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**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D. C.  20549**

 

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**FORM 10-Q**

** **

**(Mark One)**

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

 

**For thequarterly period ended September 30, 2009**

 

**OR**

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

 

**For thetransition period from               to              **

 

**CommissionFile Number: 333-115186**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exact name of registrantas specified in its charter)

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

 

**3250 Highway128 EastGeyserville, California 95441(707) 857-2777**

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

 

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

 

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

 

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

 

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

 

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

 

 

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEX TO FORM 10-Q**

 
| **Item**           | ** ** | **Description**                                                                                                                                         | ** ** |
|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|               |       |                                                                                                                                                    |       |
| ** **         | ** ** | **PART I  — FINANCIAL INFORMATION**                                                                                                           | ** ** |
|               |       |                                                                                                                                                    |       |
| 1.                 |       | Unaudited  Condensed Financial Statements                                                                                                               | 4          |
|               |       | Condensed  Balance Sheets-September 30, 2009 (unaudited) and December 31, 2008                                                                | 4          |
|               |       | Unaudited Condensed  Statements of Revenues, Expenses and Changes in Net Assets (Deficit)-Three  and Nine-Months ended September 30, 2009 and 2008 | 5          |
|               |       | Unaudited Condensed Statements of Cash Flows-Nine-Months  ended September 30, 2009 and 2008                                                        | 6          |
|               |       | Notes to Unaudited Condensed Financial Statements                                                                                                       | 8          |
| 2.                 |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                             | 18         |
| 3.                 |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                             | 25         |
| 4T.                |       | Controls and  Procedures                                                                                                                                | 25         |
|               |       |                                                                                                                                                    |       |
| ** **         | ** ** | **PART II  — OTHER INFORMATION**                                                                                                              | ** ** |
|               |       |                                                                                                                                                    |       |
| 1.                 |       | Legal Proceedings                                                                                                                                       | 25         |
| 1A.                |       | Risk Factors                                                                                                                                            | 26         |
| 6.                 |       | Exhibits                                                                                                                                                | 29         |
|               |       |                                                                                                                                                    |       |
| Signatures         | 30         |
|               |       |
| Exhibit Index | 30         |

 

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**CAUTIONARYSTATEMENT**

 

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

 

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

 

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

 

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**PART I. FINANCIAL INFORMATION**

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

** **

**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality ofthe Dry Creek Rancheria Band of Pomo Indians)**

** **

**CONDENSED BALANCE SHEETS**

** **
| ** **                                      | ** ** | **Sept 30, 2009** | ** **  | **December 31, 2008** | ** ** |
|-------------------------------------------------|------------|-------------------|-------------|----------------------------|------------|
| ** **                                      | ** ** | **(Unaudited)**   | ** **  | ** **                 | ** ** |
| **ASSETS**                                      |       |              |        |                       |       |
| CURRENT  ASSETS:                                |       |              |        |                       |       |
| Cash  and cash equivalents                      |       | $                 | 35,601,259  |                       | $          | 27,348,392 |   |
| Accounts  receivable                            |       | 247,945           |        | 68,486                     |       |
| Inventories                                     |       | 91,380            |        | 169,022                    |       |
| Prepaid  expenses and other current assets      |       | 1,164,421         |        | 1,238,195                  |       |
|                                            |       |              |        |                       |       |
| Total  current assets                           |       | 37,105,005        |        | 28,824,095                 |       |
|                                            |       |              |        |                       |       |
| RESTRICTED  CASH                                |       | 7,095,650         |        | 7,090,273                  |       |
|                                            |       |              |        |                       |       |
| CAPITAL  ASSETS:                                |       |              |        |                       |       |
| Buildings  and building improvements            |       | 130,396,157       |        | 130,357,841                |       |
| Furniture,  fixtures and equipment              |       | 34,377,425        |        | 34,143,554                 |       |
| Accumulated  depreciation                       |       | (57,774,690       | )           | (54,484,916                | )          |
| Construction  in progress                       |       | 54,082,189        |        | 45,599,195                 |       |
|                                            |       |              |        |                       |       |
| Capital  assets-net                             |       | 161,081,081       |        | 155,615,674                |       |
|                                            |       |              |        |                       |       |
| DEPOSITS  AND OTHER ASSETS                      |       | 2,215,550         |        | 3,039,529                  |       |
|                                            |       |              |        |                       |       |
| TOTAL  ASSETS                                   |       | $                 | 207,497,286 |                       | $          | 194,569,571 |   |
|                                            |       |              |        |                       |       |
| **LIABILITIES AND NET ASSETS (DEFICIT)**        |       |              |        |                       |       |
|                                            |       |              |        |                       |       |
| CURRENT  LIABILITIES:                           |       |              |        |                       |       |
| Accounts  payable                               |       | $                 | 1,974,805   |                       | $          | 3,045,712 |   |
| Accrued  liabilities                            |       | 12,980,593        |        | 8,102,078                  |       |
| Current  maturities of long-term debt           |       | 639,190           |        | 45,011                     |       |
|                                            |       |              |        |                       |       |
| Total  current liabilities                      |       | 15,594,588        |        | 11,192,801                 |       |
|                                            |       |              |        |                       |       |
| LONG-TERM  DEBT - net of current maturities     |       | 199,297,399       |        | 199,045,924                |       |
|                                            |       |              |        |                       |       |
| COMMITMENTS  AND CONTINGENCIES                  |       |              |        |                       |       |
|                                            |       |              |        |                       |       |
| NET  ASSETS (DEFICIT):                          |       |              |        |                       |       |
| Invested  in capital assets-net of related debt |       | (38,855,508       | )           | (43,475,261                | )          |
| Restricted  for capital projects                |       | 7,095,650         |        | 7,090,273                  |       |
| Unrestricted                                    |       | 24,365,157        |        | 20,715,834                 |       |
|                                            |       |              |        |                       |       |
| Total  net assets (deficit)                     |       | (7,394,701        | )           | (15,669,154                | )          |
|                                            |       |              |        |                       |       |
| TOTAL  LIABILITIES AND NET ASSETS (DEFICIT)     |       | $                 | 207,497,286 |                       | $          | 194,569,571 |   |

 

The accompanying notes are an integral part of these unaudited interimfinancial statements.  The condensedbalance sheet as of December 31, 2008 has been derived from auditedfinancial statements.

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

** **

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

 
| ** **                                  | ** ** | **Three-Month**  | ** ** | **Nine-Month**   | ** ** |
|---------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | **Period Ended** | ** ** | **Period Ended** | ** ** |
| ** **                                  | ** ** | **Sept 30,**     | ** ** | **Sept 30,**     | ** ** |
| ** **                                  | ** ** | **2009**         | ** ** | **2008**         | ** ** | **2009** | ** ** | **2008** | ** ** |
| OPERATING  REVENUES:                        |       |             |       |             |       |   |   |   |   |
|                                        |       |             |       |             |       |   |   |   |   |
| Casino                                      |       | $                | 28,151,221 |             | $          | 31,090,063 |   | $ | 87,572,755 |   | $ | 94,691,923 |   |
| Food,  beverage and retail                  |       | 1,459,193        |       | 1,308,274        |       | 4,366,065 |   | 4,501,398 |   |
| Other                                       |       | 224,493          |       | 29,884           |       | 686,858 |   | 332,550 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| Gross  revenues                             |       | 29,834,907       |       | 32,428,221       |       | 92,625,678 |   | 99,525,871 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| Promotional  allowances                     |       | (101,401         | )          | (127,188         | )          | (319,873 | ) | (394,446 | ) |
|                                        |       |             |       |             |       |   |   |   |   |
| Net  revenues                               |       | 29,733,506       |       | 32,301,033       |       | 92,305,805 |   | 99,131,425 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |             |       |             |       |   |   |   |   |
| Casino                                      |       | 3,670,167        |       | 5,173,252        |       | 11,767,556 |   | 15,073,588 |   |
| Food,  beverage and retail                  |       | 1,811,574        |       | 1,688,978        |       | 5,576,559 |   | 5,918,588 |   |
| Selling,  general and administrative        |       | 9,738,932        |       | 9,778,381        |       | 30,105,845 |   | 31,977,517 |   |
| Depreciation                                |       | 2,388,383        |       | 2,336,747        |       | 7,144,404 |   | 7,687,006 |   |
| Gaming  commission and surveillance expense |       | 985,703          |       | 806,583          |       | 2,901,577 |   | 2,662,483 |   |
| Compact  revenue sharing trust fund         |       | 333,750          |       | 333,750          |       | 1,001,250 |   | 1,001,250 |   |
| Gain  on sale of assets                     |       | —           |       | —           |       | (33,000 | ) | — |   |
|                                        |       |             |       |             |       |   |   |   |   |
| Total  operating expenses                   |       | 18,928,509       |       | 20,117,691       |       | 58,464,191 |   | 64,320,432 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| INCOME  FROM OPERATIONS                     |       | 10,804,997       |       | 12,183,342       |       | 33,841,614 |   | 34,810,993 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| NON-OPERATING  EXPENSE-Net                  |       |             |       |             |       |   |   |   |   |
| Interest  expense                           |       | (5,214,781       | )          | (5,215,612       | )          | (15,645,267 | ) | (15,649,077 | ) |
| Interest  income                            |       | 21,244           |       | 227,109          |       | 53,044 |   | 981,729 |   |
| Other  income (expense) - net               |       | —           |       | —           |       |   |   | (9,174 | ) |
|                                        |       |             |       |             |       |   |   |   |   |
| Non-operating  expense-net                  |       | (5,193,537       | )          | (4,988,503       | )          | (15,592,223 | ) | (14,676,522 | ) |
|                                        |       |             |       |             |       |   |   |   |   |
| INCOME  BEFORE DISTRIBUTIONS TO TRIBE       |       | 5,611,460        |       | 7,194,839        |       | 18,249,391 |   | 20,134,471 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| DISTRIBUTIONS  TO TRIBE                     |       | (3,324,979       | )          | (3,254,791       | )          | (9,974,938 | ) | (10,640,879 | ) |
|                                        |       |             |       |             |       |   |   |   |   |
| NET  INCOME AFTER DISTRIBUTIONS TO TRIBE    |       | 2,286,481        |       | 3,940,048        |       | 8,274,453 |   | 9,493,592 |   |
|                                        |       |             |       |             |       |   |   |   |   |
| NET  ASSETS (DEFICIT)-Beginning of period   |       | (9,681,182       | )          | (20,499,375      | )          | (15,669,154 | ) | (26,052,919 | ) |
|                                        |       |             |       |             |       |   |   |   |   |
| NET  ASSETS (DEFICIT)-End of period         |       | $                | (7,394,701 | )                | $          | (16,559,327 | ) | $ | (7,394,701 | ) | $ | (16,559,327 | ) |

