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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D. C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

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

 

**OR**

 

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

 

**For the transition period from to**

 

**Commission File Number: 333-115186**

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

(Exactname of registrant as specified in its charter)

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

 

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

**INDEX TOFORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                                                | ** ** | ** ** |
|--------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|               |       |                                                                                                                                                           |       |       |
| ** **         | ** ** | **PART I — FINANCIAL INFORMATION**                                                                                                                   | ** ** | ** ** |
|               |       |                                                                                                                                                           |       |       |
| 1.                 |       | Unaudited  Condensed Financial Statements                                                                                                                      |       | 4          |
|               |       | Condensed  Balance Sheets-September 30, 2010 (unaudited) and December 31, 2009                                                                       |       | 4          |
|               |       | Unaudited Condensed Statements of Revenues, Expenses  and Changes in Net Assets (Deficit) — Three and Nine Months ended  September 30, 2010 and 2009 |       | 5          |
|               |       | Unaudited Condensed Statements of Cash Flows — Nine  Months ended September 30, 2010 and 2009                                                        |       | 6          |
|               |       | Notes to Unaudited Condensed Financial Statements                                                                                                              |       | 8          |
| 2.                 |       | Management’s Discussion and Analysis  of Financial Condition and Results of Operations                                                                    |       | 18         |
| 3.                 |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                    |       | 29         |
| 4T.                |       | Controls and Procedures                                                                                                                                        |       | 30         |
|               |       |                                                                                                                                                           |       |       |
| ** **         | ** ** | **PART II — OTHER INFORMATION**                                                                                                                      | ** ** | ** ** |
|               |       |                                                                                                                                                           |       |       |
| 1.                 |       | Legal Proceedings                                                                                                                                              |       | 30         |
| 1A.                |       | Risk Factors                                                                                                                                                   |       | 30         |
| 6.                 |       | Exhibits                                                                                                                                                       |       | 34         |
|               |       |                                                                                                                                                           |       |       |
| Signatures         |       |                                                                                                                                                           |       | 35         |
|               |       |                                                                                                                                                           |       |       |
| Exhibit Index |       |                                                                                                                                                           |       | 35         |

 

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**CAUTIONARYSTATEMENT**

 

*Except forthe historical financial information contained herein, the matters discussed inthis report on Form 10-Q (as well as documents incorporated herein byreference) may be considered forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”).  Such forward-looking statementsare based upon current expectations that involve risks and uncertainties andinclude declarations regarding the intent, belief or current expectations of usand our management and may be signified by the words “believes,” “anticipates,”“plans,” “expects,” “intends” and similar expressions. Our actual results andthe timing of certain events may differ significantly from the resultsdiscussed in the forward-looking statements. All forward-looking statements inthis document are based on information available to us as of the date hereof,and we assume no obligation to update any such forward-looking statements,whether as a result of new information, future events, or otherwise. Alldiscussion in this report should be read in conjunction with our financialstatements and the accompanying notes contained in this report.*

 

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

 

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

 

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**PART I.FINANCIAL INFORMATION**

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

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

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

** **

**CONDENSED BALANCE SHEETS**

**June30, 2010 and 2009**

 
| ** **                                      | ** ** | **September 30, 2010** | ** **  | **December 31, 2009** | ** ** |
|-------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                      | ** ** | **(Unaudited)**                  | ** **  | ** **                      | ** ** |
| **ASSETS**                                      | ** ** | ** **                       | ** **  | ** **                      | ** ** |
| CURRENT ASSETS:                                 | ** ** | ** **                       | ** **  | ** **                      | ** ** |
| Cash and cash  equivalents                      |       | $                                | 43,653,977  |                            | $          | 31,617,507 |   |
| Accounts  receivable                            |       | 34,952                           |        | 266,146                         |       |
| Inventories                                     |       | 80,309                           |        | 77,643                          |       |
| Prepaid expenses  and other current assets      |       | 1,299,216                        |        | 1,379,133                       |       |
|                                            |       |                             |        |                            |       |
| Total current  assets                           |       | 45,068,454                       |        | 33,340,429                      |       |
|                                            |       |                             |        |                            |       |
| RESTRICTED CASH                                 |       | 4,328,870                        |        | 7,097,526                       |       |
|                                            |       |                             |        |                            |       |
| CAPITAL ASSETS:                                 |       |                             |        |                            |       |
| Buildings and  building improvements            |       | 132,886,286                      |        | 131,361,604                     |       |
| Furniture,  fixtures and equipment              |       | 33,020,780                       |        | 35,102,290                      |       |
| Accumulated  depreciation                       |       | (63,891,253                      | )           | (60,121,221                     | )          |
| Construction in  progress                       |       | 75,337,956                       |        | 59,588,618                      |       |
|                                            |       |                             |        |                            |       |
| Capital assets -  net                           |       | 177,353,769                      |        | 165,931,291                     |       |
|                                            |       |                             |        |                            |       |
| DEPOSITS AND  OTHER ASSETS                      |       | 1,772,584                        |        | 1,936,623                       |       |
|                                            |       |                             |        |                            |       |
| TOTAL ASSETS                                    |       | $                                | 228,523,677 |                            | $          | 208,305,869 |   |
|                                            |       |                             |        |                            |       |
| **LIABILITIES  AND NET ASSETS (DEFICIT)**       |       |                             |        |                            |       |
|                                            |       |                             |        |                            |       |
| CURRENT  LIABILITIES:                           |       |                             |        |                            |       |
| Accounts payable                                |       | $                                | 3,223,149   |                            | $          | 6,060,663 |   |
| Payable to Tribe                                |       | 7,517,818                        |        | —                          |       |
| Accrued  liabilities                            |       | 13,166,441                       |        | 7,695,373                       |       |
| Current  maturities of long-term debt           |       | —                           |        | 492,203                         |       |
| Total current  liabilities                      |       | 24,007,408                       |        | 14,248,239                      |       |
|                                            |       |                             |        |                            |       |
| LONG-TERM DEBT -  net of current maturities     |       | 199,634,649                      |        | 199,381,712                     |       |
| Total long-term  liabilities                    |       | 199,634,649                      |        | 199,381,712                     |       |
|                                            |       |                             |        |                            |       |
| TOTAL  LIABILITIES                              |       | 223,642,057                      |        | 213,629,951                     |       |
|                                            |       |                             |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES                  |       |                             |        |                            |       |
|                                            |       |                             |        |                            |       |
| NET ASSETS  (DEFICIT)                           |       |                             |        |                            |       |
| Invested in  capital assets-net of related debt |       | (22,280,880                      | )           | (33,942,624                     | )          |
| Restricted for  capital projects                |       | 4,328,870                        |        | 7,097,526                       |       |
| Unrestricted                                    |       | 22,933,630                       |        | 21,521,016                      |       |
|                                            |       |                             |        |                            |       |
| Total net assets  (deficit)                     |       | 4,981,620                        |        | (5,324,082                      | )          |
|                                            |       |                             |        |                            |       |
| TOTAL  LIABILITIES AND NET ASSETS (DEFICIT)     |       | $                                | 228,523,677 |                            | $          | 208,305,869 |   |

 

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

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

** **

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

**(Unaudited)**

 
| ** **                                  | ** ** | **Three-Month Period Ended** | ** ** | **Nine-Month Period Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                  | ** ** | **September 30,**                 | ** ** | **September 30,**                | ** ** |
| ** **                                  | ** ** | **2010**                               | ** ** | **2009**                              | ** ** | **2010** | ** ** | **2009** | ** ** |
| **OPERATING  REVENUES:**                    |       |                                   |       |                                  |       |   |   |   |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| Casino                                      |       | $                                      | 29,059,197 |                                  | $          | 28,151,221 |   | $ | 91,135,512 |   | $ | 87,572,755 |   |
| Food, beverage,  and retail                 |       | 1,499,183                              |       | 1,459,193                             |       | 4,422,390 |   | 4,366,065 |   |
| Other                                       |       | 274,169                                |       | 224,493                               |       | 781,441 |   | 686,858 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| Gross revenues                              |       | 30,832,549                             |       | 29,834,907                            |       | 96,339,343 |   | 92,625,678 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| Promotional  allowances                     |       | (462,355                               | )          | (318,348                              | )          | (1,281,280 | ) | (1,006,645 | ) |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| Net revenues                                |       | 30,370,194                             |       | 29,516,559                            |       | 95,058,063 |   | 91,619,033 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                                   |       |                                  |       |   |   |   |   |
| Casino                                      |       | 4,225,756                              |       | 3,670,167                             |       | 12,110,705 |   | 11,767,556 |   |
| Food, beverage,  and retail                 |       | 1,914,685                              |       | 1,811,574                             |       | 5,420,269 |   | 5,576,559 |   |
| Selling,  general, and administrative       |       | 9,944,330                              |       | 9,521,985                             |       | 30,647,743 |   | 29,419,073 |   |
| Depreciation                                |       | 2,598,240                              |       | 2,388,383                             |       | 7,392,513 |   | 7,144,404 |   |
| Gaming  commission and surveillance expense |       | 853,775                                |       | 985,703                               |       | 2,389,222 |   | 2,901,577 |   |
| Compact revenue  sharing trust fund         |       | 333,750                                |       | 333,750                               |       | 1,001,250 |   | 1,001,250 |   |
| (Gain) on sale  of assets                   |       | —                                 |       | —                                |       | — |   | (33,000 | ) |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| Total Operating  expenses                   |       | 19,870,536                             |       | 18,711,562                            |       | 58,961,702 |   | 57,777,419 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 10,499,658                             |       | 10,804,997                            |       | 36,096,361 |   | 33,841,614 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| NON-OPERATING  EXPENSE-Net:                 |       |                                   |       |                                  |       |   |   |   |   |
| Interest expense                            |       | (5,214,736                             | )          | (5,214,781                            | )          | (15,644,208 | ) | (15,645,267 | ) |
| Interest income                             |       | 19,609                                 |       | 21,244                                |       | 47,485 |   | 53,044 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| Non-operating  expense-net                  |       | (5,195,127                             | )          | (5,193,537                            | )          | (15,596,723 | ) | (15,592,223 | ) |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| INCOME BEFORE  DISTRIBUTIONS TO TRIBE       |       | 5,304,531                              |       | 5,611,460                             |       | 20,499,638 |   | 18,249,391 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| DISTRIBUTIONS TO  TRIBE                     |       | (3,397,978                             | )          | (3,324,979                            | )          | (10,193,936 | ) | (9,974,938 | ) |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| CHANGES IN NET  ASSETS                      |       | 1,906,553                              |       | 2,286,481                             |       | 10,305,702 |   | 8,274,453 |   |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| NET ASSETS  (DEFICIT) -Beginning of period  |       | 3,075,067                              |       | (9,681,182                            | )          | (5,324,082 | ) | (15,669,154 | ) |
|                                        |       |                                   |       |                                  |       |   |   |   |   |
| NET ASSETS  (DEFICIT) -End of period        |       | $                                      | 4,981,620  |                                  | $          | (7,394,701 | ) | $ | 4,981,620 |   | $ | (7,394,701 | ) |

