each.

 

**8.****                               ****FAIR VALUE MEASUREMENTS**

 

The following table summarizes the basis used tomeasure certain assets and liabilities at fair value on a recurring basis,under the applicable provisions of SFAS No. 157:

 
| ** **               | ** ** | ** **               | ** ** | **Fair Value Measurements at Reporting Date, Using:**            | ** ** |
|--------------------------|------------|--------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| ** **               | ** ** | **March 31,  2009** | ** ** | **Quoted Prices  in Active  Markets for  Identical Items  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Observable  Inputs  (Level 3)** | ** ** |
| Financial Assets:        |       |                     |       |                                                                                           |       |   |   |   |   |
| Money Market Instruments |       | $                        | 16,925,033 |                                                                                           | $          | 16,925,033 |   | $ | — |   | $ | — |   |
|                          |            |                          |            |                                                                                                |            |  |  |  |  |  |  |  |  |

 

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**9.****            ****CAPITAL ASSETS**

 

Capital Assets at December 31,2008 and March 31, 2009 consisted of the following:

 
| ** **                        | ** ** | **Balance, as of**     | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance, as of**  | ** ** |
|-----------------------------------|------------|------------------------|-------------|---------------|------------|------------------|------------|---------------------|------------|
| ** **                        | ** ** | **December 31,  2008** | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **March 31,  2009** | ** ** |
| Buildings and improvements        |       | $                      | 130,357,841 |          | $          | 20,356           |       | $                   | —     |   | $ | 130,378,197 |   |
| Furniture, fixtures and equipment |       | 34,143,554             |        | 1,910,653     |       | —           |       | 36,054,207          |       |
| Less accumulated depreciation     |       | (54,484,916            | )           | (2,374,610    | )          | —           |       | (56,859,526         | )          |
|                              |       | 110,016,479            |        | (443,601      | )          | —           |       | 109,572,878         |       |
| Construction in progress          |       | 45,599,195             |        | 1,977,045     |       | —           |       | 47,576,240          |       |
| Capital assets — net         |       | $                      | 155,615,674 |          | $          | 1,533,444        |       | $                   | —     |   | $ | 157,149,118 |   |

 

Capital Assets at December 31,2007 and March 31, 2008 consisted of the following:

 
| ** **                        | ** ** | **Balance, as of**     | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance, as of**  | ** ** |
|-----------------------------------|------------|------------------------|-------------|---------------|------------|------------------|------------|---------------------|------------|
| ** **                        | ** ** | **December 31,  2007** | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **March 31,  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           |       |
| Capital assets — net         |       | $                      | 124,408,116 |          | $          | (1,951,491       | )          | $                   | —     |   | $ | 122,456,624 |   |

 

Constructionin progress consists of payments or amounts owed to various vendors and to theTribe related to the Authority’s master plan development and landimprovements.  Substantially all of theAuthority’s personal properly is pledged as collateral to secure its debt.

 

**10.****         ****ACCRUED LIABILITIES**

 

Accrued liabilities consisted of the following as of March 31,2009 and December 31, 2008:

 
| ** **                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|---------------|------------|------------------|------------|
| ** **                                 | ** ** | **2009**      | ** ** | **2008**         | ** ** |
|                                       |       |          |       |             |       |
| Accrued in-house progressive slot jackpots |       | $             | 1,648,775  |             | $          | 1,531,747 |   |
| Accrued payroll and related benefits       |       | 1,975,799     |       | 2,285,481        |       |
| Accrued interest                           |       | 8,125,000     |       | 3,250,000        |       |
| Accrued other expenses                     |       | 1,021,079     |       | 1,034,850        |       |
| Total accrued liabilities                  |       | $             | 12,770,653 |             | $          | 8,102,078 |   |

 

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**11.****         ****LONG-TERM DEBT**

 

Long-term debt consisted of the following as of March 31,2009 and December 31, 2008:

 
| ** **                                                                                  | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------|-------------|------------------|------------|
| ** **                                                                                  | ** ** | **2009**      | ** **  | **2008**         | ** ** |
| ** **                                                                                  | ** ** | ** **    | ** **  | ** **       | ** ** |
| 9-3/4% Senior Notes, net of unamortized issue discount of $871,226  and $955,538. Due 2011. |       | $             | 199,128,774 |             | $          | 199,044,462 |   |
| Vehicles Notes                                                                              |       | 5,851         |        | 12,291           |       |
| Lease obligations                                                                           |       | 18,228        |        | 34,182           |       |
| Total Long-Term Debt                                                                        |       | 199,152,853   |        | 199,090,935      |       |
| Less: current portion                                                                       |       | (24,079       | )           | (45,011          | )          |
|                                                                                        |       |          |        |             |       |
| Total long-term debt - net of current maturities                                            |       | $             | 199,128,774 |             | $          | 199,045,924 |   |

 

On November 7, 2003, the Authority issued theSenior Notes. The proceeds were utilized to fund an expansion project, whichincluded three parking structures, related infrastructure improvements,repayment of various debt and advances and fund payment of various accruals andpayables, as well as to increase cash on hand. The proceeds were also utilizedto fund a land purchase and settle litigation.  The Senior Notes arecollateralized by a first priority pledge of the Authority’s revenue andsubstantially all of the existing and future tangible and intangible personalproperty. The Authority may redeem the Senior Notes, in whole or in part, at a redemptionprice that is at a premium to the principal amount of the Senior Notes(expressed as percentages of principal amount), plus accrued and unpaidinterest.

 

The Authority’s long-term debt is recorded at anamortized historical cost basis.  The fair value of the Senior Notes wasapproximately $109 million as of March 31, 2009 based on level one inputs,quoted prices in active markets.