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

** **

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                    | ** ** | **Nine Month**         | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **Period Ended**       | ** ** |
| ** **                                                    | ** ** | **September 30,** | ** ** |
| ** **                                                    | ** ** | **2009**               | ** ** | **2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                         |       |                   |       |   |   |
| Cash received from gaming winnings and concessions            |       | $                      | 92,340,165 |   | $ | 99,131,425 |   |
| Cash paid for salaries and benefits                           |       | (21,449,143            | )          | (23,309,068 | ) |
| Cash paid to suppliers                                        |       | (29,940,299            | )          | (34,484,890 | ) |
| Cash paid for compact revenue sharing trust fund              |       | (1,001,250             | )          | (1,001,250 | ) |
|                                                          |       |                   |       |   |   |
| Net cash provided by operating activities                     |       | 39,949,473             |       | 40,336,217 |   |
|                                                          |       |                   |       |   |   |
| CASH FLOWS USED IN CAPITAL AND RELATED FINANCING  ACTIVITIES: |       |                   |       |   |   |
| Payments of debt and capital leases                           |       | (156,966               | )          | (194,954 | ) |
| Purchases of capital assets                                   |       | (4,542,366             | )          | (22,092,205 | ) |
| Transfers to Tribe for development costs                      |       | (8,067,445             | )          |   |   |
| Change in restricted cash                                     |       | (5,377                 | )          | (38,131 | ) |
| Interest paid                                                 |       | (9,751,058             | )          | (9,754,868 | ) |
| Proceeds from sale of assets                                  |       | 33,000                 |       | — |   |
| Issuance of Short-term Debt to purchase slots                 |       | 715,500                |       |   |   |
| Other                                                         |       | —                 |       | 113,737 |   |
|                                                          |       |                   |       |   |   |
| Net cash used in capital and related financing  activities    |       | (21,774,712            | )          | (31,966,421 | ) |
|                                                          |       |                   |       |   |   |
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:                  |       |                   |       |   |   |
| Interest Income                                               |       | 53,044                 |       | 981,729 |   |
|                                                          |       |                   |       |   |   |
| CASH FLOWS USED IN NON-CAPITAL FINANCING  ACTIVITIES:         |       |                   |       |   |   |
|                                                          |       |                   |       |   |   |
| Distributions to Tribe                                        |       | (9,974,938             | )          | (10,640,879 | ) |
|                                                          |       |                   |       |   |   |
| CHANGE IN CASH AND CASH EQUIVALENTS                           |       | 8,252,867              |       | (1,289,354 | ) |
|                                                          |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS, Beginning of the period            |       | 27,348,392             |       | 46,533,389 |   |
|                                                          |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS, End of the period                  |       | $                      | 35,601,259 |   | $ | 45,244,035 |   |

 

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

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

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

** **

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                            | ** ** | **Nine Month**         | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                            | ** ** | **Period Ended**       | ** ** |
| ** **                                                                                            | ** ** | **September 30,** | ** ** |
| ** **                                                                                            | ** ** | **2009**               | ** ** | **2008** | ** ** |
| RECONCILIATION OF INCOME BEFORE DISTRIBUTIONS TO  TRIBE TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |       |                   |       |   |   |
| Income before Distributions to Tribe                                                                  |       | $                      | 18,249,391 |   | $ | 20,134,471 |   |
|                                                                                                  |       |                   |       |   |   |
| Adjustments to reconcile operating income to net  cash provided by operating activities:              |       |                   |       |   |   |
| Depreciation                                                                                          |       | 7,144,404              |       | 7,687,006 |   |
| Interest expense                                                                                      |       | 15,645,267             |       | 15,649,077 |   |
| Interest income                                                                                       |       | (53,044                | )          | (981,729 | ) |
| Gain on sale of assets                                                                                |       | (33,000                | )          | — |   |
| Changes in operating assets and liabilities:                                                          |       |                   |       |   |   |
| Accounts receivable                                                                                   |       | (179,459               | )          | (438,067 | ) |
| Inventories                                                                                           |       | 77,642                 |       | (46,634 | ) |
| Prepaid expenses                                                                                      |       | 73,774                 |       | (62,034 | ) |
| Other Assets                                                                                          |       | 57,708                 |       |   |   |
| Accounts payable                                                                                      |       | (1,070,907             | )          | (1,626,221 | ) |
| Accrued liabilities                                                                                   |       | 37,697                 |       | 20,348 |   |
| Total adjustments                                                                                     |       | 21,700,082             |       | 20,201,746 |   |
|                                                                                                  |       |                   |       |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                             |       | $                      | 39,949,473 |   | $ | 40,336,217 |   |

 

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**NOTESTO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

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

 

River Rock Entertainment Authority (the “Authority”)is a governmental instrumentality of the Dry Creek Rancheria Band of PomoIndians (the “Tribe”), a federally recognized Indian tribe. The Authority ownsand operates River Rock Casino (the “Casino”). The Casino offers Class IIIgaming (as defined by the Indian Gaming Regulatory Act of 1988, as amended) ontribal land located in Geyserville, California. At September 30, 2009, theCasino was operating 1,191 slot and video poker gaming machines.  The legal authority for slot machines andtable games is provided by the Tribe’s gaming compact with the State ofCalifornia (the “Compact”), which was entered into in September 1999 andbecame effective upon approval by the Secretary of Interior on May 5,2000.  The Compact expires on December 31, 2020.

 

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

 

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

 

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

 

Theaccompanying condensed balance sheet as of December 31, 2008 has beenderived from the audited financial statements included in the Authority’sAnnual Report on Form 10-K for the year ended December 31, 2008.

 

RiverRock Entertainment Authority has made its disclosures in accordance with theFinancial Accounting Standards Board, commonly referred to as the “FASB”.  The FASB sets generally accepted accountingprinciples (“GAAP”) in the United States of America as they apply to interimreporting.  The Authority condensed oromitted certain information and disclosures normally included in notes tofinancial statements in accordance with the Securities and Exchange Commission’srules and regulations. The unaudited condensed financial statements shouldbe read in conjunction with the financial statements and the notes thereto inRiver Rock Entertainment Authority’s Annual Report on Form 10-K for theyear ended December 31, 2008.

 

In theopinion of the Authority’s management, the accompanying unaudited interimcondensed financial statements contain all adjustments (consisting of normalrecurring adjustments) to fairly present the Authority’s condensed financialposition as of September 30, 2009 and the condensed statements ofrevenues, expenses and changes in net assets (deficit) for the three and ninemonth periods ending September 30, 2009 and 2008, and condensed statementsof cash flows for the nine months ended September 30, 2009 and 2008, asapplicable. The condensed statements of revenues, expenses and changes in netassets (deficit) and condensed cash flows for all periods presented are notnecessarily indicative of the results of operations or cash flows expected forthe year or any other period.

 

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

 

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

 

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

 

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and a separate statement of owners’ or shareholders’equity (deficit), which is where distributions to owners would be presentedunder FASB pronouncements.  The amount shown as income beforedistributions to Tribe would be the most comparable amount to net incomecomputed under FASB pronouncements.  TheAuthority is a separate enterprise fund of the Tribe, a governmental entity,and as such there is no owners’ or shareholders’ equity (deficit) astraditionally represented under FASB pronouncements.  The most comparablemeasure of owners’ equity (deficit) is presented on the Authority’s balancesheet as net assets (deficit).

 

During the third quarter of2009, we adopted the new Accounting Standards Codification (ASC) as issued bythe FASB.  The ASC has become the sourceof authoritative U.S. GAAP recognized by the FASB to be applied bynongovernmental entities.  The ASC is notintended to change or alter existing GAAP. The adoption of the ASC did not have a material impact on ourconsolidated financial statements.

 

The ASC will become the source of authoritative U.S.generally accepted accounting principles (GAAP) recognized by the FASB to beapplied by nongovernmental entities.  Rules andinterpretive releases of the Securities and Exchange Commission (SEC) underauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants. On the effective date of this Statement, the ASC willsupersede all then-existing non-SEC accounting and reporting standards. Allother nongrandfathered non-SEC accounting literature not included in the ASCwill become nonauthoritative. This Statement is effective for financialstatements issued for interim and annual periods ending after September 15,2009.

 

Following this statement,FASB will not issue new standards in the form of Statements, FASB StaffPositions, or Emerging Issues Task Force Abstracts. Instead, it will issueAccounting Standards Updates.  FASB willnot consider Accounting Standards Updates as authoritative in their ownright.  Accounting Standards Updates willserve only to update the ASC, provide background information about theguidance, and provide the bases for conclusions on the change(s)  in theASC.

 

On April 1, 2009, the Authority adopted ASC825-10,**“*Financial Instruments.*”  ASC 825 requires an entity to providedisclosures about fair value of financial instruments in interim financialinformation.  Codification 270-10, “*InterimReporting,*” related to APB 28-1, “*InterimFinancial Reporting,*” requires those disclosures in summarizedfinancial information at interim reporting periods.  Codification 825-10 emphasizes that apublicly traded company shall include disclosures about the fair value of itsfinancial instruments whenever it issues summarized financial information forinterim reporting periods.  In addition,an entity shall disclose in the body or in the accompanying notes of itssummarized financial information for interim reporting periods and in itsfinancial statements for annual reporting periods the fair value of allfinancial instruments for which it is practicable to estimate that value,whether recognized or not recognized in the statement of financial position.

 

In May 2009, the FASBissued ASC 855-10 (formerly SFASStatement No. 165), “*Subsequent Events*”.  The objective of ASC 855 is to establishgeneral standards of accounting and disclosure of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued.  ASC 855 provides theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements; the circumstances underwhich an entity should recognize events or transactions occurring after thebalance sheet date in its financial statements; and the disclosures that anentity should make about events or transactions that occurred after the balancesheet date.  The Authority adopted thisnew accounting guidance on April 1, 2009.

