**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D. C.  20549**

 

----

 

**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**Forthe quarterly period ended June 30, 2008**

 

**OR**

 

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

 

**Forthe transition periodfrom                     to                **

 

**CommissionFile Number: 333-115186**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exact name ofregistrant as specified in its charter)

 

| **Not  Applicable**                                                                                                          | ** ** | **68-0490898**       |
|------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                                                                                             |       | (I.R.S. Employer     |
| incorporation or  organization)                                                                                              |       | Identification  No.) |
|                                                                                                                         |       |                 |
| **3250  Highway 128 East  Geyserville, California 95441  (707) 857-2777**                                                    |
| (Address,  including zip code, and telephone number,  including area code, of registrant’s principal executive offices) |

 

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

Yes   x       No  o

 

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

 

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

 

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

Yes   o       No x

 

 

 

----

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

**INDEXTO FORM 10-Q**

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

 

2

----

 

 

**CAUTIONARY STATEMENT**

 

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

 

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

 

*Our key risks are described in our annual report on Form 10-Kfiled with the Securities and Exchange Commission.*

 

3

----

 

**PART I.FINANCIAL INFORMATION**

**ITEM1. FINANCIAL STATEMENTS (UNAUDITED)**

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                                      | ** ** | **June 30, 2008** | ** **  | **December 31, 2007** | ** ** |
|-------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      |       |                        |        |                            |       |
|                                            |       |                        |        |                            |       |
| CURRENT ASSETS:                                 |       |                        |        |                            |       |
| Cash and cash  equivalents                      |       | $                           | 44,273,897  |                            | $          | 46,533,389 |   |
| Restricted  cash-current                        |       | 466,517                     |        | 466,517                         |       |
| Accounts  receivable                            |       | 419,018                     |        | 307,386                         |       |
| Inventories                                     |       | 187,513                     |        | 153,215                         |       |
| Prepaid expenses  and other current assets      |       | 1,371,693                   |        | 1,427,891                       |       |
|                                            |       |                        |        |                            |       |
| Total current  assets                           |       | 46,718,638                  |        | 48,888,398                      |       |
|                                            |       |                        |        |                            |       |
| RESTRICTED CASH  - net of current               |       | 6,897,828                   |        | 6,868,956                       |       |
|                                            |       |                        |        |                            |       |
| PROPERTY AND  EQUIPMENT:                        |       |                        |        |                            |       |
| Buildings and  building improvements            |       | 130,104,018                 |        | 129,642,521                     |       |
| Furniture,  fixtures and equipment              |       | 32,915,215                  |        | 29,969,430                      |       |
|                                            |       |                        |        |                            |       |
| Accumulated  depreciation                       |       | (49,810,924                 | )           | (44,460,665                     | )          |
| Construction in  progress                       |       | 18,930,634                  |        | 9,256,830                       |       |
|                                            |       |                        |        |                            |       |
| Property and  equipment-net                     |       | 132,138,943                 |        | 124,408,116                     |       |
|                                            |       |                        |        |                            |       |
| DEPOSITS AND  OTHER ASSETS                      |       | 4,083,186                   |        | 4,339,002                       |       |
|                                            |       |                        |        |                            |       |
| TOTAL ASSETS                                    |       | $                           | 189,838,595 |                            | $          | 184,504,472 |   |
|                                            |       |                        |        |                            |       |
| **LIABILITIES  AND FUND DEFICIT**               |       |                        |        |                            |       |
|                                            |       |                        |        |                            |       |
| CURRENT  LIABILITIES:                           |       |                        |        |                            |       |
| Accounts  payable:                              |       |                        |        |                            |       |
| Trade                                           |       | $                           | 3,202,506   |                            | $          | 3,563,243 |   |
| Construction                                    |       | —                      |        | 466,517                         |       |
| Accrued  liabilities                            |       | 8,062,072                   |        | 7,566,821                       |       |
| Current  maturities of long-term debt           |       | 187,281                     |        | 213,172                         |       |
|                                            |       |                        |        |                            |       |
| Total current  liabilities                      |       | 11,451,859                  |        | 11,809,753                      |       |
|                                            |       |                        |        |                            |       |
| LONG-TERM DEBT -  net of current maturities     |       | 198,886,111                 |        | 198,747,638                     |       |
|                                            |       |                        |        |                            |       |
| Total long-term  liabilities                    |       | 198,886,111                 |        | 198,747,638                     |       |
|                                            |       |                        |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES                  |       |                        |        |                            |       |
|                                            |       |                        |        |                            |       |
| FUND DEFICIT:                                   |       |                        |        |                            |       |
| Invested in  capital assets-net of related debt |       | (66,934,448                 | )           | (74,552,694                     | )          |
| Restricted for  capital projects                |       | 7,364,345                   |        | 7,335,473                       |       |
| Unrestricted                                    |       | 39,070,728                  |        | 41,164,302                      |       |
|                                            |       |                        |        |                            |       |
| Total fund  deficit                             |       | (20,499,375                 | )           | (26,052,919                     | )          |
|                                            |       |                        |        |                            |       |
| TOTAL  LIABILITIES AND FUND DEFICIT             |       | $                           | 189,838,595 |                            | $          | 184,504,472 |   |

 

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

 

4

----

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

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

**(Unaudited)**

 
| ** **                                      | ** ** | **Three-Month Period Ended June 30,** | ** **  | **Six-Month Period Ended June 30,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|-------------|---------------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                                  | ** **  | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| REVENUES:                                       |       |                                                      |        |                                                    |       |   |   |   |   |
| Casino                                          |       | $                                                         | 34,690,243  |                                                    | $          | 36,214,863 |   | $ | 69,420,783 |   | $ | 71,674,518 |   |
| Food, beverage  & retail                    |       | 2,170,381                                                 |        | 1,799,801                                               |       | 4,069,819 |   | 3,514,843 |   |
| Other                                           |       | 154,114                                                   |        | 160,903                                                 |       | 302,666 |   | 320,662 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Gross revenues                                  |       | 37,014,738                                                |        | 38,175,567                                              |       | 73,793,268 |   | 75,510,023 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Promotional  allowances                         |       | (3,356,554                                                | )           | (3,403,337                                              | )          | (6,962,876 | ) | (6,633,389 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Net revenues                                    |       | 33,658,184                                                |        | 34,772,230                                              |       | 66,830,392 |   | 68,876,634 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| OPERATING  EXPENSES:                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Casino                                          |       | 4,861,926                                                 |        | 4,980,815                                               |       | 9,900,336 |   | 10,175,559 |   |
| Food, beverage  & retail                    |       | 2,505,019                                                 |        | 1,414,075                                               |       | 4,229,610 |   | 2,856,295 |   |
| Selling, general  and administrative            |       | 11,780,781                                                |        | 11,095,648                                              |       | 22,199,136 |   | 20,932,208 |   |
| Depreciation                                    |       | 2,410,403                                                 |        | 2,996,689                                               |       | 5,350,259 |   | 5,924,765 |   |
| Credit  enhancement fee                         |       | —                                                    |        | —                                                  |       | — |   | 11,348,897 |   |
| Gaming commission  and surveillance             |       | 853,757                                                   |        | 820,394                                                 |       | 1,855,900 |   | 1,495,798 |   |
| Compact revenue  sharing trust fund             |       | 333,750                                                   |        | 333,750                                                 |       | 667,500 |   | 667,500 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Total Operating  Expenses                       |       | 22,745,636                                                |        | 21,641,371                                              |       | 44,202,741 |   | 53,401,022 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| INCOME FROM  OPERATIONS                         |       | 10,912,548                                                |        | 13,130,859                                              |       | 22,627,651 |   | 15,475,612 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| OTHER  EXPENSE-Net                              |       |                                                      |        |                                                    |       |   |   |   |   |
| Interest expense                                |       | (5,216,674                                                | )           | (5,217,465                                              | )          | (10,433,465 | ) | (10,435,899 | ) |
| Interest income                                 |       | 266,145                                                   |        | 350,534                                                 |       | 754,621 |   | 718,288 |   |
| Gain on sale of  assets                         |       | —                                                    |        | —                                                  |       | — |   | 4,547 |   |
| Other income (expense)  - net                   |       | (508                                                      | )           | (185                                                    | )          | (9,175 | ) | (744 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| Other  expense-net                              |       | (4,951,037                                                | )           | (4,867,116                                              | )          | (9,688,019 | ) | (9,713,808 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| INCOME BEFORE  DISTRIBUTIONS TO TRIBE           |       | 5,961,511                                                 |        | 8,263,743                                               |       | 12,939,632 |   | 5,761,804 |   |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| DISTRIBUTIONS TO  TRIBE                         |       | (4,263,688                                                | )           | (3,122,400                                              | )          | (7,386,088 | ) | (6,182,400 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| NET INCOME  (LOSS) AFTER DISTRIBUTIONS TO TRIBE |       | 1,697,823                                                 |        | 5,141,343                                               |       | 5,553,544 |   | (420,596 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| FUND  DEFICIT-Beginning of period               |       | (22,197,198                                               | )           | (39,897,831                                             | )          | (26,052,919 | ) | (34,335,892 | ) |
|                                            |       |                                                      |        |                                                    |       |   |   |   |   |
| FUND DEFICIT-End  of period                     |       | $                                                         | (20,499,375 | )                                                       | $          | (34,756,488 | ) | $ | (20,499,375 | ) | $ | (34,756,488 | ) |