 

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

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                            | ** ** | **Nine-Month  Period Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                                              | ** ** | **2009** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                            |       |                                                  |       |   |   |
| Cash received  from gaming winnings and concessions                   |       | $                                                     | 95,138,762 |   | $ | 91,653,393 |   |
| Cash paid for  salaries and benefits                                  |       | (20,742,874                                           | )          | (21,449,143 | ) |
| Cash paid to  suppliers                                               |       | (29,931,376                                           | )          | (29,253,527 | ) |
| Cash paid for  compact revenue sharing trust fund                     |       | (1,001,250                                            | )          | (1,001,250 | ) |
|                                                                  |       |                                                  |       |   |   |
| Net cash  provided by operating activities                            |       | 43,463,262                                            |       | 39,949,473 |   |
|                                                                  |       |                                                  |       |   |   |
| **CASH  FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:**        |       |                                                  |       |   |   |
| Payments of debt                                                      |       | (492,203                                              | )          | (156,966 | ) |
| Payments of  Offering Cost in Connection with Refinancing of Debt     |       | (515,191                                              | )          | — |   |
| Purchases of  capital assets                                          |       | (4,917,130                                            | )          | (4,542,366 | ) |
| Transfers to the  Tribe for development costs and slope reinforcement |       | (8,287,432                                            | )          | (8,067,445 | ) |
| Change in  restricted cash                                            |       | 2,768,656                                             |       | (5,377 | ) |
| Interest paid                                                         |       | (9,750,000                                            | )          | (9,751,058 | ) |
| Proceeds from  sale of assets                                         |       | —                                                |       | 33,000 |   |
| Issuance of  Short-term Debt to purchase slots                        |       | —                                                |       | 715,500 |   |
| Other                                                                 |       | (87,041                                               | )          | — |   |
|                                                                  |       |                                                  |       |   |   |
| Net cash used in  capital and related financing activities            |       | (21,280,341                                           | )          | (21,774,712 | ) |
|                                                                  |       |                                                  |       |   |   |
| **CASH  FLOWS PROVIDED BY INVESTING ACTIVITIES:**                     |       |                                                  |       |   |   |
| Interest Income                                                       |       | 47,485                                                |       | 53,044 |   |
|                                                                  |       |                                                  |       |   |   |
| **CASH  FLOWS USED IN NON-CAPITAL FINANCING ACTIVITIES:**             |       |                                                  |       |   |   |
|                                                                  |       |                                                  |       |   |   |
| Distributions to  Tribe                                               |       | (10,193,936                                           | )          | (9,974,938 | ) |
|                                                                  |       |                                                  |       |   |   |
| **CHANGE  IN CASH AND CASH EQUIVALENTS**                              |       | 12,036,470                                            |       | 8,252,867 |   |
|                                                                  |       |                                                  |       |   |   |
| **CASH  AND CASH EQUIVALENTS, Beginning of the period**               |       | 31,617,507                                            |       | 27,348,392 |   |
|                                                                  |       |                                                  |       |   |   |
| **CASH  AND CASH EQUIVALENTS, End of the period**                     |       | $                                                     | 43,653,977 |   | $ | 35,601,259 |   |

 

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

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                           | ** ** | **Nine-Month  Period Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                           | ** ** | **2010**                                              | ** ** | **2009** | ** ** |
| **RECONCILIATION OF INCOME FROM OPERATIONS  TO NET CASH PROVIDED BY OPERATING ACTIVITIES:** |       |                                                  |       |   |   |
|                                                                                                                 |       |                                                  |       |   |   |
| Income From  Operations                                                                                              |       | $                                                     | 36,096,361 |   | $ | 33,841,614 |   |
|                                                                                                                 |       |                                                  |       |   |   |
| Adjustments to  reconcile operating income to net cash provided by operating activities:                             |       |                                                  |       |   |   |
| Depreciation                                                                                                         |       | 7,392,513                                             |       | 7,144,404 |   |
| (Gain) on sale  of assets                                                                                            |       | —                                                |       | (33,000 | ) |
| Changes in  operating assets and liabilities:                                                                        |       |                                                  |       |   |   |
| Accounts  receivable                                                                                                 |       | 231,194                                               |       | (179,459 | ) |
| Inventories                                                                                                          |       | (2,666                                                | )          | 77,642 |   |
| Prepaid expenses                                                                                                     |       | 79,917                                                |       | 73,774 |   |
| Deposit and  other assets                                                                                            |       | —                                                |       | 57,708 |   |
| Accounts payable                                                                                                     |       | (986,037                                              | )          | (1,070,907 | ) |
| Related party  payable                                                                                               |       | 55,912                                                |       | — |   |
| Accrued  liabilities                                                                                                 |       | 596,068                                               |       | 37,697 |   |
| Total  adjustments                                                                                                   |       | 7,366,901                                             |       | 6,107,859 |   |
|                                                                                                                 |       |                                                  |       |   |   |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                                                                       |       | $                                                     | 43,463,262 |   | $ | 39,949,473 |   |
|                                                                                                                 |       |                                                  |       |   |   |
| **SUPPLEMENTARY  SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES:**                                     |       |                                                  |       |   |   |
|                                                                                                                 |       |                                                  |       |   |   |
| Acquisition of  property and equipment through accounts payable                                                      |       | $                                                     | 727,655    |   | $ | — |   |
|                                                                                                                 |       |                                                  |       |   |   |
| Acquisition of  property and equipment through transfers to Tribe for development costs                              |       | $                                                     | 14,397,678 |   | $ | — |   |
|                                                                                                                 |       |                                                  |       |   |   |   |   |
| Acquisition of property and equipment through transfers to Tribe for  slope reinforcement                            |       | $                                                     | 1,351,660  |   | $ | — |   |

 

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

 

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**NOTES TOUNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

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

 

RiverRock Entertainment Authority (the “Authority”) is a governmental instrumentalityof the Dry Creek Rancheria Band of Pomo Indians (the “Tribe”), a federallyrecognized Indian tribe. River Rock Casino (the “Casino”) is a governmentaldevelopment project of the Authority. The Casino offers Class III gaming(as defined by the Indian Gaming Regulatory Act of 1988, as amended) on triballand located in Geyserville, California. The legal authority for slot machinesand table games is provided by the Tribe’s gaming compact with the State ofCalifornia (the “Compact”), which was entered into in September 1999 andbecame effective upon approval by the Secretary of Interior on May 5,2000.  The Compact expires on December 31, 2020.

 

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

 

TheAuthority operates as a separate, wholly owned operating unit of the Tribe andis not a separate legal entity. These financial statements reflect thefinancial position and activity of the Authority only and do not purport torepresent the financial position and activity of the Tribe.

 

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

 

Theunaudited condensed financial statements of the Authority, presented herein arepresented on the same basis and can be compared to the audited financialstatements reported in the Authority’s 2009 Annual Report on Form 10-K,filed with the Securities and Exchange Commission (“the SEC”). The accompanyingcondensed balance sheet as of December 31, 2009 has been derived from theaudited financial statements included in the Authority’s Annual Report onForm 10-K for the year ended December 31, 2009.

 

RiverRock Entertainment Authority has made its disclosures in accordance withaccounting principles generally accepted in the United States of America asthey apply to interim reporting, but condensed or omitted certain informationand disclosures normally included in notes to financial statements inaccordance with the SEC’s rules and regulations. The unaudited condensedfinancial 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, 2009.

 

Inthe opinion of the Authority’s management, the accompanying unaudited interimcondensed financial statements contain all adjustments (consisting of normalrecurring adjustments) to fairly present the Authority’s condensed financialposition as of September 30, 2010 and the condensed statements of revenues,expenses and changes in net assets (deficit) for the three and nine monthperiods ended September 30, 2010 and 2009, and condensed statements of cashflows for the nine months ended September 30, 2010 and 2009, as applicable. Thecondensed statements of revenues, expenses and changes in net assets (deficit)and condensed cash flows for all periods presented are not necessarilyindicative of the results of operations or cash flows expected for the year orany other period.

 

**3.****                   ****SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

 

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

 

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

 

Thereare differences between financial statements prepared in accordance with GASBpronouncements and those prepared in accordance with the FASB Codification. Thestatements of revenues, expenses and changes in net assets (deficit) are acombined statement under GASB pronouncements. The FASB Codification allows astatement of income or operations and a separate statement of owners’ orshareholders’ equity (deficit), which is where distributions to owners would bepresented.  The amount shown as income before distributions to Tribe wouldbe the most comparable amount to net income computed under the FASBCodification.  The Authority is a separate enterprise fund of the Tribe, agovernmental entity, and as such there is no owners’ or shareholders’ equity(deficit) as traditionally represented under the FASB Codification.  Themost comparable measure of owners’ equity (deficit) is presented on theAuthority’s balance sheet as net assets (deficit).

 

During the third quarter of2009, the Authority adopted the new Accounting Standards Codification (“ASC”)as issued by the FASB.  The ASC hasbecome the source of authoritative GAAP recognized by the FASB to be applied bynongovernmental entities.  Rules andinterpretive releases of the SEC under authority of federal securities laws arealso sources of authoritative GAAP for SEC registrants.  The ASC is not intended to change or alterexisting GAAP.  The adoption of the ASCdid not have a material impact on the Authority’s financial statements.

 

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

 

FASB has issued ASU No.2010-16, “*Entertainment — Casinos (Topic 924) — Accruals forCasino Jackpot Liabilities.*” This ASU addresses the accounting for casino base jackpot liabilities,specifically, whether an entity accrues liabilities for a base jackpot beforeit is won if the entity is not required to award the base jackpot.  This ASU clarifies that an entity should notaccrue jackpot liabilities (or portions thereof) before a jackpot is won if theentity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an entity has theobligation to pay the jackpot.  Thisguidance applies to both base and progressive jackpots.  This ASU is effective for fiscal yearsbeginning after December 15, 2010, and for interim periods within thosefiscal years.  The adoption of this newstandard is not expected to have any effect on the Authority’s financialposition or result of operations.

 

*Use ofEstimates*—The preparation of financial statements inconformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses during the reporting period.Significant estimates include legal and other contingencies, obligations underplayers’ club programs and useful lives and recoverability of long-livedassets. Actual results could differ from these estimates.