 

In April 2009, the FASBissued ASC 820-10, “*Fair Value Measurement andDisclosure*” guidance related to**FSP FAS 157-4,“*DeterminingFair Value When the Volume and Level of Activity for the Asset or LiabilityHave Significantly Decreased and Identifying Transactions That Are Not Orderly.*”ASC 820 provides additional guidance for estimating fair value when the volumeand level of activity for the asset or liability have significantly decreasedand includes guidance on identifying circumstances that indicate a transactionis not orderly.  ASC 820 emphasizes thateven if there has been a significant decrease in the volume and level ofactivity for the asset or liability and regardless of the valuation technique(s) used,the objective of fair value measurement remains the same.  Fair value is the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction (that is, not a forced liquidation or distressed sale) betweenmarket participants at the measurement date under current marketconditions.  The Authority adopted thisnew accounting guidance on April 1, 2009.

 

In August 2009, theFASB issued Accounting Standards Update No. 2009-05, “*Fair Value Measurementsand Disclosures (ASC Topic 820) — Measuring Liabilities at Fair Value,”*whichamends ASC Subtopic 820-10, “*Fair Value Measurementsand Disclosures.”*  The Updateprovides clarification that in circumstances in which a quoted price in anactive market for the identical liability is not available, a reporting entityis required to measure fair value using one or more 

 

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of two techniques.  One valuation technique that uses the quotedprice of the identical liability when traded as an asset or quoted prices forsimilar liabilities or similar liabilities when traded as assets. The othervaluation technique that is consistent with the principles of ASC 820, forexample an income approach (such as a present value technique) or a marketapproach (such as a technique that is based on the amount at the measurementdate that the reporting entity would pay to transfer the identical liability orwould receive to enter into the identical liability).  This Update is effective for the firstreporting period (including interim periods) beginning after August 26,2009.

 

In July 2007, the GASBissued Statement No. 51, “*Accounting and FinancialReporting for Intangible Assets*.”  This Statement providesguidance regarding how to identify, account for and report intangibleassets.  The new standard characterizes an intangible asset as an assetthat lacks physical substance, is nonfinancial in nature and has an initialuseful life extending beyond a single reporting period.  Examples ofintangible assets include easements, computer software, water rights, timberrights, patents and trademarks.  Statement No. 51 requires thatintangible assets be classified as capital assets (except for those explicitlyexcluded from scope of the new standard). The Authority adopted this Statement on July 1, 2009.

 

In April 2009, the GASBissued Statement No 55, “*The Hierarchy of GenerallyAccepted Accounting Principles for State and Local Governments*.”  The Statement incorporates the hierarchy ofgenerally accepted accounting principles (GAAP) for state and local governmentsinto the GASB’s authoritative literature. This Statement is intended to make it easier for preparers of state andlocal government financial statements to identify and apply the “GAAPhierarchy,” which consists of accounting principles used in the preparation offinancial statements so that they are presented in conformity with GAAP and theframework for selecting those principles. The Statement will improve financial reporting by contributing to theGASB’s efforts to codify all GAAP for state and local governments so that theyderive from a single source.  Therequirements of Statement No. 55 are effective immediately.

 

In April 2009, the GASBissued Statement No 56, *“Codification ofAccounting and Financial Reporting Guidance Contained in the AICPA Statementson Auditing Standards.”*  TheStatement incorporates accounting and financial reporting guidance previouslyonly contained in the American Institute of Certified Public Accountants(AICPA) auditing literature into the GASB’s accounting and financial reportingliterature for state and local governments. The Statement 56 guidance addresses three issues from the AICPA’sliterature:  (1) related-partytransactions, (2) going concern considerations and (3) subsequentevents.  Statement No. 56 is part ofthe GASB’s effort to codify all generally accepted accounting principles for stateand local governments so that they derive from a single source.  This is intended to make it easier forpreparers of state and local government financial statements to identify andapply relevant accounting guidance.  Therequirements of Statement No. 56 are effective immediately.

 

The adoption of these newstandards had no effect on the Casino’s financial position or result ofoperations.

 

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

 

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

 

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

 

*RestrictedAssets*— Funds are set aside as restricted assets, and they are not available forcurrent expenses, when constraints placed on their use are legally enforceabledue to either:

 

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

 

·                  Laws or regulations ofother governments.

 

·                  Constitutional provisionsor enabling legislation.

 

TheAuthority’s policy is to use restricted assets before unrestricted assets forexpenses incurred for which both restricted and unrestricted net assets areavailable.  The Authority’s restricted assets consist of estimatedconstruction 

 

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expenses for three parking structures, relatedinfrastructure improvements and construction contingencies. It also includesfunds that are reserved for additional construction contingencies and the fundsnecessary to develop an approximately 18-acre parcel of land adjacent to theTribe’s reservation. These funds are held in escrow accounts which arerestricted for authorized construction disbursements. These escrow accounts areinvested in certificates of deposit, which generate interest on a monthlybasis. The FDIC has insured $250,000 of this balance. The Authority believesthat there is little risk of loss regarding the uninsured amounts of restrictedcash held in the escrow account. Restricted cash was $7,095,650 and $7,090,273 at September 30, 2009 and December 31,2008, respectively.  As of September 30, 2009, restricted cash includes$2,771,159 for construction, $4,324,437 for land development, plus $54 of otherrestricted cash.

 

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

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

 

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

 

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

 

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

 

*Capitalized interest*—**The interest cost associatedwith major development and construction projects is capitalized and included inthe cost of the asset.  Capitalization ofinterest ceases when the project is substantially complete or when developmentactivity is suspended.  The Authority didnot capitalize any interest for the nine months ended September 30, 2009and 2008.

 

*Deposits and Other Assets*— As of September 30, 2009 and December 31,2008, deposits and other assets include $2,130,871 and $2,897,142 in unamortized legal fees and otherissuance costs related to the issuance of the Authority’s 9 3⁄4% Senior Notes due2011 (the “Senior Notes”) under the Indenture, dated November 7, 2003 (the“Indenture”); $21,161 and $126,487 of performance deposits; $15,900 and $15,900 ofrental deposits; and $47,618 and $0 of equipment deposits.  Deferred loancosts are amortized using the effective interest method to interest expenseover the term of the related financial arrangement.

 

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

 

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

 

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

 

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*Accrued Slot Players Club*— The Authority has recorded a liabilityrelated to free play, prizes and cash incentives earned by the members of ourPlayers Club. The Authority has recorded the cost of the estimated redemptionof the liability as contra-revenue in the accompanying statements of revenues,expenses and changes in net assets (deficit).

 

*Contingencies* — The Authority assesses its exposure to losscontingencies, including legal matters, and provides for an exposure if it isjudged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of September 30, 2009, management determined that no accrualsfor claims and legal actions are required. If circumstances surrounding claimsand legal actions change, the addition of accruals for such items in futureperiods may be required, which accruals may be material.

 

*Authority net assets*— Invested in capital assets,net of related debt, consists of capital assets, net of accumulateddepreciation, reduced by the outstanding balances of any borrowings used forthe acquisition, construction or improvement of those assets.  Invested in capital assets, net of relateddebt, excludes unspent debt proceeds.

 

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

 

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

 

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

 

*Other Revenues*— Other revenues are comprised of commissionson ATM machine transactions.

 

*Promotional Allowances*— The retail value of food and beveragesprovided to customers without charge or at a discount is included in food,beverage and retail revenues and then deducted as promotional allowances. Suchamounts that are included in food, beverage, and retail revenues for the threemonths ended September 30, 2009 and 2008 were $101,401 and $127,188,respectively.  The amounts included infood, beverage, and retail revenues for the nine months ended September 30,2009 and 2008 were $319,873 and $394,446, respectively.

 

*Food and Beverage Expenses*— Food and beverage expensesinclude cost of goods sold related to providing food and beverage to ourcustomers. The estimated costs of providing complimentary services arereflected in Casino expenses.

 

*Advertising Costs*— Advertising costs are expensed thefirst time advertising takes place. Advertising costs included in selling,general and administrative expenses for the three months ended September 30,2009 and 2008 were $1,097,397 and $1,071,092, respectively.  Advertising costs for the nine months ended September 30,2009 and 2008 were $3,166,096 and $5,028,228, respectively.

 

*Gaming Commission andSurveillance Expenses*— The Authority pays for various expenses for the Tribal GamingCommission and Surveillance.  Tribal Gaming Commission expenses arereported as Gaming Commission and surveillance expense on the statements ofrevenues, expenses and changes in net assets (deficit).  Gaming Commission and surveillance expensesfor the three months ended September 30, 2009 and 2008 were $985,703 and$806,583, respectively.  GamingCommission and surveillance expenses for the nine months ended September 30,2009 and 2008 were $2,901,577 and $2,662,483, respectively.

 

*Income Taxes*—As a governmental instrumentality of theTribe, the Authority is a non-taxable entity for purposes of federal and stateincome taxes.

 

*Distributions to Tribe*— Distributions to Tribe are made up ofpayments permitted under the covenants of the Indenture.  They areincluded in the statements of revenues, expenses and changes in net assets(deficit) as distributions to Tribe allowed pursuant to the Indenture. Total distributions to the Tribe for the three months ended September 30,2009 and 2008 were $3,324,979 and $3,254,791, respectively.  Total distributions to the Tribe for the ninemonths ended September 30, 2009 and 2008 were $9,974,938 and $10,640,879,respectively.

 

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*Reclassifications*— Certain prior year balances in the condensedstatements of revenues, expenses and changes in net assets (deficit) have beenreclassified to be consistent with current year presentation with no change tonet revenues or net income as reflected in the 2008 Form 10-K, includingthe reclassification of e-coupons and cash incentives from promotionalallowances to casino contra-revenues.

 

**4.****                               ****CERTAIN RISKS ANDUNCERTAINTIES**

 

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

 

**5.****                               ****RELATED PARTIES**

 

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

 

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

 

Total amounts billed by the Tribe to the Casino forthese departments, excluding Tribal Gaming Commission and surveillance, for thethree months ended September 30, 2009 and 2008 were $950,706 and $814,705,respectively, which is recorded as a component of selling, general andadministrative expenses.  Total expensesfor these departments for the nine months end September 30, 2009 and 2008were $2,808,488 and $2,561,272, respectively.

 

The Authority pays for various expenses for the TribalGaming Commission and surveillance. Tribal Gaming Commission andsurveillance expenses are recorded in Gaming Commission and surveillanceexpenses on the statements of revenues, expenses and changes in net assets(deficit).  Gaming Commission and surveillance expenses for the threemonths ended September 30, 2009 and 2008 were $985,703 and $806,583,respectively.  Gaming Commission andsurveillance expenses for the nine months ended September 30, 2009 and2008 were $2,901,577 and $2,662,483, respectively.