 

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

 

5

----

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                 | ** ** | **Six-Month Period Ended June 30,** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                     |       |                                                    |       |   |   |
| Cash received  from gaming winnings and concessions        |       | $                                                       | 66,718,760 |   | $ | 68,725,531 |   |
| Cash paid for  salaries and benefits                       |       | (15,359,495                                             | )          | (14,269,595 | ) |
| Cash paid to  suppliers                                    |       | (22,678,247                                             | )          | (20,339,846 | ) |
| Cash paid for  compact revenue sharing trust fund          |       | (667,500                                                | )          | (667,500 | ) |
|                                                       |       |                                                    |       |   |   |
| Net cash  provided by operating activities                 |       | 28,013,518                                              |       | 33,448,590 |   |
|                                                       |       |                                                    |       |   |   |
| CASH FLOWS FROM  CAPITAL AND RELATED FINANCING ACTIVITIES: |       |                                                    |       |   |   |
| Proceeds from  long term financing                         |       |                                                    |       |   |   |
| Payments of long-term  debt                                |       | (56,042                                                 | )     | (336,312 | ) |
| Purchases of  property and equipment                       |       | (13,547,603                                             | )     | (2,019,394 | ) |
| Change in  restricted cash                                 |       | (28,872                                                 | )          | (43,797 | ) |
| Interest paid                                              |       | (9,753,995                                              | )          | (9,756,426 | ) |
| Credit  enhancement fee                                    |       | —                                                  |       | (12,131,967 | ) |
| Proceeds from  sale of assets                              |       | —                                                  |       | 33,445 |   |
| Other                                                      |       | (255,031                                                | )          | 302,064 |   |
|                                                       |       |                                                    |       |   |   |
| Net cash used in  capital and related financing activities |       | (23,691,543                                             | )     | (23,952,387 | ) |
|                                                       |       |                                                    |       |   |   |
| CASH FLOW FROM  INVESTING ACTIVITIES:                      |       |                                                    |       |   |   |
| Interest Income                                            |       | 754,621                                                 |       | 718,288 |   |
|                                                       |       |                                                    |       |   |   |
| CASH FLOW FROM  NON-CAPITAL FINANCING ACTIVITIES:          |       |                                                    |       |   |   |
| Distributions to  Tribe                                    |       | (7,386,088                                              | )          | (6,182,400 | ) |
|                                                       |       |                                                    |       |   |   |
| CHANGE IN CASH  AND CASH EQUIVALENTS                       |       | (2,259,492                                              | )     | 4,032,091 |   |
|                                                       |       |                                                    |       |   |   |
| CASH AND CASH  EQUIVALENTS, Beginning of the period        |       | 46,533,389                                              |       | 32,549,001 |   |
|                                                       |       |                                                    |       |   |   |
| CASH AND CASH  EQUIVALENTS, End of the period              |       | $                                                       | 44,273,897 |   | $ | 36,581,092 |   |

 

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

 

6

----

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                             | ** ** | **Three-Month  Period Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2008**                                    | ** ** | **2007** | ** ** |
| RECONCILIATION  OF INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING  ACTIVITIES: |       |                                        |       |   |   |
| Income before  Distributions to Tribe                                                                  |       | $                                           | 12,939,632 |   | $ | 5,761,804 |   |
|                                                                                                   |       |                                        |       |   |   |
| Adjustments to  reconcile operating income to net cash provided by operating activities:               |       |                                        |       |   |   |
| Depreciation                                                                                           |       | 5,350,259                                   |       | 5,924,765 |   |
| Interest expense                                                                                       |       | 10,433,465                                  |       | 10,435,899 |   |
| Interest income                                                                                        |       | (754,621                                    | )          | (718,288 | ) |
| Credit  enhancement fee                                                                                |       | —                                      |       | 11,348,897 |   |
| Gain on sale of  assets                                                                                |       | —                                      |       | (4,547 | ) |
| Changes in  operating assets and liabilities:                                                          |       |                                        |       |   |   |
| Accounts  receivable                                                                                   |       | (111,632                                    | )          | (151,103 | ) |
| Inventories                                                                                            |       | (34,298                                     | )          | 9,554 |   |
| Prepaid expenses  and other current assets                                                             |       | 56,198                                      |       | 68,623 |   |
| Accounts payable                                                                                       |       | (360,736                                    | )          | 453,180 |   |
| Accrued  liabilities                                                                                   |       | 495,251                                     |       | 319,806 |   |
| Total  adjustments                                                                                     |       | 15,073,886                                  |       | 27,686,786 |   |
|                                                                                                   |       |                                        |       |   |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                             |       | $                                           | 28,013,518 |   | $ | 33,448,590 |   |
|                                                                                                   |       |                                        |       |   |   |
| Acquisition of  property and equipment through accounts payable construction                           |       | $                                           | —     |   | $ | 39,363 |   |

 

7

----

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

 

**NOTES TO UNAUDITED FINANCIALSTATEMENTS**

 

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

 

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

 

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

 

The Authority operates asa separate, wholly owned operating unit of the Tribe and is not a separatelegal entity. These financial statements reflect the financial position andactivity of only the Authority and do not purport to represent the financialposition and activity of the Tribe.

 

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

 

*AccountingStandards*—The Authority prepares its financial statements inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”). 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 Financial Accounting Standards Board (“FASB”) Statements andInterpretations, Accounting Principles Board Opinions and Accounting ResearchBulletins issued on or before November 30, 1989, unless thosepronouncements conflict with or contradict GASB pronouncements.  TheAuthority is given the option whether to apply all FASB Statements andInterpretations issued after November 30, 1989, except for those thatconflict with or contradict GASB pronouncements. Accordingly, the Authority haselected to implement non-conflicting FASB Statements and Interpretations issuedafter November 30, 1989.

 

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

 

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

 

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

 

TheAuthority adopted the provisions of SFAS No. 159, “*The FairValue Option for Financial Assets and Financial Liabilities**Including an amendment of FASB Statement No. 115*” (“SFASNo. 159”) on January 1, 2008. SFAS No. 159 provides a companywith the option to measure selected financial instruments and certain otheritems at fair value at specified election dates. Upon adoption, the Authorityhas not elected to apply SFAS No. 159 to measure selected financialinstruments and certain other items; therefore, there 

 

8

----

 

was no impact to the financial statementsupon adoption of SFAS No. 159. Subsequent to the initial adoption of SFAS No. 159on January 1, 2008, the Authority has not made any elections during thesix months ended June 30, 2008.

 

*Use of Estimates*—The preparation of financial statements inconformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from these estimates.

 

*Cash and Cash Equivalents*—The Authority considers all highly liquidinvestments with a maturity of three months or less at date of purchase as cashequivalents. The carrying amount of cash and cash equivalents approximates itsfair value. Cash and cash equivalents include cash on hand, cash on depositwith banks and highly liquid investments. The Federal Deposit Insurance Corporation (“FDIC”) has insured $100,000of the cash on deposit with the banks. The Authority believes that there islittle risk of loss regarding the uninsured amounts of cash and cashequivalents on deposit with the banks.

 

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

 

*RestrictedCash*—Restricted cash consists of estimated constructionexpenses for three parking structures, related infrastructure improvements andconstruction contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds necessary to develop anapproximately 18-acre parcel of land adjacent to the Tribe’s reservation. Thesefunds are held in escrow accounts which are restricted for authorizedconstruction disbursements. These escrow accounts are invested in certificatesof deposit, which generate interest on a monthly basis. The FDIC has insured$100,000 of this balance. The Authority believes that there is little risk ofloss regarding the uninsured amounts of restricted cash held in the escrowaccount. Restricted cash was $7,364,345 and $7,335,473 at June 30, 2008and December 31, 2007, respectively.  As of June 30, 2008,restricted cash includes amounts available for construction of $2,763,134 andland development funds of $4,601,211.

 

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

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

 

The Authority evaluatesits property and equipment for impairment in accordance with the FASB’s SFAS No. 144,“*Accounting**for theImpairment or Disposal of Long-Lived Assets.” *When events or circumstances indicate that an asset should bereviewed for impairment, the Authority compares the undiscounted cash flowsderived from the asset or asset group to the net carrying value. If impairmentis indicated, the impairment loss is measured by the amount in which thecarrying value of the asset or asset group exceeds its fair value. Fair valueis measured by comparable sales, solicited offers or discounted cash flowmodels. We did not have any recorded impairments in the statement of revenues,expenses and changes in fund deficit for the periods presented.

 

*Depositsand Other Assets*—As of June 30, 2008 and December 31,2007, deposits and other assets include $3,407,990 and $3,918,837 inunamortized bond discount, 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”); $350,485and $350,485 of deferred financing fees; $103,148 and $41,883 of equipmentdeposits; $206,097 and $11,372 of performance deposits and $15,900 and $16,425of rental deposits.  Deferred loan costs are amortized using the effectiveinterest method to interest expense over the term of the related financialarrangement.

 

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

 

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

 

*AccruedSlot Players Club*—In accordance with Emerging Issues TaskForce Issue No. 00-22, “*Accounting for ‘Points’and Certain Other Time-based or Volume-Based Sales Incentive Offers and Offersfor Free Products or Services to Be Delivered in the Future*,” theAuthority has recorded a liability related to prizes and cash incentives earnedby the members of our Players Club and have adjusted the liability for theestimated future breakage. The Authority has recorded the cost of the estimatedredemption of the liability related to prizes as an operating expense and theestimated redemption of the liability related to cash as promotional allowancein the accompanying statements of revenues, expenses and changes in funddeficit.