 

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

 

On February 21, 2007, the Authority entered intoa 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 was $625 per month for the first year (through February 2009)and $712  per month for the second year (March 2009through February 2010), with adjustments for the Consumer Price Index, andproperty taxes in the third year.

 

On August 30, 2007, the Authority entered into afive year operating lease agreement for office and showroom space commencing October 1,2007 and expiring on September 30, 2012. The monthly lease fee for the initial year was $16,630.  As of October 1, 2008, the monthly leasefee increased to $17,129.

 

On September 1, 2004, the Authority entered intoa five year capital lease to purchase two licenses to operate three-card pokertables in the amount of $120,000.  The capital lease is at 7.20% interestwith monthly lease fees of $2,390 and a $1 buyout at the end of the lease term,expiring August 31, 2009.

 

On April 25, 2006, the Authority entered into athirty six month capital lease to purchase 5 Deck Mate Poker shufflers in theamount of $61,827.  The capital lease is at 7.92% interest with monthlylease fees of $1,937 and a $1 buyout at the end of the lease term, expiring April 30,2009.

 

On August 1, 2006 the Authority entered into athirty six month capital lease to purchase 2 licenses to operate Pai Gow pokertables in the amount of $38,800.  Thecapital lease is at 4.20% interest with monthly lease fees of $1,150 and a $1buyout at the end of the lease term, expiring July 31, 2009.

 

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** **

**13.****                        ****LEGAL MATTERS AND SUBSEQUENT EVENTS**

 

*RunyanLitigation*

 

On March 7, 2008, Norman Runyan, our former ChiefOperations Officer, filed suit against the Authority, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of the Authority’s Board, inthe Sonoma County Superior Court. Mr. Runyan’s complaint asserted causesof actions for breach of contract, wrongful termination in violation of publicpolicy, intentional interference with contract and intentional infliction ofemotional distress. He sought unspecified compensatory and punitive damages. Mr. Runyanalleged that he was wrongfully terminated from his employment because heopposed certain alleged actions on the part of the defendants, includingcontracts for construction work allegedly performed on the reservation byaffiliates of the Tribe and Mr. Hopkins. Mr. Runyan claimed that thework violated the Indenture and that Mr. Runyan was forced to resign fromhis employment in violation of public policy after protesting that the allegedwork violated the Indenture, the Compact, and the Securities Exchange Act of1934. He also claimed that the defendants unlawfully discriminated against himin connection with his status as a debtor under the Bankruptcy Code. Webelieved that Mr. Runyan’s lawsuit is based on erroneous information andis without merit, and we and the Tribe vigorously defended against it.

 

On October 17, 2008,the judge of the Sonoma County Superior Court signed an Order dismissing thelawsuit filed by Norman Runyan against the Authority, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of the Authority’s Board.  On December 3, 2008, the Order wasentered and the case was dismissed.

 

On January 14, 2009,Mr. Runyan filed a Petition for Order Compelling Arbitration with theSonoma County Superior Court, and on January 30, 2009, he filed a Motionfor Order Compelling Arbitration.  Inboth the Petition and the Motion, Mr. Runyan seeks to have the Court issuean order compelling arbitration of the claims asserted in the complaint thatwas dismissed by the court in December 2008.  The Authority believes, based on fact that Mr. Runyanentered into a Severance Agreement and General Release with the Authority, theCasino, and other released parties, that there is no basis for Mr. Runyanto seek arbitration of his claims.  On April 13,2009, the Authority, the Casino, and Mr. Hopkins filed a hybrid motion toquash summons and dismiss the Petition and Motion.  A hearing on the motion is set for May 13,2009 and a hearing on the Mr. Runyan’s petition for an order compellingarbitration is set for May 27, 2009.

 

*OtherLegal Matters*

 

The Authority is involvedin other litigation and disputes from time to time in the ordinary course ofbusiness with vendors and patrons. The Authority believes that the aggregateliability, if any, arising from such litigation or disputes will not have amaterial adverse effect on its results of operations, financial condition or cashflows.

 

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

 

The Compact requires the Authority 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 and $333,750 for the three months ended March 31,2009 and 2008, respectively.

 

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

 

The Authority is an unincorporated instrumentality ofthe Tribe formed pursuant to an adopted law of the Tribe. While the Authorityis not a separate corporation or other legal entity distinct from the Tribe,this tribal law allows the Authority to own and operate its business. Thistribal law also provides that the Authority’s obligations and other liabilitiesare not those of the Tribe and that the obligations and liabilities of theTribe are not those of the Authority. This law is untested and generally has nodirect counterpart in other areas of the law. If this law should prove to beineffective at limiting the Authority’s liability, the Authority’s business andassets could become subject to claims asserted against the Tribe or its assets.Similarly, the Authority would be liable for such claims if the Tribe waivedits sovereign immunity to an extent that allowed enforcement of such claimsagainst the Authority’s business or assets.