 

*Cash andCash Equivalents*— The Authority considers all highly liquidinvestments with a maturity of three months or less at date of purchase as cashequivalents. The carrying amount of cash and cash equivalents approximates itsfair value. 

 

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

 

*Restricted Cash*— Restricted cash consistsof net proceeds from the Notes Offering and investment earnings thereon setaside in construction financing accounts, for construction costs for relatedinfrastructure improvements and construction contingencies. It also includesfunds that are reserved for construction contingencies and the funds for the developmentof the Dugan Property, an approximately 18-acre parcel of land adjacent to theTribe’s reservation. The restricted cash is held in escrow accounts that canonly be used for authorized construction disbursements until the relatedprojects are completed.  These escrow accounts are invested in moneymarket accounts, which generate interest on a monthly basis. The FDIC hasinsured $250,000 of this balance. The Authority believes that there is littlerisk of loss regarding the uninsured amounts of restricted cash held in theescrow accounts. Restricted cash was $4,328,870 and $7,097,526 at September 30,2010 and December 31, 2009, respectively.  As of September 30, 2010,restricted cash includes funds available for land development, more specificallythe emergency access road which will be used to further develop either theDugan Road or an alternate access road. On July 30, 2010, U.S. Bank National Association, as trustee andcollateral agent for the Senior Notes, transferred $2,682,699 from restricted accountsheld by U.S. Bank to the Authority’s unrestricted operating account which isnet of related fees of $85,957. The transferred amount represents the remainingbalances of proceeds from the sale of the Senior Notes and investment earningsthereon that had been held by U.S. Bank in a restricted construction financingaccount and a construction escrow account less all fees and expenses owed toU.S. Bank to date.

 

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

 

*CapitalAssets*— Capital Assets are stated at cost. Depreciation and amortization arecomputed using the straight-line method over the estimated useful lives of theassets as follows:

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

 

The costs of normalmaintenance and repairs that do not add to the value of the asset or materiallyextend the life of the asset are not capitalized.

 

Major outlays of capitalassets and improvements are capitalized as construction-in-progress as projectsare constructed.

 

*Evaluation of Long-Lived Assets* — Accountingpronouncement GASB No. 42, “*Accounting and FinancialReporting for Impairment of Capital Assets and for Insurance Recoveries,*”established accounting and financial reporting standards for impairment ofcapital assets.  The Authority’s capitalassets include building and improvements, furniture, fixtures andequipment.  A capital asset is consideredimpaired if both the decline in service utility of the capital asset is largein magnitude and the event or change in circumstances is outside the normallife cycle of the capital asset.  TheAuthority is required to evaluate prominent events or changes in circumstancesaffecting capital 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 manner orexpected 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*—**Theinterest cost associated with major development and construction projects iscapitalized and included in the cost of the asset.  Capitalization of interest ceases when theproject is substantially complete or when 

 

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

 

*Prepaid Expenses and Other Current Assets* — Prepaidexpenses and other current assets were $1,299,216 and $1,379,133 as ofSeptember 30, 2010 and December 31, 2009, respectively, which includes prepaidinsurance, prepaid uniforms and prepaid supplies.

 

*Depositsand Other Assets*— As of September 30, 2010 and December 31,2009, respectively, deposits and other assets mainly represent $1,109,176 and$1,875,448 in unamortized legal fees and other issuance costs related to theissuance of the Authority’s 9 3⁄4% Senior Notes due 2011 (the “Senior Notes”)under the Indenture, dated November 7, 2003 (the “Indenture”) and $515,191and $0 in costs incurred in connection with efforts to refinance the SeniorNotes.

 

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

 

*ProgressiveJackpots Liabilities*—The Casino has a number of progressivejackpot slot machines.  As coins are played, the amount available to winincreases and will be paid out when the appropriate winning combinationoccurs.  The progressive jackpots are recorded as a liability, with acorresponding charge against gaming revenue, of $1,415,498 and $1,587,748 as ofSeptember 30, 2010 and December 31, 2009, respectively.  Also, the Casinohas available for customer play wide area progressive slot machines that areinterlinked with other unrelated casinos.  These machines are monitoredand maintained by the vendor and the Casino is required to remit a percentageof coin-in to the respective vendor.  The charge is recorded againstrevenue for the portion of the fee applied to the wide area progressivejackpots.  Amounts recorded against revenue for the portion of the feeapplied to the wide area progressive jackpots were approximately $308,594 and$325,069 for the three months ended September 30, 2010 and 2009, respectively;and approximately $800,724 and $1,027,039 for the nine months ended September30, 2010 and 2009.  All other administrative charges are recorded inoperating expenses.

 

*AccruedSlot Players Club*— The Authority has recorded a liability related tofree play, prizes and cash incentives earned by the members of our PlayersClub. The Authority has recorded the estimated redemption of the liability ascontra-revenue in the accompanying statements of revenues, expenses and changesin net assets (deficit).

 

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

 

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

 

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

 

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

 

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

 

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*PromotionalAllowances*— The retail value of food and beverages provided tocustomers without charge or at a discount is included in food, beverage andretail revenues and then deducted as promotional allowances. Such amounts thatare included in food, beverage, and retail revenues for the three months endedSeptember 30, 2010 and 2009 were $462,355 and $318,348, respectively.  The amounts included in food, beverage andretail revenues for the nine months ended September 30, 2010 and 2009 were$1,281,280 and $1,006,645, respectively.

 

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

 

*AdvertisingCosts*— Advertising costs are expensed as incurred or when an advertisementis first aired or circulated. Advertising costs included in selling, generaland administrative expenses for the three months ended September 30, 2010 and2009 were $1,120,697 and $1,097,397, respectively.  Advertising costs for the nine months endedSeptember 30, 2010 and 2009 were $4,096,326 and $3,166,096, respectively.

 

*GamingCommission and Surveillance Expenses*— The Authority pays forvarious expenses for the Tribal Gaming Commission and Surveillance.  Suchexpenses include salaries and wages and related benefits for Regulatory,Surveillance and office staff, training, audit fees, background checks andlicensing.

 

*IncomeTaxes*—As a governmental instrumentality of the Tribe, the Authority is anon-taxable entity for purposes of federal and state income taxes.

 

*Distributions to Tribe*— Distributionsto Tribe are made up of permitted and service payments under the covenants ofthe Indenture.  They are included in the Statements of Revenues, Expensesand Changes in Net Assets (deficit) as distributions to Tribe allowed pursuantto the Indenture.  Total distributions to the Tribe for the three monthsended September 30, 2010 and 2009 were $3,397,978 and $3,324,979,respectively.  Total distributions to theTribe for the nine month ended September 30, 2010 and 2009 were $10,193,936 and$9,974,938, respectively.

 

*Reclassifications*— Certain prior period balances in the Statements of Cash Flows, havebeen reclassified to be consistent with current period presentation with noimpact on cash provided by operating activities, cash used in capital andrelated financing activities, cash provided by investing activities or cashused in non-capital financing activities. In addition, $216,947 and $686,772 ofpromotional allowances for the three and nine month periods ended September 30,2009 was reclassified from selling, general and administrative expenses topromotional allowances with no impact on income from operations.

 

**4.****                         ****CERTAINRISKS AND UNCERTAINTIES**

 

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

 

**5.****                         ****RELATEDPARTIES**

 

The Casino has been constructedon federal land beneficially owned by the Tribe. The Authority does not pay theTribe for the use of the land.

 

The Authority pays forvarious expenses for the following departments operated by the Tribe:  Tribal Gaming Commission including surveillance,and plant operations and human resources. These departmental expenses includebut are not limited to payroll and related expenses, legal, and otheroperational expenses. In April 2010, the Authority took over the operation ofthe warehouse from the Tribe.

 

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Total amounts billed by theTribe to the Casino for these departments, excluding Tribal Gaming Commissionand surveillance, for the three months ended September 30, 2010 and 2009 were$999,700 and $950,706 respectively.  Asof September 30, 2010, $55,912 is accrued in Payable to Tribe.  These amounts are recorded as a component ofselling, general and administrative expenses. The expenses for these departments for the nine months ending September30, 2010 and 2009 were $2,929,983 and $2,808,488, respectively.

 

 The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. TribalGaming Commission and surveillance expenses are recorded in Gaming Commissionand surveillance expenses on the Statements of Revenues, Expenses and Changesin Net Assets (deficit).  Gaming Commission and surveillance expenses forthe three months ended September 30, 2010 and 2009 were $853,775 and $985,703,respectively.  Gaming Commission andsurveillance expenses for the nine months ended September 30, 2010 and 2009were $2,389,222 and $2,901,577.

 

TheTribe incurred approximately $67 million in total expenses on the Authority’sbehalf for master planning of the proposed resort and infrastructureimprovements on the reservation that benefits the Casino, of which almost allof such expenditures were incurred prior to 2009 before the construction wassuspended.  The Authority reimbursed the Tribe approximately $52.4 millionthrough 2009.  On January 8, 2010,the Authority’s Board of Directors authorized the reimbursement of the Tribe inan amount not to exceed approximately $14.9 million of construction costs. The approval included a payment reimbursement schedule to the Tribe of$2,700,000 on January 18, 2010, $400,000 from February 1, 2010 throughApril 1, 2010 and $700,000 monthly thereafter without exceeding $14.9million.  The Authority reimbursed the Tribe $2.1 million for the threemonths ended September 30, 2010 and $7.4 million for the nine months endedSeptember 30, 2010.  The remaining $7.0million is included in Payable to Tribe in the Condensed Balance Sheet atSeptember 30, 2010.  When the reimbursementpayments are made or accrued, the related amounts are capitalized and reflectedin construction-in-progress. The reimbursed costs consist of engineering anddesign costs related to the proposed master plan development, includingelectrical, HVAC, landscaping, interior design services and consulting fees forlegal, branding, feasibility, and public relations services, as well as theconstruction costs of the lower Acorn Road.

 

The Tribe incurred expensesrelated to the reinforcement of the slope on the northwest side of theReservation near the Casino.  On May 19,2010, the Authority’s Board of Directors authorized the reimbursement to theTribe in an amount not to exceed $0.9 and an additional $2.4 million wasapproved in August 2010.  Subsequently,on October 13, 2010, the Authority’s Board of Directors authorized thereimbursement to the Tribe not to exceed $3.5 million.  As of September 30, 2010, the Casino hasincurred approximately $1.4 million in construction costs of which $0.5 millionis accrued in Payable to Tribe.  Wecurrently expect that the cost of this project will be approximately $3.5million.