 

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

 

9

----

 

*Food,Beverage and Retail Revenues*—The Authority recognizes asfood, beverage and retail revenues the proceeds from its food, beverage andgift shop sales. The Authority continues to distribute non-alcoholic beverageswithout cost in the gaming area for playing guests.

 

*OtherRevenues*—Other revenues are comprised of commissions on ATMmachine transactions.

 

*PromotionalAllowances*—The retail value of food and beverages provided tocustomers without charge or at a discount is included in food, beverage andretail revenues and then deducted as promotional allowances. Such amounts thatare included in food, beverage, and retail revenues for the three months ended June 30,2008 and 2007 were $314,303 and $610,311, respectively.  The amounts included in food, beverage andretail revenues for the six months ended June 30, 2008 and 2007 were$907,489 and $1,176,382, respectively. The amounts included in Casino revenues are also deducted as promotionalallowances.  The distribution of electronic coupons (“e-coupons”) tocustomers is included in Casino revenues and is also deducted as promotionalallowances. The total e-coupons for three months ended June 30, 2008 and2007 were $2,467,420 and $2,355,193, respectively.  The total e-coupons for the six months ended June 30,2008 and 2007 were $4,689,710 and $4,583,411, respectively.  The redemption of cash incentives earned bythe Players Club members is also recorded as promotional allowances. The costof cash incentives for the three months ended June 30, 2008 and 2007 was$513,166 and $437,833, respectively, and for the six months ended June 30,2008 and 2007 was $915,935 and $873,596, respectively.

 

*Food,Beverage and Retail Expenses*—Food, beverage and retailexpenses included costs associated with food, beverage and retail, excludingamounts reclassified as Casino expenses.  The estimated costs of providingcomplimentary services are reclassified from food, beverage and retail costs toCasino expenses.  The estimated costs of such complementary services were$999,600 and $1,222,233 for the three months ended June 30, 2008 and 2007,respectively.  The costs of such complimentary services were $1,915,215and $2,401,941 for the six months ended June 30, 2008 and 2007,respectively.

 

*AdvertisingCosts*—Advertising costs are expensed the first timeadvertising takes place. Advertising costs included in selling, general andadministrative expenses were $2,465,937 and $2,479,432 for the three monthsended June 30, 2008 and 2007, respectively.  Advertising costs for the six months ended June 30,2008 and 2007 were $3,957,138 and $3,643,937, respectively.

 

*GamingCommission & Surveillance Expenses*—The Authoritypays for various expenses for the Tribal Gaming Commission andSurveillance.  Tribal Gaming Commission expenses are reported as GamingCommission and surveillance expense on the statements of revenues, expenses andchanges in fund deficit. Gaming Commission and Surveillance expenses for thethree months ended June 30, 2008 and 2007 were $853,757 and $820,394,respectively.  For the six months ended June 30, 2008 and 2007,Gaming Commission and surveillance expenses were $1,855,900 and $1,495,798,respectively.

 

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

 

*Distributionsto Tribe*—Distributions to Tribe are made up of permittedpayments under the covenants of the Indenture.  They are included in the statementsof revenues, expenses and changes in fund deficit as distributions to Tribeallowed pursuant to the Indenture.  Total distributions to the Tribe forthe three months ended June 30, 2008 and 2007 were $4,263,688 and$3,122,400, respectively.  Totaldistributions to the Tribe for the six months ended June 30, 2008 and 2007were $7,386,088 and $6,182,400, respectively.

 

In May 2008, the Authority concluded that it hadnot previously distributed to the Tribe the maximum allowable amount of servicepayments that are permitted by the Indenture (the “Service Payments” and each a“Service Payment”). Under the Indenture, the Authority was restricted frombeing able to make its first Service Payment to the Tribe until the 90thday following the completion of the Expansion Project (as defined in theIndenture).  In April 2005, the Authority made it first ServicePayment to the Tribe on the 90th day following the completion of theExpansion Project in the amount of $500,000.  Service Payments are subjectto an annual escalation of 4% under the Indenture.  The Authority hadapplied the 4% escalator on each of the anniversaries of the first ServicePayment. However, the Indenture defines Service Payments as “payments to theTribe by the Authority in an amount of up to $500,000 per month, commencingwith the first full month after the date of issuance of the Senior Notes, whichamount shall increase by 4% per annum on each anniversary of the first date ofsuch month...”  The Authority has concluded that the escalator should havebeen applied on the first anniversary of the issuance of the Senior Notes andnot on the first anniversary of the completion of the Expansion Projectand that, although the Authority was restricted from making the Service Paymentby other covenants of the Indenture, the 4% escalator could have beenapplied to increase the amount of the first permitted Service Payment.  Byapplying the escalator on each anniversary of the issuance of the Senior Notes,the first permitted Service Payment could have been in the amount of $520,000,not $500,000.  Further, since the Indenture permits the Authority to makeService Payments to the Tribe that it could have, but did not previously make,the Authority has determined to apply the escalator as permitted by theIndenture and calculate the amount that could have been paid to the Tribe butwas not by failing to apply the escalator on earliestdates permitted by the Indenture. On May 7, 2008, the Authorityissued payment to the Tribe in the amount of $1,008,901 as the amount ofService Payments that could have been paid by applying the escalator on theearliest dates permitted by the Indenture.  Further, the Authority hasrecalculated the 

 

10

----

 

currentamount of the permitted monthly Service Payment to be $584,929.28.  In December 2008,the Authority intends to again apply the 4% escalator and increase the monthlyService Payments to $608,326.45.

 

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

 

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

 

**4.****                             RELATEDPARTIES**

 

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

 

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

 

Total amounts billed bythe Tribe to the Casino for these departments, excluding Tribal GamingCommission and surveillance, were $923,941 and $842,168 for the three monthsended June 30, 2008 and 2007, respectively. They are recorded as acomponent of selling, general and administrative expenses.  Total expenses for these departments were$1,746,567 and $1,608,833 for the six months ended June 30, 2008 and 2007,respectively.

 

 The Authority paysfor various expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission and surveillance expenses are recorded in GamingCommission and surveillance expenses on the statements of revenues, expensesand changes in fund deficit.  Gaming Commission and surveillance expensesfor the three months ended June 30, 2008 and 2007 were $853,757 and$820,394, respectively.  GamingCommission and surveillance expenses for the six months ended June 30,2008 and 2007 were $1,855,900 and $1,495,798, respectively.

 

The Tribe has incurredexpenses on behalf of the Authority that relate to the master planning for theproposed resort and Tribal infrastructure that benefit the Authority. TheAuthority reimbursed $9,577,678 to the Tribe for these expenses on May 30,2008. The reimbursed costs consisted primarily of engineering and design costsrelated to the proposed master plan development, including electrical, HVAC,landscaping, interior design services and consulting fees for legal, branding,feasibility and public relations services. While the Tribe has not made anyadditional request to the Authority for reimbursement, it may requestadditional reimbursements from the Authority in the future. While the Authorityhas no obligation to pay such amounts when requested, and any suchreimbursement would need to be approved by management and the Board ofDirectors of the Authority, there is a possibility that such request forreimbursement may be made by the Tribe. Prior to making any reimbursementpayment, the Authority will consider various factors, including, but notlimited to, whether the costs incurred were actually related to the masterplanning, whether such costs are beneficial to the gaming business andexpansion plans of the Authority, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture.

 

Dry Creek DevelopmentCorporation is a company wholly-owned by the Tribe which has providedconstruction and development related services for the Casino.  Invoices totaling $90,659 were forwarded tothe Casino for environmental repairs caused by previous construction projectscompleted during the three month period ending June 30, 2008, of which$12,831 has been paid as of June 30, 2008. The remaining $77,828 liability will be paid from restricted cash andthe related invoices have been forwarded to the Trustee for the Senior Notes (asdefined in the Indenture) for processing and payment from restricted cash.

 

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

 

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

 

The Authorityhad the right to terminate the Development Agreement by exercising a buy-outoption (the “Buy-Out Option”) and did so on January 31, 2007.  Subsequently on March 2, 2007, theAuthority and DCC signed a mutual agreement to fix the amounts due to DCC inrespect of such exercise to the sum of $11.4 million, less the amount paidafter the Authority exercised the 

 

11

----

 

Buy-Out Option of $737,491. The net paymentof $10,612,509 was made in March 2007 and expensed in full in the threemonths ended March 31, 2007.  CreditEnhancement Fee expense was $0 and $11,348,897 for the six months ended June 30,2008 and 2007, respectively.