 

On March 18, 2008, the Tribe and the SonomaCounty Board of Supervisors entered into a memorandum of agreement (“MOA”) thatis expected to settle several long-standing legal disputes between SonomaCounty and the Tribe and provide a binding framework for resolving futuredisputes.  Pursuant to the MOA, the Tribe has agreed to pay the County $75million in mitigation fees over the next 12 years, subject to adjustment undercertain circumstances described in the MOA, to offset the potential losses andimpacts to the County resulting from the Tribe’s various ongoing projects andto support the services being provided by the County.  The Tribe paid $3.0million on April 17, 2008 and $4.5 million on September 20,2008.  Future payments are scheduled to take place as follows: $2.8million no later than June 30, 2009; $5.0 million upon the earlier of March 18,2011 or the opening of phase one of the resort project; $5.0 million on July 1st of thesubsequent year but no later than July 1, 2011; and $5.0 million plus 4%compounded annually on July 1 of each subsequent year until the entire$75.0 million has been paid.  In addition to the mitigation fees, theTribe will pay a fee in lieu of the County’s 

 

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TransientOccupancy Tax in the amount of 9% of the rental collected on occupied hotelrooms, to be paid quarterly and continuing for five years after the later tooccur of the termination of the MOA, as may be extended, or the Tribe’s Compactwith the State (which is now terminable in 2020 at the earliest), which feesmay be applied to programs and services that serve to promote tourism in theCounty. Such in lieu fees could total as much as $25 million during the term ofthe MOA.

 

The Authority is not a party to the agreement with theSonoma County Board of Supervisors and is not obligated to pay any feespursuant to the MOA.   It is expectedthat the Tribe will make payments to Sonoma County pursuant to the MOA fromdistributions made by the Authority to the Tribe.

 

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

 

The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with theaccompanying unaudited condensed financial statements and related notesincluded in Item 1 of this report.

 

**Overview**

 

We are an unincorporated governmental instrumentalityof the Tribe that owns and operates the Casino. 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 and beverageofferings and goods for sale in our gift shop.

 

**Critical Accounting Policies andEstimates**

 

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

 

·                  Casino Revenues — In accordance with industry practice, casino revenueis recognized 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.

 

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

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

 

·                          We evaluate our capital assets for impairment inaccordance with the Accounting pronouncement GASB No. 42, “*Accounting and Financial Reporting for Impairment of Capital Assets andfor Insurance Recoveries*”, which was effective for the Authority forthe year ended December 31, 2005. This Statement establishes accounting and financial reporting standardsfor impairment of capital assets.  TheAuthority’s capital assets include building and improvements, furniture,fixtures and equipment.  A capital assetis considered impaired if both the decline in service utility of the capitalasset is large in magnitude and the event or change in circumstances is outsidethe normal life cycle of the capital asset. The Authority is required to evaluate prominent events or changes incircumstances affecting capital assets to determine whether impairment of acapital asset has occurred.  Commonindicators of impairment include evidence of physical damage where 

 

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restoration efforts are needed to restore serviceutility, enactment or approval of laws or regulations setting standards thatthe capital asset would not be able to meet, technological development orevidence of obsolescence, a change in the manner or expected duration of use ofa capital asset or construction stoppage. This Statement will require the Authority to report the effects of capitalasset impairment in its financial statements when they occur, rather than aspart of the ongoing depreciation expense for the capital asset or upon disposalof the capital asset, and to account for insurance recoveries in the samemanner.

 

·                  Accrued Progressive Slot Jackpots —Accrued progressive slot jackpots consist of estimates for prizes relating tovarious games that have accumulated jackpots. We have recorded the cost ofthese anticipated payouts as a reduction of casino revenues and the cost isincluded as a component of accrued liabilities.

 

·                  Contingencies — We assess our exposure toloss contingencies, including legal matters, and provide for an exposure if itis judged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of March 31, 2009, we have determined that no accruals forclaims and legal actions are required. If circumstances surrounding claims andlegal actions change, the addition of accruals for such items in future periodsmay be required, which accruals may be material.

 

Accounting Standards — There are differences betweenfinancial statements prepared in accordance with GASB pronouncements and thoseprepared in accordance with FASB pronouncements. The statements of revenues,expenses and changes in net asset (deficit) are a combined statement under GASBpronouncements. FASB pronouncements allow a statement of income or operationsand a statement of owners’ or shareholders’ (deficit) equity, which is wheredistributions to owners would be presented under FASB pronouncements. Theamount shown on our statements of revenues, expenses and changes in net asset(deficit) as income before distributions to the Tribe would be the mostcomparable amount to net income computed under FASB pronouncements. We are anunincorporated instrumentality created by tribal law and accounted for as aseparate fund of the Tribe.  As such,there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements. The most comparable measure of owners’equity presented on our balance sheet would be net asset (deficit).

 

Reclassifications—Certain prior year balancesin the statements of revenues, expenses and changes in net assets (deficit)have been reclassified to be consistent with current year presentation with nochange to net revenues or net income, including the reclassification ofe-coupons and cash incentives from promotional allowances to casinocontra-revenues.

 

**Results of Operations**

 

**Comparison of the three months ended March 31,2009 and 2008**

 

*Net revenues*. Net revenues for the three months endedMarch 31, 2009 decreased by $1.7 million to $31.5 million, from $33.2million, for the three months ended March 31, 2008.  The decrease innet revenues is attributable to the continuing industry-wide slow down in thegaming and entertainment industry during the first quarter of 2009.  Approximately 95.2% of our net revenues werefrom our gaming activities in the first quarter of 2009. We generated $27.0million or 85.7% of our net revenues from gaming devices, and $3.0 million, or 9.5%of our net revenues from table games and poker for the three months ended March 31,2009, compared to $28.0 million from gaming devices or 84.3% of our netrevenues, and $3.9 million or 11.7% of net revenues from table games and pokerfor the three months ended March 31, 2008. Our win per slot machine per day was $191 in the three months ended March 31,2009, which decreased by $4 from $195 for the three months ended March 31,2008.  The decrease in net win per machine per day is attributable to thegeneral market slow down mentioned above.