 

The Authority reserved 50 recreational vehicle spaces and 10 campsitespaces at Alexander RV Park and Campground for casino guests.  Alexander RV Park and Campground is a whollyowned subsidiary of the Tribe.  The costof reserving the parking spaces and campsite spaces was $72,930 and $69,458 forthe three months ended September 30, 2010 and 2009, respectively.  The cost of reserving the parking spaces andcampsite spaces was $211,846 and $201,758 for the nine months ended September30, 2010 and 2009, respectively.

 

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

 

Cash and cash equivalentsand restricted cash consisted of the following as of September 30, 2010 andDecember 31, 2009:

 
| ** **                                           | ** ** | **September 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
|                                                 |       |                         |       |                        |       |
| Operating  accounts                                  |       | $                            | 12,740,088 |                        | $          | 16,281,764 |   |
| Money  market accounts*                              |       | 26,137,196                   |       | 10,095,039                  |       |
| Cash  on hand                                        |       | 4,776,693                    |       | 5,240,704                   |       |
|                                                 |       |                         |       |                        |       |
| Cash  and cash equivalents                           |       | 43,653,977                   |       | 31,617,507                  |       |
| Restricted  cash                                     |       | 4,328,870                    |       | 7,097,526                   |       |
|                                                 |       |                         |       |                        |       |
| Total  cash and cash equivalents and restricted cash |       | $                            | 47,982,847 |                        | $          | 38,715,033 |   |

 

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*Represents level 1 fairvalue measurement, quoted prices in active markets for identical items.

 

*Deposits* — Custodialcredit risk is the risk that in the event of a bank failure, the Authority’sdeposits (cash in checking, sweep, and money market accounts held with itsthird-party administrator) may not be returned to it.  The Authority doesnot have a deposit policy for custodial credit risk.  As of September 30,2010 and December 31, 2009, approximately $42,627,805 and $34,009,525,respectively, of the Authority’s bank balance for deposits of $43,127,805 and$34,580,666, respectively, were exposed to custodial credit risk, as it wasuninsured and uncollateralized.

 

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

 

CapitalAssets at September 30, 2010 and December 31, 2009 consisted of the following:

 
| ** **                         | ** ** | **Balance, as of  December 31,  2009** | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **Transfers  In(Out)** | ** ** | **Balance, as of  Sept 30, 2010** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|-------------|---------------|------------|------------------|------------|------------------------|------------|-------------------------------------------------------|------------|
| ** **                         | ** ** | ** **                                            | ** **  | ** **    | ** ** | ** **       | ** ** | ** **             | ** ** | **(Unaudited)**                                       | ** ** |
| ** **                         | ** ** | ** **                                            | ** **  | ** **    | ** ** | ** **       | ** ** | ** **             | ** ** | ** **                                            | ** ** |
| Building  and improvements         |       | $                                                     | 131,361,604 |          | $          | 1,176,533        |       | $                      | —     |                                                  | $          | 348,149 |   | $ | 132,886,286 |   |
| Furniture,  fixtures and equipment |       | 35,102,290                                            |        | 1,475,124     |       | (3,622,481       | )          | 65,847                 |       | 33,020,780                                            |       |
| Less  accumulated depreciation     |       | (60,121,221                                           | )           | (7,392,513    | )          | 3,622,481        |       | —                 |       | (63,891,253                                           | )          |
|                               |       | 106,342,673                                           |        | (4,740,856    | )          | —           |       | 413,996                |       | 102,015,813                                           |       |
| Construction  in Progress          |       | 59,588,618                                            |        | 16,163,334    |       | —           |       | (413,996               | )          | 75,337,956                                            |       |
| Capital  assets - net              |       | $                                                     | 165,931,291 |          | $          | 11,422,478       |       | $                      | —     |                                                  | $          | — |   | $ | 177,353,769 |   |

 

Construction in progressconsists of payments to the Tribe and various vendors related to the Authority’smaster plan development and land improvements. Substantially all of the Authority’s personal property is pledged ascollateral to secure its debt.

 

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**8.****                         ****ACCRUEDLIABILITIES**

 

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

 
| ** **                                  | ** ** | **September 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
|                                        |       |                         |       |                        |       |
| Accrued  in-house progressive slot jackpots |       | $                            | 1,415,498  |                        | $          | 1,587,748 |   |
| Accrued  payroll and related benefits       |       | 2,414,371                    |       | 1,514,557                   |       |
| Accrued  interest                           |       | 8,125,000                    |       | 3,250,000                   |       |
| Accrued  other expenses                     |       | 1,211,572                    |       | 1,343,068                   |       |
| Total  accrued liabilities                  |       | $                            | 13,166,441 |                        | $          | 7,695,373 |   |

 

**9.****                                     ****LONG-TERM DEBT**

 

Long-termdebt consisted of the following as of September 30, 2010 and December 31,2009:

 
| ** **                                                                                           | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **2010**               | ** **  | **2009**              | ** ** |
| ** **                                                                                           | ** ** | **(Unaudited)**        | ** **  | ** **            | ** ** |
|                                                                                                 |       |                   |        |                  |       |
| 9-3/4%  Senior Notes, net of unamortized issue discount of $365,351 and $618,288. Due  November 2011 |       | $                      | 199,634,649 |                  | $          | 199,381,712 |   |
| Vehicle  and Slot Notes                                                                              |       | —                 |        | 492,203               |       |
|                                                                                                 |       |                   |        |                  |       |
| Total  Long-Term Debt                                                                                |       | 199,634,649            |        | 199,873,915           |       |
| Less:  current portion                                                                               |       | —                 |        | (492,203              | )          |
|                                                                                                 |       |                   |        |                  |       |
| Total  long-term-debt - net of current maturities                                                    |       | $                      | 199,634,649 |                  | $          | 199,381,712 |   |

 

On November 7, 2003,the Authority issued the Senior Notes. The proceeds were utilized to fund anexpansion project, which included three parking structures, relatedinfrastructure improvements, repayment of various debt and advances and fundpayment of various accruals and payables, as well as to increase cash on hand.The proceeds were also utilized to fund a land purchase and settle litigation.  The Senior Notes are collateralized by a firstpriority pledge of the Authority’s revenue and substantially all of theexisting and future tangible and intangible personal property. The Authoritymay redeem the Senior Notes, in whole or in part, at a redemption price that isat a premium to the principal amount of the Senior Notes (expressed aspercentages of principal amount), plus accrued and unpaid interest.  Interest on the Senior Notes is duesemi-annually in May and November.

 

The Authority’s long-termdebt is recorded at an amortized historical cost basis.  The fair value ofthe Senior Notes was approximately $183.1 million as of September 30, 2010based on level one inputs, quoted prices in active markets.

 

**10.****                  ****EMPLOYEEBENEFIT PLAN**

 

TheAuthority participates in a 401(k) plan, a retirement plan (the “Plan”),which is qualified under Section 401(k) of the Internal RevenueCode.  The Plan is a defined contribution plan administered by aninsurance company and is available to all eligible employees of the Casino whohave attained age 21 and have at least three months of eligible service asdefined in the Plan.  The Plan participants may contribute up to 50percent of their eligible pretax compensation, subject to legal 

 

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limitations. The Authority, at its discretion, willmake matching contributions.  Any forfeiture due to employee terminationsreduces future Casino contributions.  Participants become vested inemployer contributions, as well as any earnings thereon, over a three-yearperiod at the rate of 30 percent, 60 percent and 100 percent at the end of eachyear, respectively.

 

Employeecontributions to the Plan were $165,210 and $148,211 for the three months endedSeptember 30, 2010, and 2009, respectively; and $429,118 and $469,444 for thenine months ended September 30, 2010 and 2009, respectively.

 

TheCasino made matching contributions to the Plan of $87,888 and $0 during thethree months ended September 30, 2010 and 2009, respectively; and $166,631 and$41,719 for the nine months ended September 30, 2010 and 2009,respectively.  The Casino temporarily suspended its matching contributionin January 2009 and reinstated it in March 2010.

 

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

 

TheCasino is exposed to various risks of loss related to worker’s compensation andtorts; theft of, damage to or destruction of assets; and errors oromissions.  The Casino has purchased commercial insurance policies forsaid risks.  There has been no significant reduction of insurancecoverage, and settlements have not exceeded coverage in the past threeyears.  The Casino retains the risk of dental claims subject to individuallimits of $1,500 per enrolled employee and covered dependent.

 

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

 

TheAuthority extended its operating lease of the sprung structure that houses theCasino operations.  The amended lease expires on June 17, 2012. The agreement calls for monthly payments of $25,395.  Total rental expensewas $76,248 and $76,185 for the three months ended September 30, 2010 and 2009,respectively.  Total rental expense was$228,555 and $282,730 for the nine months ended September 30, 2010 and 2009,respectively.

 

Otheroperating leases include leases for office spaces and copiers.

 

**13.****                  ****LEGALMATTERS**

 

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

 

**14.****                  ****COMPACTREVENUE SHARING TRUST FUND**

 

Underthe Compact as entered into with the State of California inSeptember 1999, the Tribe must pay annual license fees of $900-$4,350 perClass III gaming device, based on the number of gaming device licensesapproved by the state gaming commission.  The Compact does not require alicense for the first 350 Class III gaming devices in use and does notrequire a license fee for an additional 350 machines.  Payments are due ona quarterly basis and are remitted into a state revenue sharing trustfund.  License fees expense totaled $333,750 for each of the three monthsended September 30, 2010 and 2009. License fees expense totaled $1,001,250 for each of the nine monthsended September 30, 2010 and 2009.

 

**15.****                  ****COMMITMENTSAND CONTINGENCIES**

 

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

 

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

 

Acasino renovation was completed as part of ongoing efforts to improve theoverall appearance and appeal of the Casino to meet customer requirements.  In order to appeal more specifically tohigher end players, management moved the Poker tables to an open section of theCasino floor and converted the current poker room into a high-limit roomoffering high-limit slot machines and table games, comfortable seating, a barwith food and beverage service, and a private restroom.  The project was completed by late September2010.