 

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

 

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

 
| ** **                                           | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                                 |       |                        |       |                            |       |
| Operating  Accounts                                  |       | $                           | 8,572,199  |                            | $          | 6,352,843 |   |
| Money Market  Accounts                               |       | 5,122,065                   |       | 3,000,298                       |       |
| Short Term  Investments                              |       | 25,385,138                  |       | 31,013,947                      |       |
| Cash on hand                                         |       | 5,194,495                   |       | 6,166,301                       |       |
| ** **                                           | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Cash and cash  equivalents                           |       | 44,273,897                  |       | 46,533,389                      |       |
| Restricted cash                                      |       | 7,364,345                   |       | 7,335,473                       |       |
|                                                 |       |                        |       |                            |       |
| Total cash and  cash equivalents and restricted cash |       | $                           | 51,638,242 |                            | $          | 53,868,862 |   |

 

The Authority’scash in banks and cash equivalents (the “Investments”) are categorized by levelof credit risk assumed by the Authority. Category 1 includes Investmentsthat are insured or registered or for which the Investments are held by theAuthority or its agent in the Authority’s name. Category 2 includesuninsured and unregistered Investments for which the Investments are held bythe counterparty’s trust department or agent in the Authority’s name.Category 3 includes uninsured and unregistered Investments for which theInvestments are held by the counterparty’s agent but not in the Authority’sname. At June 30, 2008, the Authority had $200,000 in Category 1Investments, $8,372,199 cash in banks, $5,122,065 in money market accounts,$25,385,138 in short-term Investments, which are Category 2 Investments, and$7,264,345 in restricted cash in bank over the FDIC insurance limits, which areCategory 3 Investments.  Amounts inCategory 2 and Category 3 Investments are invested in short-term, highly liquidcash equivalents and investments.  As of June 30,2008 and December 31, 2007, these amounts are composed of money marketaccounts in the amount of $5,122,065 and $3,000,298, respectively, A1/P1commercial paper and bonds in the amount of $25,385,138 and $31,013,947,respectively.

 

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

 

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

 
| ** **                | ** ** | ** **        | ** ** | **Quoted Prices**   | ** ** | **Significant**    | ** ** | ** **         | ** ** |
|---------------------------|------------|-------------------|------------|--------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                | ** ** | ** **        | ** ** | **in Active**       | ** ** | **Other**          | ** ** | **Significant**    | ** ** |
| ** **                | ** ** | ** **        | ** ** | **Markets for**     | ** ** | **Observable**     | ** ** | **Observable**     | ** ** |
| ** **                | ** ** | **June 30,** | ** ** | **Identical Items** | ** ** | **Inputs**         | ** ** | **Inputs**         | ** ** |
| ** **                | ** ** | **2008**          | ** ** | **(Level 1)**       | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Financial  Assets:        |       |              |       |                     |       |               |       |               |       |
| Money Market  Instruments |       | $                 | 5,122,065  |                     | $          | 5,122,065          |       | $                  | —     |   | $ | — |   |
| Certificates of  Deposit  |       | —            |       | —                   |       |               |       |               |       |
| Commercial Paper          |       | 25,275,164        |       | 25,275,164               |       |               |       |               |       |
| Corporate Bonds           |       | 109,974           |       | 109,974                  |       |               |       |               |       |
|                      |       | $                 | 30,507,203 |                     | $          | 30,507,203         |       | $                  | —     |   | $ | — |   |

 

12

----

 

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

 

Propertyand equipment at December 31, 2007 and June 30, 2008 consisted of thefollowing:

 
| ** **                         | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**      | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|-------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **June 30,** | ** ** |
| ** **                         | ** ** | **2007**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2008**          | ** ** |
| ** **                         | ** ** | ** **            | ** **  | ** **    | ** ** | ** **       | ** ** | ** **        | ** ** |
| Buildings and improvements         |       | $                     | 129,642,521 |          | $          | 461,497          |       | $                 | —     |   | $ | 130,104,018 |   |
| Furniture,  fixtures and equipment |       | 29,969,430            |        | 2,945,785     |       |             |       | 32,915,215        |       |
| Less accumulated  depreciation     |       | (44,460,665           | )           | (5,350,259    | )          | —           |       | (49,810,924       | )          |
|                               |       | 115,151,286           |        | (1,942,977    | )          |             |       | 113,208,309       |       |
| Construction in progress           |       | 9,256,830             |        | 9,673,804     |       | —           |       | 18,930,634        |       |
| Property and equipment—net    |       | $                     | 124,408,116 |          | $          | 7,730,827        |       | $                 | —     |   | $ | 132,138,943 |   |

 

Construction in progressconsists of payments or amounts owed to various vendors related to theAuthority’s master plan development and land improvements. Substantially all ofthe Authority’s personal property is pledged as collateral to secure itsdebt.  At June 30, 2008 and 2007, the Authority had $415,640 and $376,840in capital lease assets with related accumulated depreciation of $244,698 and$155,103, respectively.

 

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

 

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

 
| ** **                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2008**          | ** ** | **2007**              | ** ** |
|                                        |       |              |       |                  |       |
| Accrued in-house  progressive slot jackpots |       | $                 | 1,402,664  |                  | $          | 1,081,121 |   |
| Accrued payroll  and related benefits       |       | 2,599,748         |       | 2,296,131             |       |
| Accrued interest                            |       | 3,250,000         |       | 3,250,000             |       |
| Accrued other  expenses                     |       | 809,660           |       | 939,569               |       |
| Total accrued  liabilities                  |       | $                 | 8,062,072  |                  | $          | 7,566,821 |   |

 

13

----

 

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

 

Long-term debt consistedof the following as of June 30, 2008 and December 31, 2007:

 
| ** **                                                                                       | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                       | ** ** | **2008**          | ** **  | **2007**              | ** ** |
|                                                                                             |       |              |        |                  |       |
| 9-3/4% Senior  Notes, net of unamortized issue discount of $1,124,163 and $1,292,789. Due  2011. |       | $                 | 198,875,837 |                  | $          | 198,707,212 |   |
| Lease  obligations                                                                               |       | 197,555           |        | 253,598               |       |
| Total Long-Term  Debt                                                                            |       | 199,073,392       |        | 198,960,810           |       |
| Less: current  portion                                                                           |       | (187,281          | )           | (213,172              | )          |
|                                                                                             |       |              |        |                  |       |
| Total long-term  debt - net of current maturities                                                |       | $                 | 198,886,111 |                  | $          | 198,747,638 |   |

 

On November 7, 2003,the Authority issued the Senior Notes. The proceeds were utilized to fund anexpansion project, which included three parking structures, relatedinfrastructure improvements, repayment of various debt and advances and fundpayment of various accruals and payables, as well as to increase cash on hand.The proceeds were also utilized to fund a land purchase and settle litigation. The Senior Notes are collateralized by a first priority pledge of the Authority’srevenue and substantially all of the existing and future tangible andintangible personal property. The Authority may redeem the Senior Notes, inwhole or in part, at a redemption price that is at a premium to the principalamount of the Senior Notes (expressed as percentages of principal amount), plusaccrued and unpaid interest.

 

**11.****                      LEASES**

 

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

 

On February 21, 2007, the Authority entered into a one year operatinglease for office and promotional space commencing February 21, 2007 andexpiring February 20, 2008.  Themonthly lease fee was $600 per month.  OnFebruary 21, 2008, the Authority extended the lease for three years,commencing on February 21, 2008 and expiring on February 20,2011.  The extended lease fee is $625 permonth for the first year, with adjustments for the Consumer Price Index, andproperty taxes in the second and third years.

 

On August 30, 2007, the Authority entered intoa five year operating lease agreement for office and showroom space commencing October 1,2007 and expiring on September 30, 2012. The monthly lease fee is $16,630.

 

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

 

On July 31, 2005,the Authority entered into a thirty six month capital lease to purchase 13Multi-deck shufflers in the amount of $88,307.  The capital lease is at4.80% interest with monthly lease fees of $2,640 and a $1 buyout at the end ofthe lease term. We made the final lease payment in July 2008.

 

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

 

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

 

On April 25, 2006,the Authority entered into a thirty six month capital lease to purchase 5 DeckMate Poker shufflers in the amount of $61,827.  The capital lease is at7.92% interest with monthly lease fees of $1,937 and a $1 buyout at the end ofthe lease term.

 

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

 

Lease expenses were$62,379 and $117,139 for the three months ended June 30, 2008 and 2007,respectively, and $124,899 and $259,856 for the six months ended June 30,2008 and 2007, respectively.  Leaseexpenses are included in General and 

 

14

----

 

Administrative expensesin the accompanying statements of revenues, expenses and changes in funddeficit.

 

**12.****                      LEGALMATTERS**

 

*Runyan Litigation*

 

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

 

We and the other nameddefendants removed the case to the United States District Court for theNorthern District of California on April 11, 2008.  On August 8, 2008,the court remanded the case to the Sonoma County Superior Court.  We andthe other defendants have 30 days from the date the Superior Courtreceives the file in which to respond.

 

*County of Sonoma and Dry CreekRancheria Band of Pomo Indians “Memorandum of Agreement” (MOA)*

 

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

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”) that is intended to settle several long-standing legaldisputes between Sonoma County and the Tribe and provides a binding frameworkfor resolving future disputes. The settlement also resolved the County’sand many of the protester’s issues in the ABC matter.  As a result, the County, the officials,the AVA and many of the individual protestors withdrew their  objectionsto the issuance of the liquor license. On May 28, 2008, the Tribe was issued a liquor license.

 

Under the MOA, the Tribeagreed to restrict the sale of alcohol to wine and beer between the hoursof 11 a.m. and 5 p.m. on weekdays, except for holidays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The Tribe has also agreed not to serve liquoron the Casino floor, although patrons may bring drinks purchased at therestaurant or bars on to the Casino floor. The restrictions may be renegotiated following the first to occur ofthree years or the opening of a hotel, which is projected to occur within thenext 2 to 3 years.