 

We generated $1.4 million, net of promotionalallowance of $45,742, in food, beverage and retail sales for the three monthsended March 31, 2009, compared to $1.1 million, net of promotionalallowances of $0.2 million, in food, beverage and retail sales for the threemonths ended March 31, 2008.  Thedecrease in promotional allowances was the result of a strategic reduction tonarrow our marketing focus on higher revenue generating players.

 

*Promotional allowances*. Promotional allowances for the threemonths ended March 31, 2009 were $45,742, or 0.01% of net revenues,compared to $0.2 million, or 0.06% of net revenues, for the three months ended March 31,2008.

 

*Operating expenses*. Operating expenses for the three monthsended March 31, 2009 were $20.1 million, or 63.8% of net revenues,compared to $21.5 million, or 64.8% of net revenues, for the three months endedMarch 31, 2008.

 

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Casino expense includes costs associated with ourgaming operations and the allocation of food and beverage expense related tothe cost of complimentary activities. Casino expense for the three months endedMarch 31, 2009 was $4.2 million compared to $5.0 million for the threemonths ended March 31, 2008.  Casinoexpense as a percentage of Casino revenues decreased by 1.7 percentage pointsfrom 15.7% to 14.0% for the three months ended March 31, 2009. Casinoexpenses decreased due to the cost saving measures to adjust for the decline incustomer demand. In addition, we have reduced wide-area progressive fees andcosts by replacing those machines with machines that we have purchased.

 

Food, beverage and retail expense for the three monthsended March 31, 2009 was $2.1 million, or 150.0% of food, beverage andretail revenue, net of promotional allowances, compared to $1.7 million, or154.5% of food, beverage and retail revenue, net of promotional allowances forthe three months ended March 31, 2008. Our food, beverage and retailexpense ratio is significantly higher than the industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

 

Selling, general and administrative expense for thethree months ended March 31, 2009 decreased by $0.1 million to $10.3million, or 32.7% of net revenues, from $10.4 million, or 31.3% of netrevenues, for the three months ended March 31, 2008. The decrease inselling, general and administrative expenses is primarily due to the change inour marketing strategy. We have reduced our advertising and have increased ourdirect mail campaign.

 

Depreciation expense for three months ended March 31,2009 was $2.4 million compared to $2.9 million for the three months ended March 31,2008.  Depreciation expense was computedusing the straight-line method over the useful life of property, plant andequipment. Now that the casino is over five years old, much of our originalequipment has been fully depreciated.

 

Gaming Commission and surveillance expense for thethree months ended March 31, 2009 was $0.9 million compared to $1.0 forthe three months ended March 31, 2008.

 

The Compact requires us to pay a quarterly fee to theState of California’s revenue sharing trust fund, based on the number oflicensed gaming devices operated by us. Revenue sharing trust fund feesassessed were $0.3 million for each of the three months ended March 31,2009 and 2008.

 

*Income from operations.* Income from operations for the threemonths ended March 31, 2009 was $11.4 million, or 36.2% of net revenues,compared to $11.7 million, or 35.2% of net revenues, for the three months endedMarch 31, 2008.  The decrease in income from operations isattributable to the industry-wide slow down in the gaming and entertainmentindustry.

 

*Non-Operating expense, net.* Non-operating expense, net for the threemonths ended March 31, 2009 was $5.2 million, or 16.5% of net revenues,compared to $4.7 million or 14.2% of net revenues, for the three months ended March 31,2008.  Non-operating expense, net includes $5.2 million of interest expensefor each of the three months ended March 31, 2009 and 2008.  No interest costs were capitalized in thethree month periods ended 2009 and 2008.

 

*Income before distributions to theTribe*. Incomebefore distributions to the Tribe for the three months ended March 31,2009 decreased by $0.8 million to $6.2 million, or 19.7% of net revenues, from$7.0 million, or 21.1% of net revenues, for the three months ended March 31,2008.

 

*Distributions to the Tribe*. Distributions to the Tribe for thethree months ended March 31, 2009 increased by $0.2 million to $3.3million, compared to $3.1 million, for the three months ended March 31,2008.

 

**Liquidity and Capital Resources**

 

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

 

In the three months ended March 31, 2009, wespent $6,400 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 provide an additional access road to our Casino. We have $4.3million remaining in a restricted account funded from the proceeds of ourSenior Notes for the development of the Dugan Property.

 

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Our capital expenditures for the three months ended March 31,2009 and 2008 were $3.9 million and $1.0 million, respectively.  The capital expenditures for the three monthsended March 31, 2009 consisted primarily of $1.9 million in additions toequipment largely due to slot machine purchases, as well as $2.0 million inadditions to construction-in-progress for the master plan development of ourplanned resort.  We have reflected theexpenditures relating to the master plan development which we reimbursed theTribe as construction in progress in our balance sheet.

 

As of March 31, 2009, we had cash and cashequivalents, net of restricted cash of $32.8 million, compared to $27.3million, as of December 31, 2008. We had restricted cash of $7.1 millionas of March 31, 2009 and as of December 31, 2008.  Our principal source of liquidity during thethree months ended March 31, 2009 consisted of cash flow from operatingactivities.

 

Restricted cash consists of net proceeds from theSenior Notes and investment earnings thereon set aside in constructionfinancing accounts for construction costs for the three parking structures,related infrastructure improvements and construction contingencies. It alsoincludes funds that are reserved for additional construction contingencies andthe funds for the development of the Dugan Property.  Our restricted cash is held in escrowaccounts that can only be used for authorized construction disbursements untilthe related projects are completed.

 

Net cash used for capital and related financingactivities for the three months ended March 31, 2009 was $3.9 million,compared to $1.3 million for the three months ended March 31, 2008. Thisincrease was primarily attributable to capital expenditures.