 

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

 

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

 

**Overview**

 

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

 

*Recent Operational Highlights*

 

A targeted, cost-efficientrenovation project was completed in our fiscal year ended December 31,2009 (“FY 2009”) as part of an overall strategic operating plan for the casinothat is intended to improve the overall appearance and appeal of the Casino tomeet customer requirements.  Inanticipation of building a new casino resort, the current facility had not beenupgraded for several years.  In addition to the physical plant of thegaming operation, furniture, fixtures, equipment and gaming software wasneither replaced nor repaired to adequately service the needs of the business.The overall appearance and appeal of the casino was insufficient to meet basiccustomer requirements.  Major componentsof the renovation project included upgrading slot accounting software, slot andtable player tracking software, adding new carpeting, new slot chairs, interiorand exterior signage and the replacement of paint and wallpaper.  Toadditionally enhance the overall gaming experience and appeal to a broaderspectrum of potential gamers, two additional food amenities wereconstructed.  The 24-seat Fortune Café, which is open 24 hours, seven daysper week, offers a quick service, cook-to-order Asian-themed menu and is designedto be a high-margin, high-volume, quick turn restaurant.  Additionally,the Center Stage Bar & Grill, with 64 seats, offers “bar top” videopoker games, and was recently expanded to include a casual dining area and anupgraded stage and sound system that hosts live music and entertainment on theweekends.

 

Anadditional casino renovation was completed during September 2010 in orderto appeal more specifically to higher end players. This renovation involvedmoving the Poker tables to an open section of the Casino floor and convertingthe current poker room into a high-limit room offering high-limit slot machinesand table games, comfortable seating, a bar with food and beverage service, anda private restroom.

 

**FASBCodification Discussion**

 

Over the years, the FinancialAccounting Standards Board (“FASB”) and other designated GAAP-setting bodies,have issued standards in the form of FASB Statements, Interpretations,FASB Staff Positions, EITF consensuses, AICPA Statements of Position, etc.  The FASB recognized the complexity of itsstandard-setting process and embarked on a revised process in 2004 resulting inthe release of the FASB Accounting Standards Codification (the “ASC”) on July 1,2009.  The ASC was effective forfinancial statements for interim or annual reporting periods ending after September 15,2009.

 

The ASC became the source ofauthoritative U.S. generally accepted accounting principles (“GAAP”) recognizedby the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of theSecurities and Exchange Commission (“SEC”) under authority of federalsecurities laws are also sources of authoritative GAAP for SECregistrants.  On the effective date ofthis Statement, the ASC superseded all then-existing non-SEC accounting andreporting standards.  All othernon-grandfathered non-SEC accounting literature not included in the ASC willbecome nonauthoritative. This Statement was effective for financial statementsissued for interim and annual periods ending after September 15, 2009.

 

Following the ASC, FASB willnot issue new standards in the form of Statements, FASB Staff Positions, orEmerging Issues Task Force Abstracts. Instead, it will issue AccountingStandards Updates. FASB will not consider Accounting Standards Updates as authoritativein their own right.  Accounting StandardsUpdates will serve only to update

 

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the ASC, provide backgroundinformation about the guidance, and provide the bases for conclusions on thechange(s) in the ASC.

 

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

 

**CriticalAccounting Policies and Estimates**

 

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

 

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

 

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

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

 

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

 

·                               AccruedProgressive Slot Jackpots — Accrued progressive slot jackpots consist ofestimates for prizes relating to various games that have accumulated jackpots.We have recorded the anticipated payouts as a reduction of casino revenues andas a component of accrued liabilities. We do not accrue for the base jackpot.

 

·                               Contingencies —We assess our exposure to loss contingencies, including legal matters, andprovide for an exposure if it is judged to be probable and estimable. If theactual loss from a contingency differs from management’s estimate, operatingresults could be materially impacted. As of September 30, 2010, we have

 

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determinedthat no accruals for claims and legal actions are required. If circumstancessurrounding claims and legal actions change materially, the addition ofaccruals for such items in future periods may be required.

 

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

 

TheSEC has issued a final rule, *Internal Control OverFinancial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers*that is applicable to us. This rule provides a permanent exemption fornonaccelerated filers from the requirement to obtain an external audit on theeffectiveness of internal financial reporting controls provided in Section 404(b) ofthe Sarbanes-Oxley Act of 2002 (“SOX”). Specifically, this rule adoptsamendments to SEC rules and forms to conform them to Section 404(c) ofSOX, as added by Section 989G of the “Dodd-Frank Wall Street Reform andConsumer Protection Act.” Section 404(c) provides that Section 404(b) ofSOX does not apply with respect to any audit report prepared for an issuer thatis neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-2under the Securities Exchange Act of 1934.

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A governmental Instrumentality of the Dry Creek RancheriaBand of Pomo Indians)**

 

**RESULTS OF OPERATIONS**

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

**(Dollars in Millions)**

 
| ** **                                 | ** ** | **September 30,** | ** ** | **Dollar  Variance** | ** ** | **Percentage  Variance**    | ** ** |
|--------------------------------------------|------------|------------------------|------------|----------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **2010**               | ** ** | **2009**             | ** ** | **2010 vs. 2009** | ** ** | **2010 vs. 2009** | ** ** |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| OPERATING REVENUES:                        |       |                   |       |                 |       |                        |       |   |   |
| Casino                                     |       | $                      | 29.1       |                 | $          | 28.2                        |       | $ | 0.9 |   | 3.2 | % |
| Food, beverage, and retail                 |       | 1.5                    |       | 1.5                  |       | 0.0                         |       | 2.7 | % |
| Other                                      |       | 0.3                    |       | 0.2                  |       | 0.0                         |       | 22.1 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| Gross revenues                             |       | 30.8                   |       | 29.8                 |       | 1.0                         |       | 3.3 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| Promotional allowances                     |       | (0.5                   | )          | (0.3                 | )          | (0.1                        | )          | 45.2 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| Net revenues                               |       | 30.4                   |       | 29.5                 |       | 0.9                         |       | 2.9 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| OPERATING EXPENSES:                        |       |                   |       |                 |       |                        |       |   |   |
| Casino                                     |       | 4.2                    |       | 3.7                  |       | 0.6                         |       | 15.1 | % |
| Food, beverage, and retail                 |       | 1.9                    |       | 1.8                  |       | 0.1                         |       | 5.7 | % |
| Selling, general, and administrative       |       | 9.9                    |       | 9.5                  |       | 0.4                         |       | 4.4 | % |
| Depreciation                               |       | 2.6                    |       | 2.4                  |       | 0.2                         |       | 8.8 | % |
| Gaming commission and surveillance expense |       | 0.9                    |       | 1.0                  |       | (0.1                        | )          | -13.4 | % |
| Compact revenue sharing trust fund         |       | 0.3                    |       | 0.3                  |       | —                      |       | 0.0 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| Total operating expenses                   |       | 19.9                   |       | 18.7                 |       | 1.2                         |       | 6.2 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| INCOME FROM OPERATIONS                     |       | 10.5                   |       | 10.8                 |       | (0.3                        | )          | -2.8 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| NON-OPERATING EXPENSE-Net                  |       |                   |       |                 |       |                        |       |   |   |
| Interest expense                           |       | (5.2                   | )          | (5.2                 | )          | 0.0                         |       | 0.0 | % |
| Interest income                            |       | 0.0                    |       | 0.0                  |       | (0.0                        | )          | -7.7 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| Non-operating expense-net                  |       | (5.2                   | )          | (5.2                 | )          | (0.0                        | )          | 0.0 | % |
|                                       |       |                   |       |                 |       |                        |       |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | $                      | 5.3        |                 | $          | 5.6                         |       | $ | (0.3 | ) | -5.5 | % |

 

**Results of Operations**

 

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

 

*Net revenues*. Net revenues for the threemonths ended September 30, 2010 increased by $0.9 million to $30.4million, from $29.5 million for the three months ended September 30,2009.  We believe the increase in net revenues is attributable to anincrease in customer satisfaction levels resulting from the casino renovationproject.  Our renovation project hasresulted in better customer retention, longer stays, and an increase in thenumber of visits.  Approximately 95.7% ofour net revenues were from our gaming activities in the third quarter of 2010,as compared to 95.4% in the comparable prior year period.  We

 

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generated $26.4 million or86.8% of our net revenues from gaming devices, and $2.7 million, or 8.9% of ournet revenues from table games and poker for the three months ended September 30,2010, compared to $25.2 million from gaming devices or 85.3% of our netrevenues, and $3.0 million or 10.0% of net revenues from table games and pokerfor the three months ended September 30, 2009.  Our win per slot machine per day was $238 forthe three months ended September 30, 2010, which increased by $8 from $230for the three months ended September 30, 2009.  We had an average number of slot machines of1,204 for the three months ended September 30, 2010, compared to 1,191 forthe three months ended September 30, 2009.

 

We generated $1.0 million,net of promotional allowance of $0.5 million, in food, beverage and retailsales for the three months ended September 30, 2010, compared to $1.1million, net of promotional allowances of $0.3 million, in food, beverage andretail sales for the three months ended September 30, 2009.

 

*Promotionalallowances*. Promotional allowances for the three months ended September 30,2010 were $0.5 million, or 1.5% of net revenues, compared to $0.3 million, or1.1% of net revenues, for the three months ended September 30, 2009.

 

*Operatingexpenses*. Operating expenses for the three months ended September 30,2010 were $19.9 million, or 65.4% of net revenues, compared to $18.7 million,or 63.4% of net revenues, for the three months ended September 30, 2009.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities.  Casino expense for the three months ended September 30,2010 was $4.2 million compared to $3.7 million for the three months ended September 30,2009.  Casino expense as a percentage ofCasino revenues increased to 14.5% from 13.0% for the three months ended September 30,2009.

 

Food,beverage and retail expense for the three months ended September 30, 2010was $1.9 million, or 184.7% of food, beverage and retail revenue, net ofpromotional allowances, compared to $1.8 million, or 158.8% of food, beverageand retail revenue, net of promotional allowances for the three months ended September 30,2009.  Our food, beverage and retailexpense ratio is significantly higher than the industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

 

Selling, general andadministrative expense for the three months ended September 30, 2010 was $9.9million, or 32.7% of net revenues, from $9.5 million, or 32.3% of net revenues,for the three months ended September 30, 2009.  The increase in selling, general andadministrative expense is primarily due to an increase in employee benefits andpermitted expenses for Tribal plant operations and human resources.

 

Depreciation expense for thethree months ended September 30, 2010 was $2.6 million compared to $2.4 forthe three months ended September 30, 2009. Depreciation expense was computed using the straight-line method overthe useful life of property, plant and equipment.

 

Gaming Commission andsurveillance expense for the three months ended September 30, 2010 was$0.9 million compared to $1.0 million for the three months ended September 30,2009.

 

The Compact requires us topay a quarterly fee to the State of California’s revenue sharing trust fund,based on the number of licensed gaming devices we are allowed to operate.  Revenue sharing trust fund fees assessed were$0.3 million for each of the three months ended September 30, 2010 and2009.