 

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

 

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

 

The Compact requires theAuthority to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $333,750 and $333,750 forthe three months ended June 30, 2008 and 2007, respectively, $667,500 and$667,500 for the six months ended June 30, 2008 and 2007, respectively.

 

15

----

 

**14.****                      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. Similarly, the Authority would beliable for such claims if the Tribe waived its sovereign immunity to an extentthat allowed enforcement of such claims against the Authority’s business orassets.

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”) that is expected to settle several long-standing legaldisputes between Sonoma County and the Tribe and provide a binding framework forresolving future disputes.  Pursuant to the MOA, the Tribe has agreed topay the County up to $75 million in mitigation fees over the next 12 years tooffset the potential losses and impacts to the County resulting from the Tribe’svarious ongoing projects and to support the services being provided by theCounty.  In addition to the mitigation fees, the Tribe will pay a fee inlieu of the County’s Transient Occupancy Tax in the amount of 9% of the rentalcollected on occupied hotel rooms, to be paid quarterly and continuing for fiveyears after the later to occur of the termination of the MOA, as may beextended, 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 that serveto promote tourism in the County. Such in lieu fees could total as much as $25million during the term of the MOA.

 

**15. SUBSEQUENT EVENTS**

 

*MasterUtilities Ordinance: *OnJuly 19, 2008, the Tribal Council of the Tribe adopted a master utilitiesordinance (the “Master Utilities Ordinance”). It provides for the assessment by the Tribe against the Tribe’s casinooperations (currently operated by the Authority) of certain fees for actualmunicipal services, products or benefits rendered by the tribe which arereasonably necessary or desirable to the operation of the Casino, includingwater, wastewater treatment, road and bridge use and related infrastructure,including hillside stabilization and related infrastructure, telecommunicationstransmission and sanitation services, and related maintenance and debtservice.  Before the adoption of theMaster Utilities Ordinance, the Tribe had imposed on and collected from theAuthority fees for municipal and other services reasonably necessary for itsoperation of the Casino under less formal departmental policies and proceduresof the Tribe.  The Master UtilitiesOrdinance was filed as an exhibit to our Form 8-K on July 24, 2008.

 

16

----

** **

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

 

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

 

**Overview**

 

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

 

**CriticalAccounting Policies and Estimates**

 

We have identifiedcertain critical accounting policies and estimates that affect our moresignificant judgments and estimates used in the preparation of our financialstatements. The preparation of our financial statements, in conformity withGAAP, requires that we make estimates and judgments that affect the reportedamounts of assets and liabilities, revenues and expenses, and relateddisclosures of contingent assets and liabilities. On an ongoing basis, weevaluate those estimates, including those related to asset impairment, accrualsfor our promotional slot club, compensation and related benefits, revenuerecognition, allowance for doubtful accounts, contingencies and litigation.These estimates are based on the information that is currently available to usand on various other assumptions that we believe to be reasonable under thecircumstances. Actual results could vary from those estimates under differentassumptions or conditions. We believe that the following critical accountingpolicies affect significant judgments and estimates used in the preparation ofour financial statements:

 

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

 

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

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

 

· We evaluate our property and equipmentfor impairment in accordance with the Financial Accounting Standards Board’sStatement of Financial Accounting Standards No. 144, “*Accountingfor the Impairment or Disposal of Long-Lived Assets*.”  When events or circumstances indicate that anasset should be reviewed for impairment, we compare the undiscounted cash flowderived from the asset or asset group to the net carrying value. If animpairment is indicated, the impairment loss is measured by the amount in whichthe carrying value of the asset or asset group exceeds its fair value. Fairvalue is measured by comparable sales, solicited offers or discounted cash flowmodels.

 

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

 

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

 

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

 

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

 

17

----

 

 

value. A financialasset or liability’s classification within the hierarchy is determined based onthe lowest level input that is significant to the fair value measurement.

 

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

 

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

 

**Resultsof Operations**

 

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

 

*Netrevenues*. Netrevenues for the three months ended June 30, 2008 decreased by $1.1million to $33.7 million, from $34.8 million, for the three months ended June 30,2007.  The decrease in net revenues is attributable to the industry-wideslow down in the gaming and entertainment industry during the second quarter of2008.  Approximately 97.1% of our netrevenues, net of promotional allowances, were from our gaming activities in thesecond quarter of 2008. We generated $27.6 million, or 85.2% of our netrevenues, from gaming devices, net of respective promotional allowances of $3.3million, and $3.6 million, or 11.4% of our net revenues, from table games, netof promotional allowances of $0.1 million for the three months ended June 30,2008, compared to $28.9 million from gaming devices, or 86.0% of our netrevenues, net of respective promotional allowances of $3.4 million, and $3.5million, or 10.8% of net revenues, from table games, net of respectivepromotional allowances of $80,034 for three months ended June 30, 2007.Our win per slot machine per day was $174 in the three months ended June 30,2008, which decreased by $39 from $213 in the three months ended June 30,2007.  The decrease in net win per machine per day is attributable to thegeneral market slow down mentioned above.

 

We generated $1.9million, net of promotional allowance of $0.3 million, in food, beverage andretail sales for the three months ended June 30, 2008, compared to $1.3million, net of promotional allowances of $0.5 million, in food, beverage andretail sales for the three months ended June 30, 2007.  The retailvalue of our food and beverage provided to customers without charge is includedin gross revenues and then deducted as promotional allowances. Revenues fromfood, beverage and retail sales increased for the three months ended June 30,2008 as compared to June 30, 2007, due largely to strategic priceincreases and increased advertising and promotional items offered.

 

Additional promotionalallowances include Players Club points of $2.5 million for the threemonths ended June 30, 2008 and $4.6 million for the six months endedJune 30, 2008.

 

*Promotionalallowances*.Promotional allowances for the three months ended June 30, 2008 were $3.4million, or 9.8% of net revenues, compared to $3.4 million, or 9.4% of netrevenues, for the three months ended June 30, 2007.

 

*Operatingexpenses*.Operating expenses for the three months ended June 30, 2008 were $22.7million, or 67.6% of net revenues, compared to $21.6 million, or 62.2% of netrevenues, for the three months ended June 30, 2007. The increase inoperating expenses is primarily due to marketing initiatives partially offsetby management programs that were initiated to reduce unnecessary expenses toadjust for the slow down in the general market. 

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities. Casinoexpense for the three months ended June 30, 2008 and 2007 remainedconstant at $5.0 million. Casino expense as a percentage of Casino revenues,net of promotional allowances, decreased by 0.7% from 16.3% to 15.6% for thethree months ended June 30, 2008, due to management programs to reduceexpenses that more than offset decreased revenues.

 

Food, beverage and retailexpense for the three months ended June 30, 2008 was $2.5 million, or182.6%, food, beverage and retail revenue, net of promotional allowances,compared to $1.4 million, or 204.2%, of food, beverage and retail revenue, netof promotional allowances for the three months ended June 30, 2007. Ourfood, beverage and retail expense ratio is significantly higher than theindustry average because we have utilized these amenities as an opportunity tobuild customer loyalty rather than as a source of income.  The decrease in food, beverage and retailexpenses as percentage of food, beverage and retail revenues, net ofpromotional allowances, for the three months ended June 30, 2008, resultsfrom rising food costs and the start of alcohol sales.

 

18

----

 

Selling, general andadministrative expense for the three months ended June 30, 2008 increasedby $0.7 million to $11.8 million, or 35% of net revenues, from $11.1 million,or 31.9% of net revenues, for the three months ended June 30, 2007.

 

Depreciation expense forthree months ended June 30, 2008 and 2007 was $2.4 million and $3.0million, respectively.  Depreciationexpense was computed using the straight-line method over the useful life ofproperty, plant and equipment. Now that the casino is over five years old, muchof its original equipment has been fully depreciated.

 

Gaming Commission andsurveillance expense for the three months ended June 30, 2008 and 2007 was$0.9 million and $0.8 million, respectively.

 

The Compact requires usto pay a quarterly fee to the State of California’s revenue sharing trust fund,based on the number of licensed gaming devices operated by the Authority.Revenue sharing trust fund fees assessed were $0.3 million for the three monthsended June 30, 2008 and 2007, respectively.

 

*Incomefrom operations.*Income from operations for the three months ended June 30, 2008 was $10.9million, or 32.4% of net revenues, compared to $13.1 million, or 37.8% of netrevenues, for the three months ended June 30, 2007.  The decrease inincome from operations is attributable to the industry-wide slow down in the gamingand entertainment industry.

 

*Otherexpense, net.*Other expense, net for the three months ended June 30, 2008 was $5.0million, or 14.1% of net revenues, compared to $4.9 million or 16.1% of net revenues,for the three months ended June 30, 2007.  Other expense, netincluded $5.2 million of interest expense for the three months ended June 30,2008, compared to $5.2 million of interest expense for the three months ended June 30,2007.  No interest costs were capitalizedin 2008 or 2007.

 

*Incomebefore distributions to the Tribe*. Income before distributions to the Tribe for thethree months ended June 30, 2008 decreased by $2.3 million to $6.0million, or 23.8% of net revenues, from $8.3 million, or 13.5% of net revenues,for the three months ended June 30, 2007.