 

The Tribe has incurred expenses on behalf of theAuthority that relate to the master planning for the proposed resort and Tribalinfrastructure that benefit the Casino. During the three months ended September 30, 2009, the Authorityauthorized reimbursement of $1,850,000 to the Tribe for these expenses.  During the nine months ended September 30,2009, the Authority authorized reimbursement of $8,067,445.  These expenses were capitalized and arereflected in construction-in-progress. The reimbursed costs consist primarilyof engineering and design costs related to the proposed master plandevelopment, including electrical, HVAC, landscaping, interior design servicesand consulting fees for legal, branding, feasibility and public relationsservices. While the Tribe has not made any additional request to the Authorityfor reimbursement, it may request additional reimbursements from the Authorityin the future. While the Authority has no obligation to pay such amounts whenrequested, and any such reimbursement would need to be approved by managementand the Board of Directors of the Authority, there is a possibility that suchrequest for reimbursement may be made by the Tribe. Prior to making anyreimbursement payment, the Authority will consider various factors, including,but not limited to, whether the costs incurred were actually related to themaster planning, whether such costs are beneficial to the gaming business andexpansion plans of the Authority, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture.

 

On April 16, 2008,in a joint effort with the Tribe, the Authority pledged a cash gift toHealthcare Foundation, a local hospital. This pledge was in the amount of $1.8 million over the course offive years, at a monthly rate of $30,000 commencing May 2008.  This cash donation is a gift and not part ofany revenue sharing agreement with any state or local government.

 

The Authority reserved 50recreational vehicle spaces and 10 campsite spaces at Alexander RV Park andCampground for casino guests.  AlexanderRV Park and Campground is a wholly owned subsidiary of the Tribe.  The cost of reserving the parking spaces andcampsite spaces for the three months ended September 30, 2009 was $69,458compared to $66,150 for the same prior year period.

 

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**6.****                                     ****CASH AND CASHEQUIVALENTS AND RESTRICTED CASH**

 

Cash and cash equivalents and restricted cashconsisted of the following as of September 30, 2009 and December 31,2008:

 
| ** **                                           | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                           | ** ** | **(Unaudited)**             | ** ** | ** **                 | ** ** |
|                                                 |       |                        |       |                       |       |
| Operating  accounts                                  |       | $                           | 17,287,222 |                       | $          | 9,221,163 |   |
| Money  market accounts                               |       | 14,096,065                  |       | 12,157,902                 |       |
| Cash  on hand                                        |       | 4,217,972                   |       | 5,969,327                  |       |
|                                                 |       |                        |       |                       |       |
| Cash  and cash equivalents                           |       | 35,601,259                  |       | 27,348,392                 |       |
| Restricted  cash                                     |       | 7,095,650                   |       | 7,090,273                  |       |
|                                                 |       |                        |       |                       |       |
| Total  cash and cash equivalents and restricted cash |       | $                           | 42,696,909 |                       | $          | 34,438,665 |   |

 

Custodial credit risk fordeposits is the risk that, in event of the failure of a depository financialinstitution, “a governmental entity” will not be able to recover its depositsor will not be able to recover collateral securities that are in the possessionof an outside party.  The California Codeand the Authority’s investment policy authorize these types ofinvestments.  The deposits were insuredby the FDIC up to $100,000 per bank.  On October 3,2008, Congress temporarily increased FDIC deposit insurance from $100,000 to$250,000 per depositor through December 31, 2009.  The Authority’s operating cash and restrictedcash accounts are FDIC insured up to $250,000 each.

 

**7.****            ****FAIR VALUE MEASUREMENTS**

 

In accordance with the Fair Value Measurements andDisclosures Topic of the FASB Accounting Standards Codification (ASC), thefollowing table summarizes the basis used to measure certain assets andliabilities at fair value on a recurring basis:

 
| ** **                | ** ** | ** **             | ** ** | **Fair Value Measurements at Reporting Date, Using:** | ** ** |
|---------------------------|------------|------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | ** **             | ** ** | **Quoted Prices**                                                              | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **             | ** ** | **in Active**                                                                  | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **             | ** ** | **Markets for**                                                                | ** ** | **Observable** | ** ** | **Unobservable** | ** ** |
| ** **                | ** ** | **September 30,** | ** ** | **Identical Items**                                                            | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| ** **                | ** ** | **2009**               | ** ** | **(Level 1)**                                                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Financial  Assets:        |       |                   |       |                                                                                |       |   |   |   |   |
| Money  Market Instruments |       | $                      | 14,096,065 |                                                                                | $          | 14,096,065 |   | $ | — |   | $ | — |   |
|                           |            |                        |            |                                                                                     |            |  |  |  |  |  |  |  |  |

 

Also see Note 10 for fair value of the Senior Notes.

 

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**8.****            ****CAPITAL ASSETS**

 

Capital Assets at December 31,2008 and September 30, 2009 consisted of the following:

 
| ** **                         | ** ** | **Balance, as of**    | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance, as of**     | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|------------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **September 30,** | ** ** |
| ** **                         | ** ** | **2008**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2009**               | ** ** |
| Buildings  and improvements        |       | $                     | 130,357,841 |          | $          | 38,316           |       |                   |       | $ | 130,396,157 |   |
| Furniture,  fixtures and equipment |       | 34,143,554            |        | 4,088,501     |       | (3,854,630       | )          | 34,377,425             |       |
| Less  accumulated depreciation     |       | (54,484,916           | )           | (7,144,404    | )          | 3,854,630        |       | (57,774,690            | )          |
|                               |       | 110,016,479           |        | (3,017,587    | )          | —           |       | 106,998,892            |       |
| Construction  in progress          |       | 45,599,195            |        | 8,482,994     |       | —           |       | 54,082,189             |       |
| Capital  assets — net         |       | $                     | 155,615,674 |          | $          | 5,465,407        |       | $                      | —     |   | $ | 161,081,081 |   |
|                                    |            |                       |             |               |            |                  |            |                        |            |  |  |  |  |

 

Constructionin progress consists of payments to various vendors through reimbursements tothe Tribe related to the Authority’s master plan development and landimprovements.  Substantially all of theAuthority’s personal property is pledged as collateral to secure its debt.

 

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

 

Accrued liabilities consisted of the following as of September 30,2009 and December 31, 2008:

 
| ** **                                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| ** **                                  | ** ** | **(Unaudited)**        | ** ** | ** **            | ** ** |
|                                        |       |                   |       |                  |       |
| Accrued  in-house progressive slot jackpots |       | $                      | 1,550,014  |                  | $          | 1,531,747 |   |
| Accrued  payroll and related benefits       |       | 2,283,831              |       | 2,285,481             |       |
| Accrued  interest                           |       | 8,125,000              |       | 3,250,000             |       |
| Accrued  other expenses                     |       | 1,021,748              |       | 1,034,850             |       |
| Total  accrued liabilities                  |       | $                      | 12,980,593 |                  | $          | 8,102,078 |   |

 

**10.****         ****LONG-TERM DEBT**

 

Long-term debt consisted of the following as of September 30,2009 and December 31, 2008:

 
| ** **                                                                                                 | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2009**               | ** **  | **2008**              | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited)**        | ** **  | ** **            | ** ** |
| ** **                                                                                                 | ** ** | ** **             | ** **  | ** **            | ** ** |
| 9-3/4%  Senior Notes, net of unamortized issue discount of $702,601 and $955,538. Due  November 2011. |       | $                      | 199,297,399 |                  | $          | 199,044,462 |   |
| Vehicles  Notes                                                                                            |       | 2,926                  |        | 12,291                |       |
| Slot  Notes                                                                                                |       | 636,264                |        | —                |       |
| Lease  obligations                                                                                         |       | —                 |        | 34,182                |       |
|                                                                                                       |       |                   |        |                  |       |
| Total  Long-Term Debt                                                                                      |       | 199,936,589            |        | 199,090,935           |       |
| Less:  current portion                                                                                     |       | (639,190               | )           | (45,011               | )          |
|                                                                                                       |       |                   |        |                  |       |
| Total  long-term debt - net of current maturities                                                          |       | $                      | 199,297,399 |                  | $          | 199,045,924 |   |

 

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

 

The Authority’s long-term debt is recorded at anamortized historical cost basis.  The fair value of the Senior Notes wasapproximately $182.0 million as of September 30, 2009 based on level oneinputs, quoted prices in active markets.

 

**11.****                  ****LEASES**

 

On May 30, 2002, the Authority entered into an operatinglease for a sprung structure.  The leaseexpired on August 17, 2007.  Uponexpiration, the Authority continued on a month-to-month basis.  On June 12, 2009, the Authority amendedthe agreement to lease the sprung structure for three years.  The monthly lease fee is $25,395.

 

On February 21, 2007, the Authority entered intoa one year operating lease for office and promotional space commencing February 21,2007 and expiring February 20, 2008. The monthly lease fee was $600 per month.  On February 21, 2008, the Authorityextended the lease for three years, commencing on February 21, 2008 andexpiring on February 20, 2011.  Theextended lease fee was $625 per month for the first year (through February 2009)and $712 per month for the second year (March 2009 through February 2010),with adjustments for the Consumer Price Index, and property taxes in the thirdyear.  Commencing May 2009, theAuthority subleased the entire office and promotional space at a monthly rateof $500.

 

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

 

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

 

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

 

**12.****                        ****LEGAL MATTERS AND SUBSEQUENT EVENTS**

 

*RunyanLitigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed a wrongfultermination suit against the Authority, the Casino and Mr. Harvey Hopkins,the Chairman of the Tribe and a member of the Authority’s Board, in the SonomaCounty Superior Court.  We believed thecase lacked merit and moved to dismiss. On October 17, 2008, the Court issued an Order dismissing thelawsuit.  On December 3, 2008, the Court entered an Order grantingour motion and dismissed the case.

 

On January 14, 2009,Mr. Runyan filed a Petition for Order Compelling Arbitration with theSonoma County Superior Court, and on January 30, 2009, he filed a Motionfor Order Compelling Arbitration.  In both the Petition and the Motion, Mr. Runyansought to have the Court issue an order compelling arbitration of the claimsasserted in the complaint that was dismissed by the court in December 2008. The Authority believed, based on fact that Mr. Runyan entered into aSeverance Agreement and General Release with the Authority, the Casino, andother released parties, that there was no basis for Mr. Runyan to seekarbitration.  On April 13, 2009, the Authority, the Casino, and Mr. Hopkinsfiled a hybrid motion to quash summons and dismiss the Petition andMotion.  On June 1, 2009, the Court granted the motion in itsentirety, holding that the Court lacked personal and subject matterjurisdiction, that Mr. Runyan terminated and extinguished his purportedemployment agreement (which contained the arbitration clause he relied on) andthat he waived any right to arbitration he might have had by settling andreleasing all claims.  Finally, the Courtheld that all respondents have tribal sovereign immunity from service ofprocess.