 

Cash flows provided by investing activities for thethree months ended March 31, 2009 decreased by $0.5 million to $8,438,from $0.5 million, for the three months ended March 31, 2008.

 

Cash flows used in non-capital financing activitiesfor the three months ended March 31, 2009 was $3.3 million, an increase of$0.2 million, from $3.1 million, for the three months ended March 31,2008.  Cash flows used in non-capital financing activities consisted ofdistributions to the Tribe.  The increase is due to annual increases inthe Service Payments permitted by the Indenture.

 

We believe the existing cash balances, cash fromoperations, as well as permitted disbursements from our restricted cash escrowaccounts will provide adequate funds for our working capital needs and debtservice requirements for the foreseeable future.  We anticipate that funding for future capitalexpenditures and expansions will derive from additional third partyfinancing.  However, our ability to fundour operations, make capital expenditures, make scheduled debt payments andrefinance our indebtedness depends on our future operating performance and cashflow, which, in turn, are subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control.Additionally, the Indenture limits our ability to incur additionalindebtedness.

 

The Tribe announced plans to build a destinationresort, which plans are more fully described in our Form 8-K dated June 28,2007, and exhibits listed therein.  Theproposed project includes the construction of a casino, hotel and spa, severalfood and beverage venues, administrative facilities, a garden and terraceplaza, a retail area, and back of house facilities. The proposed projectincludes three above-ground levels and a hotel tower (up to eight levels) andtwo below-ground levels.  We do notcurrently have adequate liquidity or cash flow to finance the project asproposed.  We will consider varioussources of liquidity to finance the first phase of the proposed project, although itcannot be assured that we will be able to obtain financing or that the interestrates on any financings will be favorable.

 

On March 18, 2008, the Tribe and the SonomaCounty Board of Supervisors entered into the MOA that, among other things,settled several long-standing legal disputes between Sonoma County and theTribe, and will provide a binding framework for resolving future disputes.  The MOA enables the Tribe to move forwardwith its proposed resort development project, including a new and expanded “Tuscan-themed”casino and hotel with luxury resort amenities. A copy of the MOA was filed as an exhibit to the Authority’s Form 10-Kfor the fiscal year ending December 31, 2007.  Under the MOA, the County agreed to drop itsopposition to the Tribe’s application for a liquor license and on May 29,2008, the California Department of Alcoholic Beverage Control issued a liquorlicense to our gaming and entertainment facility.  However, the Tribe has agreed to restrict thesale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m.on weekdays, and to stop serving alcohol altogether at midnight except forFriday and Saturday nights and the nights before holidays. The Tribe has alsoagreed not to serve liquor on the Casino floor, although patrons may bringdrinks purchased at the restaurant or bar on to the Casino floor. Therestrictions may be renegotiated following the first to occur of the three yearanniversary of the MOA or the opening of a hotel, which is anticipated to occurwithin the next two to three years.  Inaddition, the MOA commits the County Sheriff’s Department and Fire Marshall toprovide public safety and fire investigation services to the Casino and theTribe’s future gaming projects on the reservation and provides detailedagreements on off-reservation impact mitigation measures.  Pursuant to the MOA, the County withdrew itsopposition to the Tribe’s application to take the Dugan Property intotrust.  Previously, the trust applicationhad been approved by the Department of the Interior, which approval

 

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had been opposed by the County.  Pursuant to the MOA, the Tribe has agreed topay the County $75 million in mitigation fees over the next 12 years, subjectto adjustment under certain circumstances described in the MOA, to offset thepotential losses and impacts to the County resulting from the Tribe’s variousongoing projects and to support the services being provided by theCounty.  The Tribe paid $3.0 million on April 17, 2008 and $4.5million on September 20, 2008.  Future payments are scheduled to takeplace as follows: $2.8 million no later than June 30, 2009; $5.0 millionupon the earlier of March 18, 2011 or the opening of phase one of theresort project; $5.0 million on July 1st of the subsequent yearbut no later than July 1, 2011; and $5.0 million plus 4% compoundedannually on July 1 of each subsequent year until the entire $75.0 millionhas been paid.  In addition, the Tribe has agreed to pay afee in lieu of the County’s Transient Occupancy Tax in the amount of 9% of therental charges collected on occupied hotel rooms.  Such fees are required to be paid quarterlyuntil five years after the later to occur of the termination of the MOA, as maybe extended, or the Tribe’s Compact with the State.

 

We are not a party to the agreement with the Sonoma CountyBoard of Supervisors and are not obligated to pay any fees pursuant to theMOA.   It is expected that the Tribe willmake payments to Sonoma County pursuant to the MOA from distributions made byus to the Tribe.

 

**Contractual Obligations as of March 31,2009**

 

Contractual obligations and commitment amounts as of March 31,2009 have not materially changed from the prior quarter.

 

**Regulation and Taxes**

 

We are subject to extensive regulation by the TribesGaming Commission, the California Gambling Control Commission and the NationalIndian Gaming Commission. Changes in applicable laws or regulations could havea significant impact on our operations.

 

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

 

Since we are an unincorporated governmentalinstrumentality of the Tribe located on reservation land held in trust by theUnited States of America, we are not subject to federal or state income taxes.Various efforts have been made in Congress over the past several years to enactlegislation that would subject the income of tribal governmental businessentities, such as us, to federal income tax. Although no such legislation hasbeen enacted, similar legislation could be passed in the future. It is notpossible to determine with certainty the likelihood of possible changes in taxlaw or in the administration of such law. Such changes, if adopted, could havea material adverse effect on our operating results and cash flow fromoperations.