 

*Distributionsto the Tribe*.Distributions to the Tribe for the three months ended June 30, 2008increased by $1.1 million to $4.2 million, compared to $3.1 million, for thethree months ended June 30, 2007. In May 2008, the Authorityconcluded that it had not previously distributed to the Tribe the maximumallowable amount of service payments that are permitted by the Indenture (the“Service Payments” and each a “Service Payment”). Under the Indenture, theAuthority was restricted from being able to make its first Service Payment tothe Tribe until the 90th day following the completion of theExpansion Project (as defined in the Indenture).  In April 2005, theAuthority made it first Service Payment to the Tribe on the 90th dayfollowing the completion of the Expansion Project in the amount of $500,000. Service Payments are subject to an annual escalation of 4% under theIndenture.  The Authority had applied the 4% escalator on each of theanniversaries of the first Service Payment. However, the Indenture definesService Payments as “payments to the Tribe by the Authority in an amount of upto $500,000 per month, commencing with the first full month after the date ofissuance of the Senior Notes, which amount shall increase by 4% per annum oneach anniversary of the first date of such month...”  The Authority hasconcluded that the escalator should have been applied on the first anniversaryof the issuance of the Senior Notes and not on the first anniversary ofthe completion of the Expansion Project and that, although the Authority wasrestricted from making the Service Payment by other covenants of the Indenture,the 4% escalator could have been applied to increase the amount of thefirst permitted Service Payment.  By applying the escalator on eachanniversary of the issuance of the Senior Notes, the first permitted ServicePayment could have been in the amount of $520,000, not $500,000.  Further,since the Indenture permits the Authority to make Service Payments to the Tribethat it could have, but did not, previously make, the Authority hasdetermined to apply the escalator as permitted by the Indenture and calculatethe amount that could have been paid to the Tribe but was not by failingto apply the escalator on earliest dates permitted by theIndenture. On May 7, 2008, the Authority issued payment to the Tribe inthe amount of $1,008,901 as the amount of Service Payments that could have beenpaid by applying the escalator on the earliest dates permitted by theIndenture.  Further, the Authority has recalculated the current amount ofthe permitted monthly Service Payment to be $584,929.28.  In December 2008,the Authority intends to again apply the 4% escalator and increase the monthlyService Payments to $608,326.45.

 

**Comparisonof the six months ended June 30, 2008 and 2007**

 

*Netrevenues*. Netrevenues for the six months ended June 30, 2008 decreased by $2.1 millionto $66.8 million, from $68.9 million, for the six months ended June 30,2007. The decrease in net revenues is attributable to the industry-wide slow downin the gaming and entertainment industry during the three months endedJune 30, 2008.  Approximately $54.9million, or 82.0% of our net revenues, were from gaming devices, net of respectivepromotional allowances of $6.9 million, and $3.6 million, or 11.85% of ournet revenues, were from table games, net of promotional allowance of $0.1million, for the six months ended June 30, 2008, compared to $57.5 millionfrom gaming devices, or 86.3% of our net revenues, net of respectivepromotional allowances of $6.6 million, and $7.6 million from table games, netof respective promotional allowances of $0.1 million, or 11.1% of our netrevenues, for the six months ended June 30, 2007. Our win per slot machineper day was $161 in the first six months of 2008, which decreased by $26 from$187, in the first six months of 2007. The decrease in net win per machine perday is attributable to the general market slow down in our industry.

 

19

----

 

We generated $3.1million, net of promotional allowance of $1.0 million, for the six months endedJune 30, 2008 and $2.5 million, net of promotional allowances of $1.0million, in food, beverage and retail sales for the six months ended June 30,2007.  The retail value of our food and beverage provided to customerswithout charge is included in gross revenues and then deducted as promotionalallowances. Revenues from food, beverage and retail sales increased for the sixmonths ended June 30, 2008 as compared to June 30, 2007, due largelyto strategic price increases and increased advertising and promotional itemsoffered.

 

*Promotionalallowances*.Promotional allowances for the six months ended June 30, 2008 were $7.0 million,or 10.4% of net revenues, compared to $6.6 million, or 9.6% of net revenues forthe six months ended June 30, 2007. The increase in promotional allowancesis attributable to the expanded use of e-coupons.  E-coupons cannot becashed out and requires the patron to use their Players Club card.  Theincrease in e-coupons can be attributed to the shift of promotional incentivesfrom cash to e-coupons.

 

*Operatingexpenses*.Operating expenses for the six months ended June 30, 2008 were $44.2million, or 66.1% of net revenues, compared to $53.4 million, or 77.5% of netrevenues, for the six months ended June 30, 2007. The decrease inoperating expenses is primarily due to no longer having to pay the creditenhancement fee in the six months ended June 30, 2008 and expensing $10.6million representing the credit enhancement fee buy-out in the six months endedJune 30, 2007 as more fully described below.

 

Casino expense includescosts associated with our gaming operations and the allocation of food andbeverage expense related to the cost of complimentary activities. Casinoexpense for the six months ended June 30, 2008 decreased by $0.3 million,or 0.1% of Casino revenue to $9.9 million, net of promotional allowances,from $10.2 million, or 12.8% of Casino revenues, net of promotional allowances,for the six months ended June 30, 2007.

 

Food, beverage and retailexpense for the six months ended June 30, 2008 was $4.2 million, or 133.7%of food, beverage and retail revenue, net of promotional allowances, comparedto $2.9 million, or 148.4% of food, beverage and retail revenue, net ofpromotional allowances, for the six months ended June 30, 2008. Our food,beverage and retail expense ratio is significantly higher than the industryaverage because we have utilized these amenities as an opportunity to buildcustomer loyalty rather than as a source of income. The increase in food,beverage, and retail costs is attributable to an increase in sales and a newliquor licence.

 

Selling, general andadministrative expense for the six months ended June 30, 2008 increased by$1.3 million to $22.2 million, or 33.2% of net revenues, from $20.9 million, or9.7% of net revenues, for six months ended June 30, 2007.  The increase in selling, general andadministrative expense is attributable to increases in advertising andpromotional costs.

 

Depreciation expense forthe six months ended June 30, 2008 and 2007 was $5.4 million and $5.9million, respectively.  Depreciationexpense was computed using the straight-line method over the useful life ofproperty, plant and equipment. The decrease in depreciation expense is due tothe full depreciation of certain assets purchased in early 2003.

 

The Credit EnhancementFee was $0 for the six months ended June 30, 2008, compared to $11.4million, or 5.6% of net revenues, for the six months ended June 30,2007.  The decrease is due to thetermination of the Development Agreement pursuant to the Authority’s exerciseof the buy-out option on January 31, 2007. On March 2, 2007, we signed an agreement with DCC to fix theamounts due DCC in respect of such exercise to the sum of $11.4 million, lessthe amount paid after we exercised the buy-out option of $0.7 million. The netpayment of $10.6 million was made in March 2007 and expensed in full inthe first quarter of 2007.

 

Gaming Commission andsurveillance expense for the six months ended June 30, 2008 and 2007 was$1.9 million and $1.5 million, respectively.  The Gaming Commission isreimbursed in full by the Authority for all expenses related to the regulationof the Casino.

 

The Compact requires usto pay a quarterly fee to the State of California’s revenue sharing trust fund,based on the number of licensed gaming devices operated by the Tribe. Revenuesharing trust fund fees assessed were $0.7 million for the six months ended June 30,2008 and 2007, respectively.

 

*Incomefrom operations.*Income from operations for the six months ended June 30, 2008 was $22.6million, or 33.9% of net revenues, compared to $15.4 million, or 22.5% of netrevenues, for the six months ended June 30, 2007.  The increase inincome from operations is attributable to the elimination of the CreditEnhancement Fee for 2008.

 

*Otherexpense, net.*Other expense, net for the six months ended June 30, 2008 was $9.7million, or 14.1% of net revenues, unchanged from $9.7 million, or 16.1% of netrevenues, for the six months ended June 30, 2007.  Other expense, netincluded $0.7 million of interest income for the six months ended June 30,2008, compared to $0.7 million of interest income, for the six months ended June 30,2007.  No interest costs were capitalizedin 2008 or 2007.

 

*Incomebefore distributions to the Tribe*. Income before distributions to the Tribe for the sixmonths ended June 30, 2008 increased by $7.2 million to $12.9 million, or19.4% of net revenues, from $5.8 million, or 8.4% of net revenues, for the sixmonths ended June 30, 2007. 

 

*Distributionsto the Tribe*.Distributions to the Tribe for the six months ended June 30, 2008increased by $1.2 million to $7.4 million, compared to $6.2 million, for thesix months ended June 30, 2007. The increase is due to annual increases inthe Service Payments permitted by the Indenture and a one-time catch updistribution to the Tribe of $1.0 million of Service Payments that could havebeen previously distributed to the Tribe.

 

**Liquidityand Capital Resources**

 

Since our inception, wehave funded our capital expenditures and working capital requirements primarilythrough debt financing,

 

20

----

 

gaming equipment supplierfinancing, other financing and operating cash flow.

 

As of June 30, 2008,we spent $1.2 million on the development of an approximately 18-acre parcel ofland adjacent to the Tribe’s reservation (referred to as the “Dugan Property”)which is expected to include an additional access road to our Casino. We have$4.6 million remaining in a restricted account funded from the proceeds of ourSenior Notes for the development of the Dugan Property.