 

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Mr. Runyan fileda Notice of Appeal of the Court’s Order on July 27,2009.  Mr. Runyan’s opening brief is due on or about November 23,2009.  The respondents’ brief willbe due 30 days after Mr. Runyan’s opening brief.  Mr. Runyanwill then have 20 days to reply to the Authority’s brief.  Following the completion of briefing, wewould expect the court to set a date for oral argument.  The Authoritycontinues to believe that there was no basis for Mr. Runyan to seek arbitrationand will argue vigorously in favor of upholding the Superior Court’s Ordergranting the motion to quash summons and dismissing Mr. Runyan’s petitionand motion for an order compelling arbitration.

 

*OtherLegal Matters*

 

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

 

**13.****                        ****COMPACT REVENUE SHARING TRUST FUND**

 

The Compact requires the Authority to pay a quarterlyfee to the State of California’s revenue sharing trust fund, based on thenumber of licensed gaming devices operated by the Tribe. Revenue sharing trustfund fees assessed were $333,750 and $333,750 for the three months ended September 30,2009 and 2008, respectively.

 

**14.****                        ****COMMITMENTS AND CONTINGENCIES**

 

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

 

On March 18, 2008, the Tribe and the SonomaCounty Board of Supervisors entered into a memorandum of agreement (“MOA”) thatis expected to settle several long-standing legal disputes between SonomaCounty and the Tribe and provide a binding framework for resolving futuredisputes.  Pursuant to the MOA, the Tribe has agreed to pay the County$75.0 million in mitigation fees over the next 12 years, subject to adjustmentunder certain circumstances described in the MOA, to offset the potentiallosses and impacts to the County resulting from the Tribe’s various ongoingprojects and to support the services being provided by the County.  TheTribe paid $3.0 million on April 17, 2008, $4.5 million on September 20,2008 and $2.8 million on June 26, 2009.  Future payments arescheduled to take place as follows: $5.0 million upon the earlier of March 18,2011 or the opening of phase one of the resort project; $5.0 million in the subsequentyear but no later than July 1, 2011; and $5.0 million plus 4% compoundedannually on July 1 of each subsequent year until the entire $75.0 millionhas been paid.  In addition to the mitigation fees, theTribe will pay a fee in lieu of the County’s Transient Occupancy Tax in theamount of 9% of the rental collected on occupied hotel rooms, to be paidquarterly and continuing for five years after the later to occur of thetermination of the MOA, as may be extended, or the Tribe’s Compact with theState (which is now terminable in 2020 at the earliest), which fees may beapplied to programs and services that serve to promote tourism in theCounty.  Such in lieu fees could total asmuch as $25 million during the term of the MOA.

 

The Authority is not aparty to the agreement with the Sonoma County Board of Supervisors and is notobligated to pay any fees pursuant to the MOA. It is expected that the Tribe will make payments to Sonoma County pursuantto the MOA from distributions made by the Authority to the Tribe.

 

Acasino renovation was approved by the Authority’s Board of Directors as part ofan overall strategic operating plan for River Rock Casino.  The project is expected to be fully completeby December 31, 2009 and to remain within the $5.2 million budget approvedby the Authority’s Board of Directors.

 

**15.****                        ****SUBSEQUENT EVENTS**

 

In accordance with the Subsequent Events Topic of the FASB AccountingStandards Codification, wehave evaluated subsequent events through November 13, 2009, the date ofissuance of the unaudited condensed financial

 

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statements. During this period we did not have any material recognizable subsequentevents to recognize or disclose, other than the subsequent events under Note12.

 

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

 

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

 

**Overview**

 

We are an unincorporated governmental instrumentalityof the Tribe that owns and operates the Casino. We offer Class III slot and video poker gaming machines, housebanked table games (including Blackjack, Three card poker, Mini-baccarat andPai Gow poker), Poker, featuring Texas Hold’em, comprehensive food and beverageofferings and goods for sale in our gift shop.

 

**FASB Codification Discussion**

 

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

 

The ASC will become thesource of authoritative U.S. generally accepted accounting principles (GAAP)recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of theSecurities and Exchange Commission (SEC) under authority of federal securitieslaws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, theASC will supersede all then-existing non-SEC accounting and reportingstandards.  All other nongrandfatherednon-SEC accounting literature not included in the ASC will become nonauthoritative.This Statement is effective for financial statements issued for interim andannual periods ending after September 15, 2009.

 

Following this Statement,FASB will not issue new standards in the form of Statements, FASB StaffPositions, or Emerging Issues Task Force Abstracts. Instead, it will issueAccounting Standards Updates. FASB will not consider Accounting StandardsUpdates as authoritative in their own right. Accounting Standards Updates will serve only to update the ASC, providebackground information about the guidance, and provide the bases forconclusions on the change(s)  in the ASC.

 

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

 

**Critical Accounting Policies andEstimates**

 

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

 

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

 

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

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

 

·                          We evaluate our capital assets for impairment inaccordance with the Accounting pronouncement GASB No. 42, “*Accounting and Financial Reporting for Impairment of Capital Assets andfor Insurance Recoveries.*” This Statement establishes accounting and financial reporting standardsfor impairment of capital assets.  TheAuthority’s capital assets include building and improvements, furniture,fixtures and equipment.  A capital assetis considered impaired if both the decline in service utility of the capitalasset is large in magnitude and the event or change in circumstances is outsidethe normal life cycle of the capital asset. The Authority is required to evaluate prominent events or changes incircumstances affecting capital assets to determine whether impairment of acapital asset has occurred.  Commonindicators of impairment include evidence of physical damage where restorationefforts are needed to restore service utility, enactment or approval of laws orregulations setting standards that the capital asset would not be able to meet,technological development or evidence of obsolescence, a change in the manneror expected duration of use of a capital asset or construction stoppage.  This Statement will require the Authority toreport the effects of capital asset impairment in its financial statements whenthey occur, rather than as part of the ongoing depreciation expense for thecapital asset or upon disposal of the capital asset, and to account forinsurance recoveries in the same manner.

 

·                  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 which is includedas a component of accrued liabilities.

 

·                  Contingencies — We assess our exposure toloss contingencies, including legal matters, and provide for an exposure if itis judged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of September 30, 2009, we have determined that no accrualsfor claims and legal actions are required. If circumstances surrounding claimsand legal actions change, the addition of accruals for such items in futureperiods may be required, which accruals may be material.

 

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

 

Reclassifications— Certain prioryear balances in the statements of revenues, expenses and changes in net assets(deficit) have been reclassified to be consistent with current yearpresentation with no change to net revenues or net income as reflected in the2008 Form 10-K, including the reclassification of e-coupons and cashincentives from promotional allowances to casino contra-revenues.

 

**Results of Operations**

 

**Comparison of the three months ended September 30,2009 and 2008**

 

*Net revenues*. Net revenues for the three months endedSeptember 30, 2009 decreased by $2.6 million to $29.7 million, from $32.3million for the three months ended September 30, 2008.  The decreasein net revenues is attributable to the continuing industry-wide slow down inthe gaming and entertainment industry during 2009.  Approximately 94.7% of our net revenues werefrom our gaming activities in the third quarter of 2009, as compared to 96.3%in the comparable prior year period.  Wegenerated $25.2 million or 84.7% of our net revenues from gaming devices, and$3.0 million, or 10.0% of our

 

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net revenues from table games and poker for the threemonths ended September 30, 2009, compared to $27.5 million from gamingdevices or 85.2% of our net revenues, and $3.6 million or 11.0% of net revenuesfrom table games and poker for the three months ended September 30,2008.  Our win per slot machine per daywas $230 for the three months ended September 30, 2009, which increased by$36 from $194 for the three months ended September 30, 2008.  The increase in net win per machine per dayis primarily attributable to the decrease in the average number of slotmachines on the floor.  We have beenreconfiguring our gaming floor in an effort to enhance our overall appeal.  As part of this effort, we reduced theaverage number of slot machines to 1,191 for the three months ended September 30,2009, compared to 1,571 for the three months ended September 30, 2008.

 

We generated $1.4 million, net of promotionalallowance of $0.1 million, in food, beverage and retail sales for the threemonths ended September 30, 2009, compared to $1.2 million, net ofpromotional allowances of $0.1 million, in food, beverage and retail sales forthe three months ended September 30, 2008.

 

*Promotional allowances*. Promotional allowances for the threemonths ended September 30, 2009 were $0.1 million, or 0.3% of netrevenues, compared to $0.1 million, or 0.4% of net revenues, for the threemonths ended September 30, 2008.

 

*Operating expenses*. Operating expenses for the three monthsended September 30, 2009 were $18.9 million, or 63.7% of net revenues,compared to $20.1 million, or 62.3% of net revenues, for the three months endedSeptember 30, 2008.

 

Casino expense includes costs associated with ourgaming operations and the allocation of food and beverage expense related tothe cost of complimentary activities. Casino expense for the three months ended September 30, 2009 was$3.7 million compared to $5.2 million for the three months ended September 30,2008.  Casino expense as a percentage ofCasino revenues decreased by 3.6 percentage points from 16.6% to 13.0% for thethree months ended September 30, 2009. The decrease in Casino expenses is due to the decrease in the estimatedcosts of providing complimentary services that are reclassified from food,beverage and retail costs to Casino expenses, as well as the adaptation of cost saving measures that have reducedpayroll, participation fees and WAP commissions.

 

Food, beverage and retailexpense for the three months ended September 30, 2009 was $1.8 million, or133.4% of food, beverage and retail revenue, net of promotional allowances,compared to $1.7 million, or 143.0% of food, beverage and retail revenue, netof promotional allowances for the three months ended September 30,2008.  The decrease in percentage isprimarily due to the decrease in complimentary beverages to our guests on the casinofloor.  Our food, beverage and retail expense ratio issignificantly higher than the industry average because we have utilized theseamenities as an opportunity to build customer loyalty rather than as a sourceof income.