 

**Impact of Inflation**

 

Absent changes in competitive and economic conditionsor in specific prices affecting the casino industry, we do not expect thatinflation will have a significant impact on our gaming facility operations.Since many of our patrons drive up from Santa Rosa and San Francisco, changesin specific prices, such as fuel and transportation prices, relative to thegeneral rate of inflation may have a material adverse effect on the casinoindustry in general.

 

**Seasonality**

 

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

 

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**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk is the risk of loss arising from adversechanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices.

 

Through March 31, 2009, we had not invested inderivative or foreign currency-based financial instruments.  Additionally,we primarily have invested in short-term, fixed rate debt.  As such, we donot believe we have material exposure to market risk.

 

**ITEM4T.  CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls andProcedures**

 

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 Securities Exchange Commission (the “SEC”)pursuant to the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules, regulations and forms,and that such information is accumulated and communicated to our management,including our Chief Financial Officer and General Manager and Chief OperationsOfficer, as appropriate, to allow timely decisions regarding requireddisclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) and15d-15(e) of the Exchange Act.

 

Management has performed, with the participation ofour Chief Financial Officer and Chief Operations Officer and acting GeneralManager, an evaluation of the effectiveness of our disclosure controls andprocedures as defined in Rules 13a-15(e) and 15d-15(e) of theExchange Act.  Based on the evaluation,our General Manager and Chief Financial Officer concluded that, as of March 31,2009, our disclosure controls and procedures were effective.

 

**Changes to Internal Controls OverFinancial Reporting**

 

We continue to test our internal controls so as tomake improvements to the weaknesses that we have identified and to determinewhether there are other procedures that we can implement to improve ourfinancial reporting processes.  For thethree month period ended March 31, 2009, there have been no changes in theinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

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

 

*Runyan Litigation*

 

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

 

On October 17, 2008,the judge of the Sonoma County Superior Court signed an Order dismissing thelawsuit filed by Norman Runyan against the Authority, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of the Authority’s Board.  On December 3, 2008, the Order wasentered and the case was dismissed.

 

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On January 14, 2009,Mr. Runyan filed a Petition for Order Compelling Arbitration with theSonoma County Superior Court, and on January 30, 2009, he filed a Motionfor Order Compelling Arbitration.  Inboth the Petition and the Motion, Mr. Runyan seeks to have the Court issuean order compelling arbitration of the claims asserted in the complaint thatwas dismissed by the court in December 2008.  The Authority believes, based on fact that Mr. Runyanentered into a Severance Agreement and General Release with the Authority, theCasino, and other released parties, that there is no basis for Mr. Runyanto seek arbitration of his claims.  On April 13,2009, The Authority, the Casino, and Mr. Hopkins filed a hybrid motion toquash summons and dismiss the Petition and Motion.  A hearing on the motion is set for May 13,2009 and a hearing on the Mr. Runyan’s petition for an order compellingarbitration is set for May 27, 2009.

 

*OtherLegal Matters*

 

The Authority is involvedin other litigation and disputes from time to time in the ordinary course ofbusiness with vendors and patrons. The Authority believes that the aggregateliability, if any, arising from such litigation or disputes will not have amaterial adverse effect on its results of operations, financial condition orcash flows.

 
| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

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

 

***We face competitionfrom other California Indian casinos, casinos located in Nevada and elsewhereand other forms of gaming.***

 

The gaming industry is very competitive. We face orwill face competition from existing and proposed California Indian gamingfacilities in the surrounding area, and elsewhere in California, and withcasino gaming in Nevada, including gaming facilities that could be locatedcloser to the San Francisco Bay area. We also compete with card rooms locatedin the surrounding area, and other forms of gaming that are legal inCalifornia, including on and off-track wagering and the California StateLottery, as well as with non-gaming leisure activities. The availability ofsuch alternative gaming and non-gaming activities may increase in the future.Many of our competitors have substantially greater resources and namerecognition than our Casino. In addition, we may also face competition in ourmarket from new facilities that may be built by other Indian tribes in thefuture.

 

Federal and California law currently permits Class IIIcasino gaming only on federally recognized tribal lands pursuant to compactsnegotiated with the State of California and approved by the U.S. Secretary ofthe Interior. Class II gaming for tribes is permitted only on federallyrecognized tribal lands. There are currently 55 tribes operating 56 compactedgaming facilities in the State of California. The closest existing competitorsare the Hopland Sho-ka-wah Casino, located approximately 35 miles and 40minutes north of the Tribe’s reservation; the Konocti Vista Casino, locatedapproximately 45 miles and one hour and ten minutes northeast of the Tribe’sreservation; the Thunder Valley Casino, located approximately 124 miles and twohours and forty-five minutes east of the Tribe’s reservation; and Cache CreekIndian Casino and Bingo, located approximately 95 miles and two hours andfifteen minutes east of the Tribe ‘s reservation. In addition, severalpotential competitors are attempting to develop and open casinos near ourCasino.

 

The greatest competition may come from the proposedGraton Rancheria casino. In April 2003, the Federated Indians of theGraton Rancheria, also known as the Coast Miwoks, announced plans to purchaseland in Sonoma County near Highway 37 and Lakeville Highway, approximately 20miles south of our gaming facility and closer to San Francisco than ourreservation. The proposed location would lie directly between our Casino andthe majority of the 7 million population base of the San Francisco Bay area.The announced plans include construction of a casino-hotel complex that will bemanaged by Station Casinos, Inc. based in Las Vegas, Nevada. The proposedfacility would house approximately 2,000 slot machines, 120 card tables andbingo, as well as a 300-room hotel, five restaurants and a theater with up to2,000 seats. As a result of environmental opposition to the development of suchlocation, the Federated Indians of the Graton Rancheria announced plans to movethe proposed casino-hotel complex to a site near Rohnert Park, California. TheRohnert Park City Council has approved an agreement with the Federated Indiansof the Graton Rancheria to share revenues with Rohnert Park and variouscommunity groups, approximately $200.0 million over 20 years, to offset theimpact of the proposed project.