 

Our capital expendituresfor the six months ended June 30, 2008 and 2007 were $13.5 million and$2.0 million, respectively.  Thisincrease is attributable to a May 2008 payment of $9.6 million to reimbursecosts paid by the Tribe for engineering and design costs related to theproposed master plan development, including electrical, HVAC, landscaping,interior design services and consulting fees for legal, branding, feasibilityand public relations services.  Othercapital expenditures included the new accounting system, new slot machine purchasesand the costs associated with the establishment of our new Geyserville offices.

 

As of June 30, 2008,we had cash and cash equivalents, net of restricted cash of $44.3 million,compared to $46.5 million, as of December 31, 2007. As of June 30,2008, we had restricted cash of $7.4 million, compared to $7.3 million, as of December 31,2007. Our principal source of liquidity during the six months ended June 30,2008 consisted of cash flow from operating activities. Net cash provided byoperating activities for the six months ended June 30, 2008 was $28.0million, a decrease of $5.4 million, from $33.4 million in 2007.

 

Restricted cash consistsof net proceeds from the Senior Notes and investment earnings thereon set asidein construction financing accounts for construction costs for the three parkingstructures, related infrastructure improvements and construction contingencies.It also includes funds that are reserved for additional constructioncontingencies and the funds for the development of the Dugan Property. Ourrestricted cash is held in escrow accounts that can only be used for authorizedconstruction disbursements until the related projects are completed.

 

Net cash used for capitaland related financing activities for the six months ended June 30, 2008was $23.6 million, compared to $24.0 million, for the six months ended June 30,2007. This increase was primarily attributable to payments made to the Tribefor infrastructure improvements offset by the elimination of the requirement topay the Credit Enhancement Fee.

 

Cash flow from investingactivities for the six months ended June 30, 2008 increased by $0.1million to $0.8 million, from $0.7 million, for the six months ended June 30,2007.

 

Cash flow used innon-capital financing activities for the six months ended June 30, 2008was $7.4 million, an increase of $1.2 million, from $6.2 million, for the sixmonths ended June 30, 2007.  Cash flow used in non-capital financingactivities consisted of distributions to the Tribe.  The increase is dueto annual increases in the Service Payments permitted by the Indenture and aone-time catch up distribution to the Tribe of $1.0 million of ServicePayments that could have been previously distributed to the Tribe.

 

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

 

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

 

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

 

21

----

 

approximately 18-acreparcel of land adjacent to the Tribe’s reservation (the “Dugan Property”).  Previously, the trust application had beenapproved by the Department of the Interior, which approval had been opposed bythe County.  Pursuant to the MOA, theTribe has agreed to pay the County $75 million in mitigation fees over the next12 years, subject to adjustment under certain circumstances described in theMOA, to offset the potential losses and impacts to the County resulting fromthe Tribe’s various ongoing projects and to support the services being providedby the County.  An initial payment of$3.0 million has been made, with an additional $4.5 million due on September 30,2008 and $2.8 million on June 30, 2009. In addition, the Tribe has agreed to pay a fee in lieu of the County’sTransient Occupancy Tax in the amount of 9% of the rental charges collected onoccupied hotel rooms.  Such fees arerequired to be paid quarterly until five years after the later to occur of thetermination of the MOA, as may be extended, or the Tribe’s Compact with theState.

 

**ContractualObligations as of June 30, 2008**

 

Contractual obligationsand commitment amounts as of June 30, 2008 have not materially changedfrom the prior quarter.

 

**Regulationand Taxes**

 

We are subject toextensive regulation by the Tribes Gaming Commission, the California GamblingControl Commission and the National Indian Gaming Commission. Changes inapplicable laws or regulations could have a significant impact on ouroperations.

 

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

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”).  The MOA commitsthe County Sheriff’s Department and Fire Marshall to provide public safety andfire services to the Casino and the Tribe’s future gaming projects on thereservation and provides detailed agreements on off-reservation impactmitigation measures.  Pursuant to theMOA, the County withdrew its opposition to the Tribe’s application to take intotrust an approximately 18-acre parcel of land adjacent to the Tribe’sreservation (the “Dugan Property”). Previously, the trust application had been approved by the Department ofthe Interior, which approval had been opposed by the County.  Pursuant to the MOA, the Tribe has agreed topay the County $75 million in mitigation fees over the next 12 years, subjectto adjustment under certain circumstances described in the MOA, to offset thepotential losses and impacts to the County resulting from the Tribe’s variousongoing projects and to support the services being provided by the County.  An initial payment of $3.0 million has beenmade, with an additional $4.5 million due on September 30, 2008 and $2.8million on June 30, 2009.  Inaddition, the Tribe has agreed to pay a fee in lieu of the County’s TransientOccupancy Tax in the amount of 9% of the rental charges collected on occupiedhotel rooms.  Such fees are required tobe paid quarterly until five years after the later to occur of the terminationof the MOA, as may be extended, or the Tribe’s Compact with the State.

 

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

 

**Impactof Inflation**

 

Absent changes incompetitive and economic conditions or in specific prices affecting the casinoindustry, we do not expect that inflation will have a significant impact on ourgaming facility operations. Changes in specific prices, such as fuel andtransportation prices, relative to the general rate of inflation may have amaterial adverse effect on the casino industry in general.

 

**Seasonality**

 

Weanticipate that activity at our gaming facility may be modestly seasonal withstronger results expected during the summer due in part to the relativelyhigher levels of tourism during such times of the year. In addition, ouroperations may be impacted by adverse weather conditions and fluctuations inthe tourism business. Accordingly, our results may fluctuate from quarter toquarter and the results of one quarter may not be indicative of resultsexpected from future quarters.

 

22

----

 

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

 

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

 

Through June 30, 2008, we had not invested inderivative or foreign currency-based financial instruments.  Additionally,we primarily have invested in short-term, fixed rate debt.  As such, we donot believe we have material exposure to market risk.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatthe information required to be disclosed in our reports filed with, orfurnished to the Securities Exchange Commission, (the “SEC”) pursuant to theExchange Act, is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules, regulations and forms, and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer, Chief Financial Officer and Chief Operations Officer,as appropriate, to allow timely decisions regarding required disclosure basedon the definition of “disclosure controls and procedures” in Rule 13a-15(e) and15d-15(e) of the Exchange Act.  Ourdisclosure controls and procedures are designed to provide reasonableassurances of achieving its objectives. The Authority carried out an evaluation, under the supervision and withthe participation of the Authority’s management, including the Authority’sChief Executive Officer and Chief Financial Officer of the Authority’sdisclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b).Based upon such evaluation, the Authority’s Chief Executive Officer and ChiefFinancial Officer concluded that the Authority’s disclosure controls andprocedures are not effective in timely alerting them to information relating tothe Authority required to be included in the Authority’s Exchange Act reports.See below for discussion of material weaknesses in the Authority’s controlsover financial reporting.

 

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

 

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

 

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

 

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

 

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

 

3.     The accounting department is in theprocess of compiling a detailed closing checklist so that reconciliations ofsignificant accounts are performed at a level that will appropriately identifyerrors.  The checklist is intended toprovide detailed steps to be followed so that account reconciliations areperformed completely and accurately at the close of quarterly and annual filingperiods.  Finance and Accountingemployees are reviewing reconciliations and are required to sign each step asevidence of the completion of their review.

 

4.     We have hired a Senior Financial Analystwith experience in accounting for fixed assets, who will be tasked to developfixed asset policies and procedures, including the fixed asset impairmentreview procedures.  It is intended thatthe Senior Financial 

 

23

----

 

Analyst will add needed support to our finance staffto ensure fixed asset accounts are reconciled and reviewed in a timely mannerand at a detailed level to ensure completeness and accuracy.

 

Theforegoing initiatives are designed to enable us to improve our internalcontrols over financial reporting.  Management is committed to continuingefforts aimed at fully achieving an operationally effective system of internalcontrols.  The remediation efforts noted above are subject to our internalcontrol assessment, testing and evaluation process.

 

**Changesto Internal Controls Over Financial Reporting**

 

There were changes in the quarter ended June 30,2008 as listed above.  We believe that wehave implemented controls and procedures to correct the practices that led tocertain restatements of our prior financial statements.

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

 

*RunyanLitigation*

 

On March 7,2008, Norman Runyan, our former Chief Operations Officer, filed suit againstus, the Casino and Mr. Harvey Hopkins, the Chairman of the Tribe and amember of our Board, in the Sonoma County Superior Court. Mr. Runyan’scomplaint asserts causes of actions for breach of contract, wrongfultermination in violation of public policy, intentional interference withcontract and intentional infliction of emotional distress. He seeks unspecifiedcompensatory and punitive damages. Mr. Runyan alleges that he waswrongfully terminated from his employment because he opposed certain allegedactions on the part of the defendants, including contracts for constructionwork allegedly performed on the reservation by affiliates of the Tribe and Mr. Hopkins.Mr. Runyan claims that the work violated the Indenture and that Mr. Runyanwas forced to resign from his employment in violation of public policy after protestingthat the alleged work violated the Indenture, the Compact, and the SecuritiesExchange Act of 1934. He also claims that the defendants unlawfullydiscriminated against him in connection with his status as a debtor under theBankruptcy Code. We believe that Mr. Runyan’s lawsuit is based onerroneous information and is without merit, and we and the Tribe intend tovigorously defend against it.

 

We andthe other named defendants removed the case to the United States District Courtfor the Northern District of California on April 11, 2008.  On August8, 2008, the court remanded the case to the Sonoma County Superior Court. We and the other defendants have 30 days from the date the Superior Courtreceives the file in which to respond.