 

Selling, general and administrative expense for thethree months ended September 30, 2009 decreased by $39,449 to $9.7 million,or 32.8% of net revenues, from $9.8 million, or 30.3% of net revenues, for thethree months ended September 30, 2008.

 

Depreciation expense for the three months ended September 30,2009 was $2.4 million compared to $2.3 million for the three months ended September 30,2008.  Depreciation expense was computedusing the straight-line method over the useful life of property, plant andequipment.  Depreciation expenseincreased slightly due to the net effect of two factors.  First, since the Casino is over five yearsold, much of our original equipment has been fully depreciated.  Second, there were additions to fixed assetsthat included purchases of slot machines, slot machine chairs, Bally’s SDSgaming system upgrade and carpeting.

 

Gaming Commission and surveillance expense for thethree months ended September 30, 2009 was $1.0 million compared to $0.8million for the three months ended September 30, 2008.

 

The Compact requires us to pay a quarterly fee to theState of California’s revenue sharing trust fund, based on the number oflicensed gaming devices we are allowed to operate.  Revenue sharing trust fund fees assessed were$0.3 million for each of the three months ended September 30, 2009 and2008.

 

*Income from operations.* Income from operations for the threemonths ended September 30, 2009 was $10.8 million, or 36.3% of netrevenues, compared to $12.2 million, or 37.7% of net revenues, for the threemonths ended September 30, 2008.  The decrease in income fromoperations is attributable to the decrease in business volumes as a result ofthe downturn in the economy.  We havecontinued with the adaptation of cost saving measures to adjust for the declinein customer demand.  The percent decreaseof 7.9% in net revenues was greater than the percentage decrease of 5.9% inoperating expenses resulting in an offset to the cost savings.

 

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*Non-Operating expense, net.* Non-operating expense, net for the threemonths ended September 30, 2009 was $5.2 million, or 17.5% of net revenues, compared to $5.0 million or 15.4% ofnet revenues, for the three months ended September 30, 2008. Non-operating expense, net, includes $5.2 million of interest expense for eachof the three months ended September 30, 2009 and 2008.  The primary reason for the variance was dueto the $0.2 million decrease in interest income as a result of decreasedbalances and lower interest rates.  No interestcosts were capitalized in the three months ended September 30, 2009 and2008.

 

*Income before distributions to theTribe*. Incomebefore distributions to the Tribe for the three months ended September 30,2009 decreased by $1.6 million to $5.6 million, or 18.9% of net revenues, from$7.2 million, or 22.3% of net revenues, for the three months ended September 30,2008.

 

*Distributions to the Tribe*. Distributions to the Tribe for thethree months ended September 30, 2009 increased by $70,188 to $3.3 million,compared to $3.3 million, for the three months ended September 30, 2008.

 

**Comparison of the nine months ended September 30,2009 and 2008**

 

*Net revenues*. Net revenues for the nine months ended September 30,2009 decreased by $6.8 million to $92.3 million, from $99.1 million, for thenine months ended September 30, 2008.  The decrease in net revenuesis attributable to the continuing industry-wide slow down in the gaming andentertainment industry during 2009. Approximately 94.9% of our net revenues were from our gaming activitiesin the nine month period ended September 30, 2009, compared to 95.5% forthe comparable prior year period. We generated $78.5 million or 85.1% of ournet revenues from gaming devices, and $9.0 million, or 9.8% of our net revenuesfrom table games and poker for the nine months ended September 30, 2009,compared to $83.6 million from gaming devices or 84.3% of our net revenues, and$11.1 million or 11.2% of net revenues from table games and poker for the ninemonths ended September 30, 2008. Our win per slot machine per day was $208 for the nine months ended September 30,2009, which increased by $13 from $195 for the nine months ended September 30,2008.  The increase in net win permachine per day is primarily attributable to the decrease in the average numberof slot machines on the floor.  We havebeen reconfiguring our gaming floor in an effort to enhance our overallappeal.  As part of this effort, we reducedthe average number of slot machines to 1,380 for the nine months ended September 30,2009, compared to 1,572 for the nine months ended September 30, 2008.

 

We generated $4.0 million, net of promotionalallowance of $0.3 million, in food, beverage and retail sales for the ninemonths ended September 30, 2009, compared to $4.1 million, net ofpromotional allowances of $0.4 million, in food, beverage and retail sales forthe nine months ended September 30, 2008. The decrease in promotional allowances was the result of a strategicreduction to narrow our marketing focus on higher revenue generating players.

 

*Promotional allowances*. Promotional allowances for the ninemonths ended September 30, 2009 were $0.3 million, or 0.3% of netrevenues, compared to $0.4 million, or 0.4% of net revenues, for the ninemonths ended September 30, 2008.

 

*Operating expenses*. Operating expenses for the nine monthsended September 30, 2009 were $58.5 million, or 63.3% of net revenues,compared to $64.3  million, or 64.9% ofnet revenues, for the nine months ended September 30, 2008.

 

Casino expense includes costs associated with ourgaming operations and the allocation of food and beverage expense related tothe cost of complimentary activities. Casino expense for the nine months ended September 30,2009 was $11.8 million compared to $15.1 million for the nine months ended September 30,2008.  Casino expense as a percentage ofCasino revenues decreased by 2.5 percentage points from 15.9% to 13.4% for thenine months ended September 30, 2009. The decrease in Casino expenses is due to the decrease in the estimatedcosts of providing complimentary services that are reclassified from food,beverage and retail costs to Casino expenses, as well as the adaptation of cost saving measures that have reducedpayroll, participation fees and WAP commissions.

 

Food, beverage and retail expense for the nine monthsended September 30, 2009 was $5.6 million, or 137.8% of food, beverage andretail revenue, net of promotional allowances, compared to $5.9 million, or144.1% of food, beverage and retail revenue, net of promotional allowances forthe nine months ended September 30, 2008. Our food, beverage and retail expense ratio is significantly higher thanthe industry average because we have utilized these amenities as an opportunityto build customer loyalty rather than as a source of income.

 

Selling, general and administrative expense for thenine months ended September 30, 2009 decreased by $1.9 million to $30.1million, or 32.6% of net revenues, from $32.0 million, or 32.3% of netrevenues, for the nine months ended September 30, 2008.

 

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Depreciation expense for the nine months ended September 30,2009 was $7.1 million compared to $7.7 million for the nine months ended September 30,2008.  Depreciation expense was computedusing the straight-line method over the useful life of property, plant andequipment.  Since the Casino is now overfive years old, much of our original equipment became fully depreciated by thesecond quarter of 2008, which was partially offset by our recent purchases ofslot machines, slot machine chairs, Bally’s SDS gaming system upgrade andcarpeting.

 

Gaming Commission and surveillance expense for the ninemonths ended September 30, 2009 was $2.9 million compared to $2.7 millionfor the nine months ended September 30, 2008.

 

The Compact requires us to pay a quarterly fee to theState of California’s revenue sharing trust fund, based on the number of licensedgaming devices we are allowed to operate. Revenue sharing trust fund feesassessed were $1.0 million for each of the nine months ended September 30,2009 and 2008.

 

*Income from operations.* Income from operations for the ninemonths ended September 30, 2009 was $33.8 million, or 36.7% of netrevenues, compared to $34.8 million, or 35.1% of net revenues, for the ninemonths ended September 30, 2008. The decrease in income from operations is attributable to the decreasein business volumes as a result of the downturn in the economy.  We have continued with the adaptation of costsaving measures to adjust for the decline in customer demand.  Although the percent decrease of 9.1% fromoperating expenses was greater than the percent decrease of 6.9% from net revenue,the decrease in dollars was greater for net revenues than operating expensesresulting in an offset to the cost savings.

 

*Non-Operating expense, net.* Non-operating expense, net for the ninemonths ended September 30, 2009 was $15.6 million, or 16.9% of netrevenues, compared to $14.7 million, or 14.8% of net revenues, for the ninemonths ended September 30, 2008.  Non-operating expense, net includes$15.6 million of interest expense for both the nine month periods ended September 30,2009 and 2008.  The primary reason forthe variance was due to the $0.9 million decrease in interest income as aresult of decreased balances and lower interest rates.  No interest costs were capitalized in thenine month periods ended September 30, 2009 and 2008.

 

*Income before distributions to theTribe*. Incomebefore distributions to the Tribe for the nine months ended September 30,2009 decreased by $1.9 million to $18.2 million, or 19.8% of net revenues, from$20.1 million, or 20.3% of net revenues, for the nine months ended September 30,2008.

 

*Distributions to the Tribe*. Distributions to the Tribe for the ninemonths ended September 30, 2009 decreased by $0.7 million to $10.0million, compared to $10.6 million, for the nine months ended September 30,2008.  The decrease is primarily due tothe prior year second quarter one-time catch up distribution to the Tribe ofservice payments that could have been previously distributed to the Tribe aspermitted by the Indenture for the Senior Notes.

 

**Liquidity and Capital Resources**

 

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

 

For the nine months ended September 30, 2009, wespent $12,800 on the development of an approximately 18-acre parcel of landadjacent to the Tribe’s reservation (referred to as the “Dugan Property”) whichis expected to provide an additional access road to our Casino. We have $4.3million remaining in a restricted account funded from the proceeds of ourSenior Notes for the development of the Dugan Property.   The construction of the access road shallcommence concurrently with phase one of the resort construction.

 

Our capital expenditures for the nine months ended September 30,2009 and 2008 were $12.6 million and $22.1 million, respectively.  The capital expenditures for the nine monthsended September 30, 2009 consisted primarily of $4.1 million in additionsto equipment largely due to slot machine purchases, as well as the Bally’s SDSgaming systems upgrade, slot machine chairs, carpeting and signs.  Additionally, $8.5 million consisted of anincrease to construction-in-progress which included $8.1 reimbursed to theTribe for the master plan development of our planned resort and $0.4 million ofother assets not yet placed into service. We have reflected the expenditures relating to the master plandevelopment which we reimbursed the Tribe as construction-in-progress in ourbalance sheet.

 

As of September 30, 2009, we had cash and cashequivalents, net of restricted cash of $35.6 million, compared to $27.3million, as of December 31, 2008. We had restricted cash of $7.1 millionas of September 30, 2009 and as of December

 

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31, 2008, respectively.  Our principal source of liquidity during thenine months ended September 30, 2009 consisted of cash flow from operatingactivities.