 

*Incomefrom operations.* Income from operations for the three months ended September 30,2010 was $10.5 million, or 34.6% of net revenues, compared to $10.8 million, or36.6% of net revenues, for the three months ended September 30,2009.  The decrease in income from operations is primarily attributable tothe increase in advertising.  Offsettingthe increase in operating expenses is the slight increase in business volumesas a result of the Casino renovation project as well as the ongoing marketingefforts.

 

*Non-operatingexpense, net.* Non-operating expense, net for the three monthsended September 30, 2010 was $5.2 million, or 17.1% of net revenues,compared to $5.2 million or 17.6% of net revenues, for the three months ended September

 

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30, 2009. Non-operating expense, net, includes $5.2 million of interest expense for eachof the three months ended September 30, 2010 and 2009.  No interest costs were capitalized in thethree months ended September 30, 2010 and 2009.

 

*Incomebefore distributions to Tribe*. Income beforedistributions to the Tribe for the three months ended September 30, 2010was $5.3 million, or 17.5% of net revenues, compared to $5.6 million, or 19.0%of net revenues, for the three months ended September 30, 2009.

 

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

 

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**RESULTS OF OPERATIONS**

**For the Nine Months Ended September 30, 2010 and 2009**

**(Dollars in Millions)**

 
| ** **                                 | ** ** | **September 30,** | ** ** | **Dollar** | ** ** | **Percentage** | ** ** |
|--------------------------------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **                                 | ** ** | **2010**               | ** ** | **2009**   | ** ** | **Variance**   | ** ** | **Variance** | ** ** |
|                                       |       |                   |       |       |       |           |       |   |   |
| OPERATING REVENUES:                        |       |                   |       |       |       |           |       |   |   |
| Casino                                     |       | $                      | 91.1       |       | $          | 87.6           |       | $ | 3.6 |   | 4.1 | % |
| Food, beverage, and retail                 |       | 4.4                    |       | 4.4        |       | 0.1            |       | 1.3 | % |
| Other                                      |       | 0.8                    |       | 0.7        |       | 0.1            |       | 13.8 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| Gross revenues                             |       | 96.3                   |       | 92.6       |       | 3.7            |       | 4.0 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| Promotional allowances                     |       | (1.3                   | )          | (1.0       | )          | (0.3           | )          | 27.3 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| Net revenues                               |       | 95.1                   |       | 91.6       |       | 3.4            |       | 3.8 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| OPERATING EXPENSES:                        |       |                   |       |       |       |           |       |   |   |
| Casino                                     |       | 12.1                   |       | 11.8       |       | 0.3            |       | 2.9 | % |
| Food, beverage, and retail                 |       | 5.4                    |       | 5.6        |       | (0.2           | )          | -2.8 | % |
| Selling, general, and administrative       |       | 30.6                   |       | 29.4       |       | 1.2            |       | 4.2 | % |
| Depreciation                               |       | 7.4                    |       | 7.1        |       | 0.2            |       | 3.5 | % |
| Gaming commission and surveillance expense |       | 2.4                    |       | 2.9        |       | (0.5           | )          | -17.7 | % |
| Compact revenue sharing trust fund         |       | 1.0                    |       | 1.0        |       | —         |       | 0.0 | % |
| (Gain) on sale  of assets                  |       | —                 |       | (0.0       | )          | 0.0            |       | -100.0 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| Total operating expenses                   |       | 59.0                   |       | 57.8       |       | 1.2            |       | 2.0 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| INCOME FROM OPERATIONS                     |       | 36.1                   |       | 33.8       |       | 2.3            |       | 6.7 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| NON-OPERATING EXPENSE-Net                  |       |                   |       |       |       |           |       |   |   |
| Interest expense                           |       | (15.6                  | )          | (15.6      | )          | 0.0            |       | 0.0 | % |
| Interest income                            |       | 0.0                    |       | 0.1        |       | (0.0           | )          | -10.5 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| Non-operating expense-net                  |       | (15.6                  | )          | (15.6      | )          | (0.0           | )          | 0.0 | % |
|                                       |       |                   |       |       |       |           |       |   |   |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | $                      | 20.5       |       | $          | 18.2           |       | $ | 2.3 |   | 12.3 | % |

 

**Comparisonof the nine months ended September 30, 2010 and 2009**

 

*Net revenues*. Net revenues for the ninemonths ended September 30, 2010 increased by $3.4 million to $95.1million, from $91.6 million, for the nine months ended September 30,2009.  We believe the increase in net revenues is attributable to anincrease in customer satisfaction levels resulting from the casino renovationproject.  Our renovation project hasresulted in better customer retention, longer stays, and an increase in thenumber of visits.  Approximately 95.9% ofour net revenues were from our gaming activities in the nine months ended September 30,2010, as compared to 95.6% in the comparable prior year period.  We generated $82.7 million or 87.0% of ournet revenues from gaming devices, and $8.4 million, or 8.9% of our net revenuesfrom table games and poker for the nine months ended September 30, 2010,compared to $78.5 million from gaming devices or 85.7% of our net revenues, and$9.0 million or 9.9% of net revenues from table games and poker for the ninemonths ended September 30, 2009. Our win per slot machine per day was $250 for the nine months ended September 30,2010, which increased by $42 from $208 for the nine months ended September 30,2009.  The increase in net

 

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win per machine per day isattributable to the decrease in the average number of slot machines on thefloor as compared to prior year.  Wereconfigured our gaming floor in an effort to enhance our overall appeal.  As part of this effort, we reduced theaverage number of slot machines to 1,211 for the nine months ended September 30,2010, compared to 1,380 for the nine months ended September 30, 2009.

 

We generated $3.1 million,net of promotional allowance of $1.3 million, in food, beverage and retailsales for the nine months ended September 30, 2010, compared to $3.4million, net of promotional allowances of $1.0 million, in food, beverage andretail sales for the nine months ended September 30, 2009.

 

*Promotionalallowances*. Promotional allowances for the nine months ended September 30,2010 were $1.3 million, or 1.3% of net revenues, compared to $1.0 million, or1.1% of net revenues, for the nine months ended September 30, 2009.

 

*Operatingexpenses*. Operating expenses for the nine months ended September 30,2010 were $59.0 million, or 62.0% of net revenues, compared to $57.8 million,or 63.1% of net revenues, for the nine months ended September 30, 2009.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities.  Casino expense for the nine months ended September 30,2010 was $12.1 million compared to $11.8 million for the nine months ended September 30,2009.  Casino expense as a percentage ofCasino revenues decreased to 13.3% from 13.4% for the nine months ended September 30,2009.

 

Food,beverage and retail expense for the nine months ended September 30, 2010was $5.4 million, or 172.6% of food, beverage and retail revenue, net of promotionalallowances, compared to $5.6 million, or 166.0% of food, beverage and retailrevenue, net of promotional allowances for the nine months ended September 30,2009.  Our food, beverage and retailexpense ratio is significantly higher than the industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

 

Selling, general andadministrative expense for the nine months ended September 30, 2010 was$30.6 million, or 32.2% of net revenues, from $29.4 million, or 32.1% of netrevenues, for the nine months ended September 30, 2009.  The increase in selling, general andadministrative expense is due to an increase in advertising, employee benefitsand permitted expenses for Tribal plant operations and human resources, offsetby a decrease in bus expenses.

 

Depreciation expense for thenine months ended September 30, 2010 was $7.4 million compared to $7.1million for the nine months ended September 30, 2009.  Depreciation expense was computed using thestraight-line method over the useful life of property, plant and equipment.

 

Gaming Commission andsurveillance expense for the nine months ended September 30, 2010 was $2.4million compared to $2.9 million for the nine months ended September 30,2009.

 

The Compact requires us topay a quarterly fee to the State of California’s revenue sharing trust fund,based on the number of licensed gaming devices we are allowed to operate.  Revenue sharing trust fund fees assessed were$1.0 million for each of the nine months ended September 30, 2010 and2009.

 

*Incomefrom operations.* Income from operations for the nine months ended September 30,2010 was $36.1 million, or 38.0% of net revenues, compared to $33.8 million, or36.9% of net revenues, for the nine months ended September 30, 2009. The increase in income from operations is attributable to the increase inbusiness volumes as a result of the Casino renovation project as well as theongoing marketing efforts.

 

*Non-operatingexpense, net.* Non-operating expense, net for the nine monthsended September 30, 2010 was $15.6 million, or 16.4% of net revenues,compared to $15.6 million or 17.0% of net revenues, for the nine months ended September 30,2009.  Non-operating expense, net, includes $15.6 million of interestexpense for each of the nine months ended September 30, 2010 and2009.  No interest costs were capitalizedin the nine months ended September 30, 2010 and 2009.

 

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*Incomebefore distributions to Tribe*. Income beforedistributions to the Tribe for the nine months ended September 30, 2010was $20.5 million, or 21.6% of net revenues, compared to $18.2 million, or19.9% of net revenues, for the nine months ended September 30, 2009.

 

*Distributionsto the Tribe*. Distributions to the Tribe for the nine monthsended September 30, 2010 were $10.2 million, compared to $10.0 million forthe nine months ended September 30, 2009.

 

**Liquidityand Capital Resources**

 

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

 

OnMarch 18, 2008, the Tribe and the Sonoma County Board of Supervisorsentered into the MOA that, among other things, settled several long-standinglegal disputes between Sonoma County and the Tribe and provides a bindingframework for resolving future disputes.  Among other things, SonomaCounty agreed to drop its opposition to the Tribe’s application for a liquorlicense subject to the agreement by the Tribe to construct an emergency accessroad that meets Sonoma County’s approval.

 

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

 

Todate, access to the Tribe’s reservation and our casino has been over a single,two-lane road. Under the MOA, the Tribe covenanted as a condition to theissuance of our liquor license to construct an emergency access road from thecasino over either the Dugan Property or at an alternative site subject toapproval by Sonoma County.  The MOArequires that road construction commence no later than 60 days after the DuganProperty is taken into trust by the United States for the benefit of the Tribeand to be completed no later than 365 days after the Trust Date, subject to anextension if such commencement date occurs during the rainy season(approximately October 15th through April 15th).  The trust application was approved in July 2010and we do not yet know the date of recordation of the transfer of the land intotrust.  We believe the Tribe will seek toobtain an extension of the construction deadline for the emergency access roadfrom Sonoma County, but there can be no assurances that any extension will begranted. Various factors, including unknown site conditions, potential labordisputes, potential cost increases and similar variables could result inincreased construction costs and there is no assurance that we will notexperience cost-overruns.