 

We are involved in other litigation and disputesfrom time to time in the ordinary course of business with vendors and patrons.The Authority believes that the aggregate liability, if any, arising from suchlitigation or disputes will not have a material adverse effect on its resultsof operations, financial condition or cash flows.

 

**ITEM1A.             RISK FACTORS**

 

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

 

***We face competition from other California Indian casinos,casinos located 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 suchalternative gaming and non-gaming activities may increase in the future. Manyof our competitors have substantially greater resources and name recognitionthan our Casino. In addition, we may also face competition in our market fromnew facilities that may be built by other California Indian tribes in thefuture.

 

Federaland California law currently permits Class III casino gaming only onfederally recognized tribal lands pursuant to compacts negotiated with theState of California 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 competitors are the Hopland Sho-ka-wahCasino, located approximately 35 miles north of the Tribe’s reservation, theKonocti Vista Casino, located approximately 45 miles northeast of the Tribe’sreservation, the Thunder Valley 

 

24

----

 

Casino, located 124 mileseast of the Tribe’s reservation, and Cache Creek Indian Casino and Bingo,located approximately 95 miles east of the Tribe’s reservation. Severalpotential competitors are attempting to develop and open casinos near ourCasino.

 

Significantcompetition may also come from the proposed Graton Rancheria casino.  In April 2003, the Federated Indians ofthe Graton Rancheria, also known as the Coast Miwoks, announced plans topurchase land in Sonoma County near Highway 37 and Lakeville Highway,approximately 20 miles south of our gaming facility and closer to SanFrancisco. The proposed location would lie directly between our Casino and themajority of the 7 million population base of the San Francisco Bay area.  The announced plans include construction of acasino-hotel complex that will be managed by Station Casinos, Inc. basedin Las Vegas, Nevada.  The proposed facility will house approximately2,000 slot machines, 120 card tables and bingo, as well as a 300-room hotel,five restaurants and a theater with up to 2,000 seats.  As a result of environmental opposition tothe development of such location, the Federated Indians of the Graton Rancheriaannounced plans to move the proposed casino-hotel complex to a site nearRohnert Park, California. The Rohnert Park City Council has approved anagreement with the Federated Indians of the Graton Rancheria to share withRohnert Park and various community groups, approximately $200.0 millionover 20 years, to offset the impact of the proposed project.  In May, the Department of Interior publishedin the Federal Register a notice to take the proposed Rohnert Park site intofederal trust on behalf of the Federated Indians of the Graton Rancheria.  This represents a significant step towardsthe development of a casino at Rohnert Park, as does the passage of separateagreements negotiated between the Graton Rancheria and Sonoma County and MarinCounty, whereby the counties pledged to not challenge the land-into-trustdecision and the Graton Rancheria agreed not to build any additional casinos inSonoma or Marin counties.  The Departmentof Interior’s land-into-trust decision has, however, been challenged bycitizens groups opposed to a casino in Rohnert Park.  Under established policy, the Department willnot actually take the land into trust – a prerequisite for gaming to occurthere – until the litigation is resolved.

 

The HoplandSho-ka-wah Casino is located several miles east of Highway 101 on Route175.  The facility features a 40,000square foot casino offering 550 slot machines, 6 table games and a small 3table poker room.  The facility containsa small café-type food and beverage area, a bar and a fine-dining steakhouse.  Entertainment is providedoccasionally, which includes musical acts and boxing.  Hopland operates a small bus program; butdoes not operate a hotel.

 

East of theSho-ka-wah Casino is the Konocti Casino in Lakeport, California.  The casino houses 660 slot machines and 8table games.  The facility also offers an80-room hotel and marina with small pool as well as a 74-space recreationalvehicle park.  The food and beverage programincludes a small restaurant, buffet and a new full-service restaurant servingliquor.

 

The Thunder ValleyCasino opened in June 2003 and is located at the intersection of Highway65 and Interstate 80 just outside of Sacramento, California.  The Nevada-style property offers more than2,700 slot machines and some 100 table games that include blackjack, baccarat,and a variety of poker games including Let It Ride and Pai Gow.  The facility features a salon, private diningrooms, bars and butler service.  Inaddition, it houses a 500-seat buffet and various fast food options, includingFat Burger, Panda Express and Starbucks, and fine dining options such as Austin’sSteakhouse.  The facility also features anightclub and live entertainment is offered every two weeks.  The Thunder Valley Casino recently announcedthat it plans to construct a new 650-room, 23-story hotel and 3,000-seatperforming arts center, and to expand the dining venue to include three newrestaurants, more gaming space and new poker room, a parking structure capableof holding 5,000 cars, and a spa and has obtained financing for such expansion.

 

The Cache CreekCasino is located approximately 50 miles west of Sacramento.  The Cache Creek Casino recently expanded itsfacility to 2,600 slots and has over 140 table games including blackjack, TexasHold’em, Pai Gow and Caribbean Stud.  Thefacility also includes a 200-room luxury hotel, 8 restaurant outlets, anentertainment pavilion with seating for 600, a spa and outdoor pool, an 18-holegolf course and a 1,883 spot parking structure. The facility is in the process of expanding its restaurant offerings,and has recently announced plans to add more shops and parking, a 10-storyhotel tower with 467 rooms, and a 62,500 square foot convention center capableof seating 2,300 people.

 

The Lytton Band ofPomo Indians currently operates a 70,000 square-foot casino with 1,050 Class IIelectronic bingo machines on a 9-acre site of a card room in San Pablo, nearOakland, California, on land that was placed in trust for the tribe throughcongressional legislation.  The LyttonBand signed a compact with Governor Arnold Schwarzenegger to enable theoperation of Class III casino gaming on the San Pablo site, but the statelegislature withheld its approval.  In May 2007,legislation was introduced in the United States Senate, which has the supportof the Lytton Band that would require the Lytton Band to forego any Class IIImachines at the San Pablo site and instead limit itself to operating itsexisting Class II machines.  Thislegislation was passed by the Senate in November 2007 and referred to theHouse Committee on Natural Resources, but no further action has been taken.

 

There are a number ofother Indian tribes, including the Scotts Valley Band of Pomo Indians and theGuidiville Band of Pomo Indians, who have announced preliminary plans todevelop gaming projects in the San Francisco Bay area.  The Guidiville Band hopes to have transferredto it land at the former Point Molate Naval Base in Richmond, California onwhich it hopes to operate a casino along with a 1,100-room hotel, theater,convention center, and retail shops, but the project is still in its earlystages, as the land transfer has not been approved and environmental reviewsmust be completed, and the Guidiville Band must obtain approval from thefederal government to take the land into trust, obtain an opinion from thefederal government that the land is eligible for gaming, and negotiate acompact with the State of California. There are a number of hurdles to overcomebefore such tribe can conduct gaming on 

 

25

----

 

the land. Environmentalreviews must be completed, and the Guidiville Band must obtain approval fromthe federal government to take the land into trust, obtain an opinion from thefederal government that the land is eligible for gaming, and negotiate acompact with the State of California.

 

The Cloverdale Rancheriahas announced preliminary plans to build a 596,00 square-foot hotel/spa andcasino resort some ten miles north of our Casino on U.S. Highway 101, and theyand their financial backers have purchased approximately 79 acres for theproposed facility.  The environmentalreview process for the proposed Cloverdale Rancheria project began in July 2008.

 

Each of theseproposed projects faces numerous obstacles, including negotiation and approvalof a compact with the State of California, approval from the Bureau of IndianAffairs to take the land on which the project would be located into federaltrust on behalf of the tribe, federal approvals for the tribes to conductgaming on these lands, and certain environmental approvals.

 

We also competewith other forms of gaming such as statewide lotteries, live and simulcastpari-mutuel wagering and card rooms.

 

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

 

Other initiativesexpanding competitive forms of gaming have been approved and may, from time totime, be approved by state or local authorities. Examples include: (i) thepassage in California of recent legislation expanding off-site betting on horseraces through expanded advance deposit wagering and increased satellitewagering sites; (ii) a legislative proposal in the California Assembly in February 2007to amend the California Penal Code to expand permitted bingo games bycharitable organizations to include electronic bingo cards; and (iii) theamendment of county laws in Sacramento County, California to expand permittedbingo games by charitable organizations in Sacramento County.

 

These and otherinitiatives that might be proposed in various locations could adversely affectour business

 

**ITEM6.                  EXHIBITS**

 
| (a)    |   | Exhibits                                                                          |
|--------|--------|-----------------------------------------------------------------------------------|
|   |   |  The Exhibit Index filed herewith is  incorporated herein by reference. |
| (b)    |   | Reports on  Form 8-K                                                         |
|   |   | None                                                                              |

 

26

----

 

**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| Dated: August 14,  2008 | RIVER ROCK  ENTERTAINMENT AUTHORITY |
|------------------------------|-------------------------------------|
|                         | (Registrant)                        |
|                         |                                |
|                         | By:                                 | /s/ Shawn S.  Smyth             |
|                         |                                | Shawn S. Smyth, |
|                         |                                | Chief Executive  Officer |

 

27

----

 

**EXHIBIT INDEX**

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

 

----

*               This certification is being furnishedsolely 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 andis not to be incorporated by reference into any filing of River RockEntertainment Authority whether made before or after the date hereof,regardless of any general incorporation language in such filing.

 

28

----