 

Restricted cash consists of net proceeds from theSenior Notes and investment earnings thereon set aside in constructionfinancing accounts for construction costs for the three parking structures,related infrastructure improvements and construction contingencies. It alsoincludes funds that are reserved for additional construction contingencies andthe funds for the development of the Dugan Property.  Our restricted cash is held in escrow accountsthat can only be used for authorized construction disbursements until therelated projects are completed.  Theconstruction of the three parking structures has been completed and theremaining funds are expected to be released from the restricted account.

 

Net cash used for capital and related financingactivities for the nine months ended September 30, 2009 was $21.8 million,compared to $32.0 million, for the nine months ended September 30,2008.  This decrease was primarilyattributable to the decrease in purchases of capital assets and payments fordevelopment costs.

 

Cash flows provided by investing activities consistingof interest income for the nine months ended September 30, 2009 decreasedby $0.9 million to $53,044, from $1.0 million, for the nine months ended September 30,2008.

 

Cash flows used in non-capital financing activitiesfor the nine months ended September 30, 2009 was $10.0 million, a decreaseof $0.7 million, from $10.6 million, for the nine months ended September 30,2008.  Cash flows used in non-capital financing activities consist ofdistributions to the Tribe.  The decrease is primarily due to the prioryear second quarter one-time catch up distribution to the Tribe of $1.0 millionof service payments that could have been previously distributed to the Tribe aspermitted by the Indenture for the Senior Notes.

 

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

 

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

 

On March 18, 2008, the Tribe and the SonomaCounty Board of Supervisors entered into the MOA that, among other things,settled several long-standing legal disputes between Sonoma County and theTribe, and will provide a binding framework for resolving future disputes.  The MOA enables the Tribe to move forwardwith its proposed resort development project, including a new and expanded“Tuscan-themed” casino and hotel with luxury resort amenities.  A copy of the MOA was filed as an exhibit 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 investigation services to the Casino and theTribe’s future gaming projects on the reservation and provides detailed agreementson off-reservation impact mitigation measures. Pursuant to the MOA, the County withdrew its opposition to the Tribe’sapplication to take the Dugan Property into trust.  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 $75.0 million in mitigation fees over thenext 12 years, subject to adjustment under certain circumstances described inthe MOA, to offset the potential losses and impacts to the County resultingfrom the Tribe’s various ongoing projects and to support the services beingprovided by the County.  The Tribe paid $3.0 million on April 17,2008, $4.5 million on September 20, 2008 and $2.8 million on June 26,2009.  Future payments are scheduled to take place as follows: $5.0million upon the earlier of March 18, 2011 or the opening of phase one ofthe resort project; $5.0 million in the subsequent year but nolater than July 1, 2011; and

 

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$5.0 million plus 4%compounded annually on July 1 of each subsequent year until the entire$75.0 million has been paid.  In addition, the Tribe hasagreed to pay a fee in lieu of the County’s Transient Occupancy Tax in theamount of 9% of the rental charges collected on occupied hotel rooms.  Such fees are required to be paid quarterlyuntil five years after the later to occur of the termination of the MOA, as maybe extended, or the Tribe’s Compact with the State.

 

We are not a party to the agreement with the SonomaCounty Board of Supervisors and are not obligated to pay any fees pursuant tothe MOA.   It is expected that the Tribewill make payments to Sonoma County pursuant to the MOA from distributions madeby us to the Tribe.

 

Aspart of the effort to enhance the overall appeal of our product, we have beenreconfiguring our gaming floor.  Thiseffort has resulted in the reduction of approximately 372 slot machines and 2table games.  We will maintain our legalright per the Compact to operate a total of 1,600 slot machines in ourCasino.  We considered many factors suchas peak period demand, per unit productivity, and player comfort in ouranalysis to ensure that the reduction of gaming devices will not adverselyimpact our revenues.  The reduction ofgaming units on the Casino floor will ultimately provide us an opportunity to upgradecurrent amenities, establish new amenities, improve player comfort and enhanceentertainment value. We are confident that these improvements, targeted atimproving product appeal, will ultimately open up a greater spectrum ofpotential consumers within our designated market area.  In combination with our continuing effort toimprove operational efficiency, upgrading our gaming technology, and refocusingour marketing efforts, we are confident that we will have set a solidfoundation for improved and sustained cash flows.

 

**Contractual Obligations as of September 30,2009**

 

Acasino renovation was approved by our Board of Directors as part of an overallstrategic operating plan for River Rock Casino.  In anticipation ofbuilding a new casino resort the current facility was not upgraded for severalyears.  In addition to the physical plant of the gaming operation,furniture, fixtures, equipment and gaming software was either not replaced orrepaired to adequately service the needs of the business. The overallappearance and appeal of the casino was insufficient to meet basic customerrequirements.

 

Majorcomponents of the renovation project include upgrading slot accountingsoftware, slot and table player tracking software, adding new carpeting, newslot chairs, interior and exterior signage and the replacement of paint andwall paper.  To additionally enhance the overall gaming experience andappeal to a broader spectrum of potential gamers, two additional food amenitiesare currently under construction.  The Fortune Café will be a quickservice Asian-themed restaurant designed to be a high-margin, high-volume,quick turn restaurant.  Additionally, the Center Stage Bar &Grill will encompass a casual dining experience combined with the existing barand an upgraded stage and sound system.

 

Theproject is expected to be fully complete by December 31, 2009 and toremain within the $5.2 million budget approved by our Board of Directors.

 

**Regulation and Taxes**

 

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

 

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

 

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

 

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administration of such law. Such changes, if adopted,could have a material adverse effect on our operating results and cash flowfrom operations.

 

**Impact of Inflation**

 

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

 

**Seasonality**

 

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

 

**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 September 30, 2009, we had not investedin derivative or foreign currency-based financial instruments.  Weprimarily have invested in money markets.  As such, we do not believe wehave material exposure to market risk.

 

**ITEM4T.  CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls andProcedures**

 

We maintain disclosure controls and procedures thatare designed to ensure that the information required to be disclosed in ourreports filed with, or furnished to the Securities Exchange Commission (the“SEC”) pursuant to the Exchange Act, is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules, regulations andforms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer, Chief Financial Officer andChief Operations Officer, as appropriate, to allow timely decisions regardingrequired disclosure based on the definition of “disclosure controls andprocedures” in Rule 13a-15(e) and 15d-15(e) of the Exchange Act.

 

Management has performed,with the participation of our Chief Executive Officer, Chief Financial Officerand Chief Operations 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 the evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that, as of September 30, 2009, our disclosurecontrols and procedures were effective.

 

**Changes to Internal Controls OverFinancial Reporting**

 

We continue to test our internal controls so as tomake improvements to the weaknesses that we have identified and to determinewhether there are other procedures that we can implement to improve ourfinancial reporting processes.  For thethree month period ended September 30, 2009, there have been no changes inthe internal control over financial reporting that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

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

 

*RunyanLitigation*

 

On March 7, 2008,Norman Runyan, our former Chief Operations Officer, filed a wrongfultermination suit against the Authority, the Casino and Mr. Harvey Hopkins,the Chairman of the Tribe and a member of the Authority’s Board, in the SonomaCounty Superior Court.  We believed thecase lacked merit and moved to dismiss. On October 17, 2008, the Court issued an Order dismissing thelawsuit.  On December 3, 2008, the Court entered an Order grantingour motion and dismissed the case.

 

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On January 14, 2009,Mr. Runyan filed a Petition for Order Compelling Arbitration with theSonoma County Superior Court, and on January 30, 2009, he filed a Motionfor Order Compelling Arbitration.  In both the Petition and the Motion, Mr. Runyansought to have the Court issue an order compelling arbitration of the claimsasserted in the complaint that was dismissed by the court in December 2008. The Authority believed, based on fact that Mr. Runyan entered into aSeverance Agreement and General Release with the Authority, the Casino, andother released parties, that there was no basis for Mr. Runyan to seekarbitration.  On April 13, 2009, the Authority, the Casino, and Mr. Hopkinsfiled a hybrid motion to quash summons and dismiss the Petition andMotion.  On June 1, 2009, the Court granted the motion in itsentirety, holding that the Court lacked personal and subject matterjurisdiction, that Mr. Runyan terminated and extinguished his purportedemployment agreement (which contained the arbitration clause he relied on) andthat he waived any right to arbitration he might have had by settling andreleasing all claims.  Finally, the Courtheld that all respondents have tribal sovereign immunity from service ofprocess.

 

Mr. Runyan fileda Notice of Appeal of the Court’s Order on July 27,2009.  Mr. Runyan’s opening brief is due on or about November 23,2009.  The respondents’ brief willbe due 30 days after Mr. Runyan’s opening brief.  Mr. Runyanwill then have 20 days to reply to the Authority’s brief.  Following the completion of briefing, wewould expect the court to set a date for oral argument.  The Authoritycontinues to believe that there was no basis for Mr. Runyan to seekarbitration and will argue vigorously in favor of upholding the Superior Court’sOrder granting the motion to quash summons and dismissing Mr. Runyan’spetition and motion for an order compelling arbitration.

 

*OtherLegal Matters*

 

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

 

**ITEM 1A.           RISK FACTORS**

 

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

 

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

 

The gaming industry is very competitive. We face orwill face competition from existing and proposed California Indian gamingfacilities in the surrounding area, and elsewhere in California, and withcasino gaming in Nevada, including gaming facilities that could be locatedcloser to the San Francisco Bay area. We also compete with card rooms locatedin the surrounding area, and other forms of gaming that are legal inCalifornia, including on and off-track wagering and the California StateLottery, as well as with non-gaming leisure activities. The availability ofsuch alternative gaming and non-gaming activities may increase in the future. 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 Indian tribes in the future.

 

Federal and California law currently permits Class IIIcasino gaming only on federally recognized tribal lands pursuant to compactsnegotiated with the State of California and approved by the U.S. Secretary ofthe Interior. Class II gaming for tribes is permitted only on federally recognizedtribal lands. There are currently 55 tribes operating 56 compacted gamingfacilities in the State of California. The closest existing competitors are theHopland Sho-ka-wah Casino, located approximately 35 miles and 40 minutes northof the Tribe’s reservation; the Konocti Vista Casino, located approximately 45miles and one hour and ten minutes northeast of the Tribe’s reservation; theThunder Valley Casino, located approximately 124 miles and two hours andforty-five minutes east of the Tribe’s reservation; and Cache Creek IndianCasino and Bingo, located approximately 95 miles and two hours and fifteenminutes east of the Tribe’s reservation. In addition, several potentialcompetitors are attempting to develop and open casinos near our Casino.