 

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

 

Priorto the suspension of the master planning and related infrastructureimprovements on the reservation relating to the expansion project in early2009, the Tribe incurred approximately $67 million in total expenses on ourbehalf for the expansion project.  Wereimbursed the Tribe approximately $52.4 million through FY 2009.  On January 8, 2010, our Board ofDirectors authorized the reimbursement to the Tribe in an amount not to exceedapproximately $14.9 million of construction costs.  The approvalincluded a payment reimbursement schedule to the Tribe of $2,700,000 on January 18,2010, $400,000 from February 1, 2010 through April 1, 2010 and$700,000 monthly thereafter without exceeding $14.9 million.  Wereimbursed the Tribe $2.1 million for the three months ended September 30,2010 and $7.4 million for the nine 

 

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monthsended September 30, 2010.  Theremaining $7.0 million is included in Payable to Tribe in the Condensed BalanceSheet at September 30, 2010.  Whenthe reimbursement payments are made or accrued, the related amounts arecapitalized and reflected as construction-in-progress. The reimbursed costsconsist of engineering and design costs related to the proposed master plandevelopment, including electrical, HVAC, landscaping, interior design servicesand consulting fees for legal, branding, feasibility, and public relationsservices, as well as the construction costs of the lower Acorn Road.

 

Ourcapital expenditures for the nine months ended September 30, 2010 and 2009were $13.2 million and $12.6 million, respectively.  The addition to capital expenditures for thenine months ended September 30, 2010 consisted primarily ofconstruction-in-progress related to the master plan development of our resortof which $8.3 million was reimbursed to the Tribe, as well as costs relating toremodels of our Casino and restaurants. We have reflected the expenditures relating to the master plandevelopment which we reimbursed the Tribe as construction-in-progress in ourbalance sheet.

 

Asof September 30, 2010, we had cash and cash equivalents, net of restrictedcash of $43.7 million, compared to $31.6 million as of December 31, 2009.We had restricted cash of $4.3 million as of September 30, 2010 and $7.1as of December 31, 2009.  Ourprincipal source of liquidity during the three months ended September 30,2010 consisted of cash flow from operating activities.

 

Restrictedcash consists of net proceeds from the Senior Notes and investment earningsthereon set aside in construction financing accounts for construction costs forrelated infrastructure improvements and construction contingencies. It alsoincludes funds that are reserved for additional construction contingencies andthe funds for the development of the Dugan Property an approximately 18-acre parceladjacent to the Tribe’s reservation.  Ourrestricted cash is held in escrow accounts that can only be used for authorizedconstruction disbursements until the related projects are completed.  On July 30, 2010, U.S. Bank NationalAssociation, as trustee and collateral agent for the Senior Notes, transferred$2,682,699 from restricted accounts held by U.S. Bank to our unrestrictedoperating account which is net of related fees of $85,957. The transferredamount represents the remaining balances of proceeds from the sale of theSenior Notes and investment earnings thereon that had been held by U.S. Bank ina restricted construction financing account and a construction escrow accountless all fees and expenses owed to U.S. Bank to date.  The remaining balance of restricted cash isset aside for the development of an emergency access road which will complywith the MOA.  Such emergency access roadwill be built on the Dugan Property or an alternate parcel that is approved bySonoma County.

 

Netcash used in capital and related financing activities for the nine months endedSeptember 30, 2010 was $21.3 million, compared to $21.8 million for thenine months ended September 30, 2009. This decrease was attributable to several factors, which included anincrease in purchases of capital assets and fees associated with efforts torefinance the Senior Notes, offset by the release of restricted cash of $2.8million.

 

Cash flows provided byinvesting activities consisting of interest income for the nine months ended September 30,2010 was $47,485, compared to $53,044 for the nine months ended September 30,2009.

 

Cash flows used innon-capital financing activities for the nine months ended September 30, 2010was $10.2 million, compared to $10.0 million for the nine months ended September 30,2009.  Cash flows used in non-capital financing activities consist ofdistributions to the Tribe.

 

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

 

TheSenior Notes mature on November 1, 2011. We are actively reviewing our options. We have remained in contact with various financial institutions regarding thematuring debt to explore our options, which may include refinancing the SeniorNotes.  In addition, the Indenture limitsour ability to incur additional indebtedness.

 

The Tribe incurred expensesrelated to the reinforcement of the slope on the northwest side of theReservation near the Casino.  On May 19,2010, our Board of Directors authorized the reimbursement to the Tribe in anamount not to exceed $0.9 and an additional $2.4 million was approved in August 2010.  Subsequently, on October 13, 2010, ourBoard of Directors

 

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authorized the reimbursementto the Tribe not to exceed $3.5 million. As of September 30, 2010, we incurred approximately $1.4 million inconstruction costs of which $0.5 million is accrued in Payable to Tribe.  We currently expect that the cost of thisproject will be approximately $3.5 million.

 

Acasino renovation was completed as part of ongoing efforts to improve theoverall appearance and appeal of the Casino to meet customer requirements.  In order to appeal more specifically tohigher end players, management moved the Poker tables to an open section of theCasino floor and converted the current poker room into a high-limit roomoffering high-limit slot machines and table games, comfortable seating, a barwith food and beverage service, and a private restroom.  The project was completed in September 2010.

 

Aspart of the effort to enhance the overall appeal of our product, we have beenreconfiguring our gaming floor.  Regardless of the reduction of slotmachines, we will maintain our contractual rights under the Compact to operatea total of 1,600 slot machines in our Casino and pay the related RevenueSharing Trust Fund (“RSTF”) payments.  We considered many factors such aspeak period demand, per unit productivity, and player comfort in our analysisto ensure that the reduction of gaming devices will not adversely impact ourrevenues.  The reduction of gaming units on the Casino floor has providedus an opportunity to upgrade current amenities, improve player comfort andenhance entertainment value. We are confident that these improvements, targetedat improving product appeal, will ultimately open up a greater spectrum ofpotential consumers within our designated market area.  In combinationwith our continuing effort to improve operational efficiency, upgrading ourgaming technology, and refocusing our marketing efforts, we are confident thatwe will have set a solid foundation for improved and sustained cash flows.

 

**ContractualObligations as of September 30, 2010**

 

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

 
| ** **                     | ** ** | **Total** | ** **  | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** **  |
|--------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|-------------|
| Long-term debt obligations (a) |       | $         | 200,000,000 |            | $          | —             |       | $                  | 200,000,000 |   | $ | — |   |
| Operating lease obligations    |       | 1,331,375 |        | 619,440         |       | 609,715            |       | 102,220            |        |
| Total obligations (b)          |       | $         | 201,331,375 |            | $          | 619,440            |       | $                  | 200,609,715 |   | $ | 102,220 |   |

 

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(a)    Excludedfrom long-term debt obligations above are interest payments of $19.5 million in1 year and $1.6 million in 2-3 years. The Senior Notes mature onNovember 1, 2011.  The $1.6 millionin 2-3 years represents 1/6 of our 6-month payment.  If refinancing were to take place prior to thematurity of our Senior Notes, we will calculate the interest due on a proratedbasis.

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

 

**Regulationand Taxes**

 

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

 

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

 

In May 2008, theCalifornia Department of Alcoholic Beverage Control (“ABC”) issued a liquorlicense to our Casino.  However, theTribe has agreed to restrict the sale of alcohol to wine and beer between thehours of 11 a.m. and 5 p.m. on 

 

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weekdays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The Tribe has also agreed not to serve liquoron the Casino floor, although patrons may bring drinks purchased at therestaurant or bar on to the Casino floor. The restrictions may be renegotiatedfollowing the first to occur of the three year anniversary of the MOA or theopening of a hotel.

 

Inaddition, the MOA commits the County Sheriff’s Department and Fire Marshall toproviding public safety and fire services to the Casino and the Tribe’s futuregaming projects on the Rancheria, provides detailed agreements on offreservation impact mitigation measures, and permits the Tribe’s application totake the Dugan Property into trust.

 

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

 

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

 

**Impact ofInflation**

 

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

 

**Seasonality**

 

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

 

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

 

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

 

Through September 30, 2010,we had not invested in derivative or foreign currency-based financialinstruments.  We primarily have invested in money markets.  As such,we do not believe we have material exposure to market risk.

 

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**ITEM 4T.  CONTROLS AND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

Asof the end of the period covered by this Quarterly Report on Form 10-Q,management, including our Chief Executive Officer and Chief Financial Officer,has evaluated the effectiveness of the design and operation of its disclosurecontrols and procedures.  Based upon thatevaluation and as of the end of the quarter for which this report is made, ourChief Executive Officer and Chief Financial Officer concluded that thedisclosure controls and procedures were effective.  Disclosurecontrols and procedures ensure that information to be disclosed in reports thatthe we file and submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andterms of the Securities and Exchange Commission, and ensure that informationrequired to be disclosed in the reports that we file or submit under theExchange Act is accumulated and communicated to our management, including itsChief Executive Officer and Chief Financial Officer, to allow timely decisionsregarding required disclosure.

 

**Changes toInternal Controls Over Financial Reporting**

 

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

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

 

Weare involved in litigation and disputes from time to time in the ordinarycourse of business with vendors and patrons. We believe that the aggregateliability, if any, arising from such litigation or disputes will not have a materialadverse effect on its results of operations, financial condition or cash flows.

 

**ITEM 1A.           RISK FACTORS**

 

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

 

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

 

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

 

Federaland California law currently permits Class III casino gaming only oncertain tribal lands pursuant to compacts negotiated with the State ofCalifornia and approved by the U.S. Secretary of the Interior. Class IIgaming for tribes is permitted only on federally recognized tribal lands. Thereare currently 55 tribes operating 56 compacted gaming facilities in the Stateof California. The closest existing tribal competitors are the HoplandSho-ka-wah Casino, located approximately 35 miles and 40 minutes north of the Tribe’sreservation; the Konocti Vista Casino, located approximately 45 miles and onehour and ten minutes northeast of the Tribe’s reservation; the Cache CreekIndian Casino and Bingo, located approximately 95 miles and two hours andfifteen minutes east of the Tribe’s reservation; and the Thunder Valley Casino,located approximately 124 miles and two hours and forty-five minutes east ofthe Tribe’s reservation. In addition, several potential competitors areattempting to develop and open casinos near our casino.  Non-tribal cardrooms that offer poker andsome other games that would be classified as Class II games if conducted by anIndian tribe, exist within 50 miles of the Tribe’s reservation.

 

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Themost significant competition may come from the proposed Graton Rancheriacasino. In April 2003, the Federated Indians of the Graton Rancheria, alsoknown as the Coast Miwoks, announced plans to purchase land in Sonoma Countynear Highway 37 and Lakeville Highway, approximately 30 miles south of ourcasino and closer to the San Francisco Bay area than our casino.