 

In May 2008, the U.S. Department of Interiorpublished in the Federal Register a notice to take the proposed Rohnert Parksite into federal trust on behalf of the Graton Rancheria. This represents asignificant step towards the development of a casino at Rohnert Park, as do theseparate agreements negotiated between the Graton Rancheria and Sonoma Countyand Marin County, whereby the counties pledged to not challenge theland-into-trust decision and the Graton Rancheria agreed not to build anyadditional casinos in Sonoma or Marin counties. The U.S. Department of Interior’s

 

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land-into-trust decision has, however, been challengedby citizens group opposed to a casino in Rohnert Park. Under establishedpolicy, the Department will not actually take the land into trust — a prerequisitefor gaming to occur there — until the litigation is resolved.  The federal district court dismissed thecitizens groups’ lawsuit on April 21, 2009, but a spokesperson for thegroup has stated publicly that the decision will be appealed.  This spokesperson has also stated publiclythat the group will challenge the adequacy of the environmental impactstatement for the proposed Graton casino, which was issued in February 2009.  Another obstacle facing the proposed GratonRancheria casino is the ability to obtain financing for the project.  In addition, the Graton Rancheria will alsoneed to enter into a tribal-state compact with the State of California beforeit can operate Class III gaming at the Rohnert Park site.

 

The Hopland Sho-ka-wah Casino is located several mileseast of Highway 101 on Route 175. The facility features a 40,000 square footcasino offering 550 slot machines, 6 table games and a small 3 table pokerroom. The facility contains a small cafe-type food and beverage area, a bar anda fine-dining steak house. Entertainment is provided occasionally, whichincludes musical acts and boxing. Hopland operates a small bus program but doesnot operate a hotel.

 

East of the Sho-ka-wah Casino is the Konocti Casino inLakeport, California. Lakeport is located approximately 37 miles fromCloverdale with access off Highway 20. The casino currently houses 349 slot machines and 6 table games. Thefacility also offers an 80-room hotel and marina with small pool as well as a74-space recreational vehicle park. The food and beverage program includes asmall restaurant, buffet and a new full-service restaurant serving liquor.

 

The Thunder Valley Casino opened in June 2003 andis located at the intersection of Highway 65 and Interstate 80 just outside ofSacramento, California. The Nevada-style property offers over 2,400 slotmachines and 98 table games that include blackjack, baccarat, and a variety ofpoker games including Let It Ride and Pai Gow. The facility features a salon,private dining rooms, bars and butler service. In addition, it houses a500-seat buffet and various fast food options, including Fat Burger, PandaExpress and Starbucks, and fine dining options such as Austin’s Steakhouse. Thefacility also features a nightclub, and live entertainment is offered every twoweeks.  In 2008, the Thunder ValleyCasino announced plans to build a new 650-room, 23-story hotel featuring a spa,family center and other amenities.  Thunder Valley also planned to constructa 3,000-seat performing arts center, and to expand the casino to include threenew restaurants, more gaming space and new poker room, and a parking structurecapable of holding 5,000 cars.  ThunderValley obtained financing for the expansion, which began in July 2008 butwas halted in November 2008.  Thecasino recently announced plans to continue with the expansion, but the projecthas been scaled down to include a 15-story hotel with 400 rooms; a 700-seat,10,000-square-feet multipurpose entertainment center in place of the performingarts center; and a 7-story parking structure with approximately 3,500 spaces.

 

The Cache Creek Casino is located approximately 50miles west of Sacramento. The Cache Creek Casino recently expanded its facilityto 2,900 slot machines. The casino recently added a 28-table poker room andhouses over 140 table games including blackjack, Texas Hold’em, Pai Gow andCaribbean Stud. The facility also includes a 200-room luxury hotel, 8restaurant outlets, an entertainment pavilion with seating for 600, a spa andoutdoor pool, an 18-hole golf course and a 1,883 spot parking structure. Thefacility is in the process of expanding its restaurant offerings, and hasrecently announced plans to add more shops and parking and expand its gamingfloor, and to add more than 500 slot machines, a 10-story hotel tower with 467rooms, and a 62,500 square-foot convention center capable of seating 2,300people.

 

The Lytton Band of Pomo Indians currently operates a70,000 square-foot casino with 1,050 Class II electronic bingo machines onthe 9-acre site of a card room in San Pablo, near Oakland, California, on landthat was placed in trust for the tribe through congressional legislation. TheLytton Band signed a compact with Governor Arnold Schwarzenegger for operating Class IIIcasino gaming on the San Pablo site, but the state legislature withheld itsapproval. In May 2007, legislation was introduced in the U.S. Senate,which has the support of the Lytton Band, that would require the Lytton Band toforego any Class III machines at the San Pablo site and instead limititself to operating its existing Class II machines. This legislation waspassed by the Senate in November 2007 and referred to the Committee onNatural Resources of the U.S. House of Representatives, but no further actionwas taken.  The legislation was againintroduced in the U.S. Senate in January 2009, and the Senate passed thebill on March 12, 2009.