 

The greatest competition may come from the proposedGraton Rancheria casino. In April 2003, the Federated Indians of theGraton Rancheria, also known as the Coast Miwoks, announced plans to purchaseland in Sonoma County near Highway 37 and Lakeville Highway, approximately 20miles south of our gaming facility and closer to San Francisco than ourreservation. The proposed location would lie directly between our Casino andthe majority of the 7 million population base of the San Francisco Bay area.The announced plans include construction of a casino-hotel complex that will bemanaged by Station Casinos, Inc. based in Las Vegas, Nevada. The proposedfacility would house approximately 2,000 slot machines, 120 card tables andbingo, as well as a 300-room hotel, five restaurants and a theater with up to2,000 seats. As a

 

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result of environmental opposition to the developmentof such location, the Federated Indians of the Graton Rancheria announced plansto move the proposed casino-hotel complex to a site near Rohnert Park,California. The Rohnert Park City Council has approved an agreement with theFederated Indians of the Graton Rancheria to share revenues with Rohnert Parkand various community groups, approximately $200.0 million over 20 years, tooffset the impact of the proposed project.

 

In May 2008, the U.S. Department of Interiorpublished in the Federal Register a notice to take the proposed Rohnert Parksite into federal trust on behalf of the Graton Rancheria. This represents asignificant step towards the development of a casino at Rohnert Park, as do theseparate agreements negotiated between the Graton Rancheria and Sonoma Countyand Marin County, whereby the counties pledged to not challenge theland-into-trust decision and the Graton Rancheria agreed not to build anyadditional casinos in Sonoma or Marin counties. The U.S. Department of Interior’sland-into-trust decision has, however, been challenged by citizens groupopposed to a casino in Rohnert Park. The federal district court dismissed thecitizens group’s lawsuit on April 21, 2009, but the group has appealed thedecision to the Ninth Circuit Court of Appeals. The Department of the Interior has agreed to withhold action on takingthe land into trust pending the appeal. A spokesperson for the citizen’s group has also stated publicly that thegroup will challenge the adequacy of the environmental impact statement for theproposed Graton casino, which was issued in February 2009.  Another obstacle facing the proposed GratonRancheria casino is the ability to obtain financing for the project.  In addition, the Graton Rancheria will alsoneed to enter into a tribal-state compact with the State of California beforeit can operate Class III gaming at the Rohnert Park site.

 

The Hopland Sho-ka-wah Casino is located several mileseast of Highway 101 on Route 175. The facility features a 40,000 square footcasino offering 570 slot machines and nine table games. The facility no longeroffers poker games; only pai gow and blackjack are offered.  The facility contains a Mexican foodtaqueria, a small cafe-type food and beverage area, a fine-dining steak houseand a bar. Hopland operates a small bus program but does not operate a hotel.

 

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

 

The Thunder Valley Casino opened in June 2003 andis located at the intersection of Highway 65 and Interstate 80 just outside ofSacramento, California. The Nevada-style property offers over 2,400 slotmachines and 98 table games that include blackjack, baccarat, and a variety ofpoker games including Let It Ride and Pai Gow. The facility features a salon,private dining rooms, bars and butler service. In addition, it houses a500-seat buffet and various fast food options. The facility also features anightclub.  In 2008, the Thunder ValleyCasino announced plans to build a new 650-room, 23-story hotel featuring a spa,family center and other amenities.  Thunder Valley also planned to constructa 3,000-seat performing arts center, and to expand the casino to include threenew restaurants, more gaming space and new poker room, and a parking structurecapable of holding 5,000 cars.  ThunderValley obtained financing for the expansion, which began in July 2008 butwas halted in November 2008.  In May 2009,the casino resumed work on the expansion, but the project has been scaled downto include a 15-story hotel with 300-400 rooms; a 700-seat, 10,000-square-feetmultipurpose entertainment center in place of the performing arts center; and a7-story parking structure with approximately 3,800 spaces. Thunder Valleyexpects to open the hotel in July 2010.

 

The Cache Creek Casino is located approximately 50miles west of Sacramento. The Cache Creek Casino offers over 2,400 slotmachines. The casino recently added a 28-table poker room and houses 122 tablegames including blackjack, Texas Hold’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. In 2007, Cache Creek announcedplans to add more shops and parking and expand its gaming floor, and to add a10-story hotel tower with 467 rooms, and a 62,500 square-foot convention centercapable of seating 2,300 people.  Theseexpansion plans were put on hold indefinitely in early October 2009.

 

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

 

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The Twin Pine Casino and Hotel, owned and operated bythe Middletown Rancheria of Pomo Indians, is located approximately 4 miles offHighway 29 in Napa County, approximately 34 miles from our gaming andentertainment facility. The Middletown Rancheria has recently completed anexpansion of the Twin Pine Casino and Hotel which includes a 60-room hotel,three food areas and a wine tasting room, as well as 50,000 square feet ofgaming space with approximately 520 slot machines and 12 table games.

 

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

 

The Guidiville Band hopes to have transferred to itland at the former Point Molate Naval Base in Richmond, California on which ithopes to operate a 240,000 square-foot casino with 124,000 square-feet ofgaming space, along with two hotels, a conference center, retail shops, restaurantsand two parking structures.  The projectis still in its early stages, as the land transfer has not been approved andenvironmental reviews must be completed. In January 2009, two environmental groups filed a lawsuit againstthe City of Richmond, the Guidiville Band and its financial backer anddeveloper in an effort to stop the transfer of the land.  The Guidiville Band released the draftenvironmental impact study for the proposed project in July 2009, and theBureau of Indian Affairs held a public hearing on the draft study in August 2009and took public comments on the study until September 23, 2009.

 

The Scotts Valley Band hopes to build a 225,000square-foot casino complex and five-story parking garage on a 29.87-acre sitein unincorporated Contra Costa County, near Richmond, California.  In March 2008,the Bureau of Indian Affairs announced the filing of the Final EnvironmentalImpact Statement for the proposed project. In August 2008, the Contra Costa County Superior Court struck downa municipal services agreement between the City of Richmond and the ScottsValley Band on the ground that the City failed to conduct the properenvironmental reviews before signing the agreement.

 

The Cloverdale Rancheria has announced preliminaryplans to build a 596,00 square-foot hotel/spa and casino resort some ten milesnorth of our Casino on U.S. Highway 101, and they and their financial backershave purchased approximately 79 acres for the proposed facility. Theenvironmental review process for the proposed Cloverdale Rancheria projectbegan in July 2008, and in December 2008 the U.S. Department of theInterior issued an opinion stating that if the lands were taken into trust,they would be eligible for gaming under the Indian Gaming Regulatory Act.

 

Each of these proposed projects face numerousobstacles in addition to environmental approvals, including the negotiation andapproval of a compact with the State of California, approval from the U.S.Department of the Interior to take the land on which the project would belocated into federal trust on behalf of the tribe, and, for the Guidiville andScotts Valley projects, determinations from appropriate federal agencies thatthe tribes may conduct gaming on these lands pursuant to the Indian GamingRegulatory Act.

 

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

 

In May 2007, Governor Schwarzenegger proposedthat the California State Lottery be leased to a private concessionaire toincrease its revenue and efficiency. Part of the Governor’s proposalincludes authorizing the use of instant lottery video terminals that resembleand operate like slot machines at locations including horse racing tracks andcard rooms. Approval of this proposal would require a two-thirds affirmativevote of the state legislature and could require a constitutional amendment tothe Constitution of the State of California. While it is uncertain whether orwhen this proposal will be approved, implementation of such a proposal couldadversely affect our and other Indian casinos’ competitive positions.  A proposal that would have allowed theCalifornia State Lottery to dedicate a higher percentage of its revenues toplayer winnings (with the hope of boosting lottery sales in California),securitized California State Lottery revenues, and change the amount ofCalifornia Lottery revenues dedicated to education was defeated in a statewideballot referendum in May 2009.

 

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

 

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In August 2009, afederal district court judge issued an order, in ongoing litigation regardingthe proper number of total slot machines allowed under the 1999 tribal-stategaming compacts, requiring that the State of California issue an additional10,549 slot machine licenses.  A drawingwas held on October 5, 2009, and 3,548 licenses were awarded to elevendifferent Indian tribes.  The only one ofour competitors to receive licenses in the draw was the Middletown Rancheria ofPomo Indians, which operates the Twin Pine Casino and Hotel and received 100additional licenses through the draw.  Aswith the licenses awarded to other tribes in the draw, the licenses awarded tothe Middletown Rancheria will revert back to the State if the machines are notput into operation within one year of the draw. The licenses could also be withdrawn if the State of California issuccessful in its appeal of the district court’s ruling to the United StatesCourt of Appeals for the Ninth Circuit.

 

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

 

Our ability to makescheduled principal and interest payments, refinance debt, and fund operations,and make planned capital expenditures, depends on the levels of our operatingcash flow and access to the capital markets. Like many companies, we rely on the capital markets to fund significant capitalexpenditure plans with long-term debt. Our ability to access the capitalmarkets and the costs and terms of available financing depend on many factors,including changes in our credit ratings, changes in the federal or stateregulatory environment, and general economic and market conditions.  The recent financial distress experienced atmajor financial institutions has caused significant disruption in the capitalmarkets, particularly in the commercial paper market where short-term rateshave increased significantly and access generally has contracted.  Long-term debt rates on bond issuances alsohave increased significantly since mid-September and the volume of bondissuances has decreased.  The longer suchconditions persist, the more significant the implications become for us,including the potential that adequate capital is not available to fund ourcapital expansion plans and other planned capital expenditures.  If we are unable, in part or in whole, to fundour planned capital expenditures or obtain financing to refinance our debt,there could be a material adverse effect on our results of operations, cashflows and financial condition.

 

**ITEM6.               EXHIBITS**

 

 The Exhibit Indexfiled herewith is incorporated herein by reference.

 

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**SIGNATURE**

 

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

 
| Dated: November 13, 2009 |   | RIVER ROCK ENTERTAINMENT AUTHORITY |
|-------------------------------|--------|------------------------------------|
|                          |   | (Registrant)                       |
|                          |   |                               |   |
|                          |   | By:                                | /s/ Scott Garawitz |
|                          |   |                               | Scott Garawitz, |
|                          |   |                               | Chief  Executive Officer |

 

**EXHIBITINDEX**

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

 

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*               This certification is being 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.

 

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