 

OnOctober 1, 2010, the U.S. Department of the Interior took land near RohnertPark, California into federal trust for the Graton Tribe. The Departmentinitially published notice of its intent to take the land into trust in May2008, but agreed to withhold action on the trust acquisition due to a lawsuitfiled by a citizens group opposed to the proposed casino.  After the Ninth Circuit Court of Appealsupheld the district court’s dismissal of the lawsuit on June 3, 2010, theInterior Department moved forward with taking the land into trust.  The land’s going into trust representsperhaps the most significant step toward the development of a casino at RohnertPark.

 

TheGraton Tribe has also negotiated separate agreements with Sonoma County andMarin County, whereby the Counties pledged not to challenge the land-into-trustdecision and the Graton Tribe agreed not to build any additional casinos inSonoma or Marin Counties.

 

Alsoon October 1, 2010, the National Indian Gaming Commission (“NIGC”) approved amanagement contract for Class II gaming (essentially poker, bingo, andbingo-related electronic gaming machines that have the look and feel of a slotmachine) between the Graton Tribe and SC Sonoma Management, LLC, an entityowned by Station Casinos.  As part of itsapproval of the management contract, the NIGC also concluded its environmentalreview of and approved the environmental impact statement for the proposedcasino.  A spokesperson for the citizensgroup that filed the lawsuit challenging the fee-to-trust acquisition hasstated publicly that the group will challenge the adequacy of the environmentalreview and approval, but no lawsuit has been filed.

 

Asnoted above, because the management contract approved by the NIGC was for ClassII gaming, the Graton Tribe can operate electronic bingo machines at the proposedcasino without a tribal-state compact with the State of California.  The NIGC approved the Graton Tribe’s gamingordinance in August 2008, and the only remaining approval needed before theGraton Tribe can operate Class II electronic bingo machines at the Rohnert Parksite is an opinion from the NIGC that the lands are eligible for gaming underthe Indian Gaming Regulatory Act.  Atribal-state compact will be required before the Graton Tribe can operate ClassIII gaming at the Rohnert Park site.

 

Theannounced plans for the Rohnert Park casino include a gaming facility thatwould house approximately 2,000 slot machines, 120 card tables and bingo, aswell as a 300-room hotel, five restaurants and a theater with up to 2,000seats.

 

TheCloverdale Rancheria has announced preliminary plans to build a 596,000square-foot hotel/spa and casino resort some ten miles north of our casino onU.S. Highway 101, and they and their financial backers have purchasedapproximately 79 acres for the proposed facility. In December 2008, theDepartment of the Interior issued an opinion stating that if the lands weretaken into trust, they would be eligible for gaming under the Indian GamingRegulatory Act. The environmental review process for the proposed CloverdaleRancheria project began in July 2008. The Draft Environmental Impact Statement for the project was issuedAugust 6, 2010, a public hearing was held on September 15, 2010, and commentswere accepted through October 20, 2010.

 

TheHopland Sho-ka-wah Casino is located several miles east of U.S. Highway 101 onRoute 175. The facility features a 40,000 square foot casino offering 540 slotmachines and eight table games. The facility offers poker, Pai Gow, blackjack,card-based roulette, and card-based craps table games.  The facility contains a Mexican foodtaqueria, a small cafe-type food and beverage area, a fine-dining steak houseand a bar. Hopland operates a small bus program but does not operate a hotel.

 

Eastof the Sho-ka-wah Casino is the Konocti Vista Casino in Lakeport, California.Lakeport is located approximately 37 miles from Cloverdale with access offHighway 29.  The casino currently houses349 slot machines and 6 table games. The facility also offers an 80-room hoteland marina with small pool as well as a 74-space recreational vehicle park. Thefood and beverage program includes a small restaurant, buffet and a newlyremodeled steakhouse restaurant serving liquor.

 

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TheThunder Valley Casino opened in June 2003 and is located at theintersection of Highway 65 and Interstate 80 just outside of Sacramento,California. The Nevada-style property offers approximately 3,000 slot machinesand 125 table games that include blackjack, baccarat, and a variety of pokergames including Let It Ride and Pai Gow. The facility features a salon, privatedining rooms, bars and butler service. In addition, it houses a 500-seat buffetand various fast food options. The facility also features a nightclub.  In 2008, the Thunder Valley Casino announcedplans to build a new 650-room, 23-story hotel featuring a spa, family centerand other amenities.  Thunder Valley also planned to construct a 3,000-seatperforming arts center, and to expand the casino to include three newrestaurants, more gaming space and new poker room, and a parking structurecapable of holding 5,000 cars.  Theexpansion began in July 2008 but was halted in November 2008.  In May 2009, the casino resumed work on theexpansion, but the project was scaled down to include a 17-story hotel with 297rooms; a 700-seat, 10,000-square-feet multipurpose entertainment center inplace of the performing arts center; and a 7-story parking structure withapproximately 3,800 spaces.  The hotelopened in June 2010.  Thunder Valley alsoadded 40,000 square feet of space to its casino floor and renovated theexisting casino floor to match the new space. The casino now has 144,500 square feet of gaming space.

 

TheCache Creek Casino is located approximately 50 miles west of Sacramento. TheCache Creek Casino offers over 2,000 slot machines. The casino recently added a14-table poker room and houses 122 table games including blackjack, Texas Hold’em,Pai Gow and Caribbean Stud. The facility also includes a 200-room luxury hotel,9 restaurant outlets, an entertainment pavilion with seating for 600, a spa andoutdoor pool, an 18-hole golf course and a 1,883 spot parking structure. In2007, Cache Creek announced plans to add more shops and parking and expand itsgaming floor, and to add a 10-story hotel tower with 467 rooms, and a 62,500square-foot convention center capable of seating 2,300 people.  These expansion plans were put on hold inearly October 2009, but were resumed in January 2010 when the Cache CreekCasino announced plans to resume the expansion, proposing to add over 20,000square-feet of casino space, a 52,440 square-foot convention center, and a900-car six-story garage.  In September 2010,the construction of the event center and parking garage was halted, though therenovation of the existing 200-room hotel will continue.

 

TheLytton Band of Pomo Indians currently operate a 70,000 square-foot casino withapproximately 1,184 Class II electronic bingo machines and over 15 tablegames on a 9-acre site in San Pablo, near Oakland, California, on land that wasplaced in trust for the tribe through congressional legislation.  The Lytton Band signed a compact withGovernor Arnold Schwarzenegger for operating Class III casino gaming onthe San Pablo site, but the state legislature withheld its approval. InMay 2007, legislation was introduced in the U.S. Senate, which has thesupport of the Lytton Band, that would require the Lytton Band to forego anyClass III machines at the San Pablo site and instead limit itself tooperating its existing Class II machines. This legislation was passed bythe Senate in November 2007 and referred to the Committee on NaturalResources in the U.S. House of Representatives, but no further action wastaken.  The legislation was againintroduced in the U.S. Senate in January 2009, and the Senate passed the billin March 2009, but no further action has been taken.

 

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

 

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

 

TheGuidiville Band hopes to have transferred to it land at the former Point MolateNaval Base in Richmond, California on which it hopes to operate a 240,000square-foot casino with 124,000 square-feet of gaming space, along with twohotels, a conference center, retail shops, restaurants and two parkingstructures.  The project is still in itsearly stages, as the land transfer has not been approved and environmental reviewsmust be completed.  The Guidiville Bandreleased the draft environmental impact study for the proposed project in July2009, and the Bureau of Indian Affairs held a public hearing on the draft studyin August 2009 and took public comments on the study until September 23, 2009.  Environmental groups filed a lawsuit in aneffort to stop the transfer of the land in January 2009, but an agreement wasreached among these 

 

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environmentalgroups, the Guidiville Band, and the project’s developer in October 2010 underwhich these groups agreed to drop their opposition to the project.

 

TheScotts Valley Band hopes to build a 225,000 square-foot casino complex andfive-story parking garage on a 29.87-acre site in unincorporated Contra CostaCounty, near Richmond, California.  In March 2008, the Bureau ofIndian Affairs announced the filing of the Final Environmental Impact Statementfor the proposed project.  A municipalservices agreement between the City of Richmond and the Scotts Valley Band waschallenged in court on environmental review grounds, and the agreement’svalidity was upheld in February 2010.

 

Eachof these proposed projects still faces numerous legal and administrativeobstacles in addition to environmental approvals, including the negotiation andapproval of a compact with the State of California, approval from the DOI totake the land on which the project would be located into federal trust on behalfof the tribe, and, for the Guidiville and Scotts Valley projects,determinations from appropriate federal agencies that the tribes may conductgaming on these lands pursuant to IGRA, but all such projects are neverthelessfeasible and could come to fruition.

 

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

 

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

 

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

 

Otherinitiatives expanding competitive forms of gaming have been approved and may,from time to time, be approved (or if passed, may be modified) by state orlocal authorities. Examples include the passage in California of legislation in2007 expanding off-site betting on horse races through expanded advance depositwagering and increased satellite wagering sites, legislation passed by theCalifornia legislature in September 2010 that would allow for exchangewagering on horse races, a legislative proposal in the California Assemblyin February 2007 to amend the California Penal Code to expand permitted bingogames by charitable organizations to include electronic bingo cards, and a billintroduced in the California State Senate in May 2010 to authorize onlineintrastate poker in California.

 

In August 2009, a federaldistrict court judge issued an order, in ongoing litigation regarding theproper number of total slot machines allowed under the 1999 tribal-state gamingcompacts, requiring that the State of California issue an additional 10,549slot machine licenses. A drawing was held on October 5, 2009, and 3,548licenses were awarded to eleven different Indian tribes, leaving 7,001 slotmachine licenses available in the statewide pool.  The only one of our competitors to receivelicenses in the draw was the Middletown Rancheria of Pomo Indians, whichoperates the Twin Pine Casino and Hotel and received 100 additional licensesthrough the draw.  On August 20, 2010,the Ninth Circuit Court of Appeals reduced the number of additional slotmachine licenses from 10,549 to 8,050, meaning that there are now 4,502 slotmachine licenses remaining in the pool. The Tribe or any other Indian tribe(s) could request California to holda draw for some or all of these licenses.

 

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**ITEM6.               EXHIBITS**

 

TheExhibit Index filed herewith is incorporated herein by reference.

 

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**SIGNATURE**

 

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

 
| Dated: November 12, 2010 |   | RIVER ROCK ENTERTAINMENT  AUTHORITY |
|--------------------------|--------|-------------------------------------|
|                     |   | (Registrant)                        |
|                     |   |                                |
|                     |   | By:                                 | /s/ David Fendrick |
|                     |   |                                | David Fendrick, |
|                     |   |                                | Chief Executive Officer |

 

**EXHIBITINDEX**

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

 

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| * | 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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