 

The Twin Pine Casino, owned and operated by theMiddletown Rancheria of Pomo Indians, is located on Highway 29 in Lake County, approximately51 miles from our gaming and entertainment facility. The Twin Pine Casinocurrently offers 12,000 square feet of gaming space, with more than 400 slotmachines and 8 table games including blackjack and poker, and houses a café.The Middletown Rancheria has recently placed into operations a 60-room hoteland three food areas, as well as expanded the facility to include 50,000 squarefeet of gaming space with approximately 690 slot machines and 10 tablegames.  A wine tasting room is scheduledto open in the summer of 2009.

 

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

 

The Guidiville Band hopes to have transferred to itland at the former Point Molate Naval Base in Richmond, California on which ithopes to operate a casino along with a 1,100-room hotel, theater, conventioncenter, and retail shops, but the project is still in its early stages, as theland transfer has not been approved and environmental reviews must be completed.  In January 2009, two environmentalgroups filed a lawsuit against the City of Richmond, the Guidiville Band andits financial backer and developer in an effort to stop the transfer of theland.

 

The Scotts Valley Band hopes to build a 225,000 square-footcasino complex and five-story parking garage on a 29.87-acre site in ContraCosta County, near Richmond, California.  In March 2008, the Bureauof Indian Affairs announced the filing of the Final Environmental ImpactStatement for the proposed project.  In August 2008,the Contra Costa County Superior Court struck down a municipal servicesagreement between the City of Richmond and the Scotts Valley Band on the groundthat the City failed to conduct the proper environmental reviews before signingthe agreement.

 

The Cloverdale Rancheria has announced preliminaryplans to build a 596,00 square-foot hotel/spa and casino resort some ten milesnorth of our Casino on U.S. Highway 101, and they and their financial backershave purchased approximately 79 acres for the proposed facility. Theenvironmental review process for the proposed Cloverdale Rancheria projectbegan in July 2008.

 

Each of these proposed projects faces numerousobstacles in addition to environmental approvals, including the negotiation andapproval of a compact with the State of California, approval from the U.S.Department of Interior to take the land on which the project would be locatedinto federal trust on behalf of the tribe, and determinations from appropriatefederal agencies that the tribes may conduct gaming on these lands pursuant tothe Indian Gaming Regulatory Act.

 

We also compete with other forms of gaming such asstatewide lotteries, live and simulcast pari-mutuel wagering and card rooms.

 

In May 2007, Governor Schwarzenegger proposedthat the California State Lottery be leased to a private concessionaire toincrease its revenue and efficiency. Part of the Governor’s proposalincludes authorizing the use of instant lottery video terminals that resembleand operate like slot machines at locations including horse racing tracks andcard rooms. Approval of this proposal would require a two-thirds affirmativevote of the state legislature and could require a constitutional amendment tothe Constitution of the State of California. While it is uncertain whether orwhen this proposal will be approved, its implementation could adversely affectour and other Indian casinos’ competitive positions.

 

Other initiativesexpanding competitive forms of gaming have been approved and may, from time totime, be approved by state or local authorities. Examples include the passagein California of recent legislation expanding off-site betting on horse racesthrough expanded advance deposit wagering and increased satellite wageringsites, and a legislative proposal in the California Assembly in February 2007to amend the California Penal Code to expand permitted bingo games bycharitable organizations to include electronic bingo cards.

 

The discussion under theheading “**Management’s Discussion and Analysisof the Financial Condition and Results of Operations — Risk Factors**”in the 2008 Annual Report on form 10-K under the captions “**We have a substantial amount of indebtedness thatcould adversely affect our financial condition and prevent us from fulfillingour obligations under the Outstanding Notes**” and “**We will require a significant amount of cash toservice our indebtedness and fund our gaming operations. Our ability togenerate cash depends on many factors beyond our control**” is updatedas follows to reflect the recent events in the financial markets:

 

Our ability to makescheduled principal and interest payments, refinance debt, and fund operations,and make planned capital expenditures, depends on the levels of our operatingcash flow and access to the capital markets. Like many companies, we rely on the capital markets to fund significantcapital expenditure plans with long-term debt. Our ability to access thecapital markets and the costs and terms of available financing depend on manyfactors, including changes in our credit ratings, changes in the federal orstate regulatory environment, and general economic and market conditions.  The recent financial distress experienced atmajor financial institutions has caused significant disruption in the capitalmarkets, particularly in the commercial paper market where short-term rateshave increased significantly and access generally has contracted.  Long-term debt rates on bond issuances alsohave increased significantly since mid-September and the volume of bondissuances has decreased.  The longer suchconditions persist, the more significant the implications become for us,including the potential that adequate capital is not available to fund ourcapital expansion plans and other planned capital 

 

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expenditures.  If we are unable, in part or in whole, tofund our planned capital expenditures or obtain financing to refinance ourdebt, there could be a material adverse effect on our results of operations,cash flows and financial condition.

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

 
|   | The Exhibit Index filed herewith is  incorporated herein by reference. |
|--------|-----------------------------------------------------------------------------|

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| Dated: May 15, 2009 |   | RIVER ROCK ENTERTAINMENT AUTHORITY |
|--------------------------|--------|------------------------------------|
|                     |   | (Registrant)                       |
|                     |   |                               |
|                     |   | By:                                | /s/ John Cirrincione |
|                     |   |                               | John Cirrincione, |
|                     |   |                               | Chief  Operations Officer and Acting General Manager |

 

**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                                                            |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification by John Cirrincione, Chief  Operations Officer and Acting General Manager, 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 John Cirrincione, Chief  Operations Officer and Acting General Manager, and by Joseph R. Callahan, Chief Financial  Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) |

 

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

 

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