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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D. C. 20549**

 

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**FORM 10-Q/A**

 

**Amendment No. 1**

** **
| **(Mark  One)**                                        | ** ** | ** **                                                                                                |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|
| ** **                                             | ** ** | ** **                                                                                                |
| **x**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934.**  |
| ** **                                             |
| **For  the quarterly period ended June 30, 2008** |
| ** **                                             |
| **OR**                                                 |
| ** **                                             | ** ** | ** **                                                                                                |
| **o**                                                  | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934.** |

 

**Forthe transition period from        to       **

 

**CommissionFile Number: 333-115186**

 

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exact name ofregistrant as specified in its charter)

 

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

 

**3250Highway 128 East**

**Geyserville,California 95441**

**(707)857-2777**

(Address,including zip code, and telephone number,

including areacode, of registrant’s principal executive offices)

 

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

Yes  x  No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.

 

| Large Accelerated  Filer o |   | Accelerated  Filer o |   | Non-Accelerated  filer x |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicated by checkmade whether the registrant is a shell company (as defined in Rule 126-2of the Exchange Act). Yes   o  No    x

 

 

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

 

**INDEX TO FORM 10-Q/A**

 
| EXPLANATORY  NOTE                                                                                   |
|-----------------------------------------------------------------------------------------------------|
| PART I  — FINANCIAL INFORMATION                                                           |
| ITEM 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
| PART II  — OTHER INFORMATION                                                              |
| ITEM 1-A. Risk Factors                                                                              |
| ITEM 6.  Exhibits                                                                                   |
| SIGNATURE                                                                                           |
| INDEX TO EXHIBITS                                                                                   |
| Certification of Shawn S. Smyth Pursuant to Rule 13a-14(a)                                     |
| Certification of Joseph R. Callahan Pursuant to Rule 13a-14(a)                                 |
| Certifications of Shawn S. Smyth and Joseph R. Callahan pursuant to  Section 906               |

 

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**EXPLANATORY NOTE**

 

Weare filing this Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”)to amend our Form 10-Q for the three months ended June 30, 2008. Weoriginally filed our Form 10-Q for the three months ended June 30,2008 (the “Original Filing”) on August 14, 2008.  We are filing this Form 10-Q/A tocorrect typographical errors regarding the win per slot machine per day for thethree months ended June 30, 2008 and the six months ended June 30,2008, set forth on pages 18 and 19 of the Original Filing in “Part 1 —Item 2 — Management’s Discussion and Analysis of Financial Conditionand Results of Operations.”  The win perslot machine per day was $193 for the three months ended June 30, 2008 andthe six months ended June 30, 2008, respectively, not $174 per slotmachine per day, as had been previously reported.  We are also filing this Form 10-Q/A tosupplement information contained in “Part 2 — Item 1-A —Risk Factors.”

 

This Form 10-Q/A should be read in conjunctionwith the Original Filing, continues to speak as of the date of the OriginalFiling, and does not modify or update disclosures in the Original Filing exceptas noted above. Accordingly, this Form 10-Q/A does not reflect eventsoccurring after the filing of the Original Filing or modify or update anyrelated disclosures. In particular, any forward-looking statements included inthis Form 10-Q/A represent management’s view as of the filing date of theOriginal Filing.

 

**CAUTIONARYSTATEMENT**

 

*Exceptfor the historical financial information contained herein, the mattersdiscussed in this report on Form 10-Q/A(as well as documents incorporatedherein by reference) may be considered forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. Such forward-lookingstatements are based upon current expectations that involve risks anduncertainties and include declarations regarding the intent, belief or currentexpectations of us and our management and may be signified by the words “believes,”“anticipates”, “plan,” “expects,” “intends” and similar expressions. Our actualresults and the timing of certain events may differ significantly from theresults discussed in the forward-looking statements. All forward-lookingstatements in this document are based on information available to us as of thedate hereof, and we assume no obligation to update any such forward-lookingstatements, whether as a result of new information, future events, orotherwise. All discussion in this report should be read in conjunction with ourfinancial statements and the accompanying notes contained in this report.*

 

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

 

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

 

**PART I. FINANCIAL INFORMATION**

 

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

 

**Overview**

 

We are anunincorporated governmental instrumentality of the Tribe that owns and operatesthe Casino.  We offer Class III slot and video poker gaming machines,house banked table games (including Blackjack, Three card poker, Mini-baccaratand Pai Gow poker), Poker, featuring Texas Hold’em, comprehensive food andbeverage offerings and goods for sale in our gift shop.

 

**CriticalAccounting Policies and Estimates**

 

We have identifiedcertain critical accounting policies and estimates that affect our moresignificant judgments and estimates used in the preparation of our financialstatements. The preparation of our financial statements, in conformity withGAAP, requires that we make estimates and judgments that affect the reportedamounts of assets and liabilities, revenues and expenses, and related disclosuresof contingent assets and liabilities. On an ongoing basis, we evaluate thoseestimates, including those related to asset impairment, accruals for ourpromotional slot club, compensation and related benefits, revenue recognition,allowance for doubtful accounts, contingencies and litigation. These estimatesare based on the information that is currently available to us and on variousother assumptions that we believe to be reasonable under the circumstances.Actual results could vary from those estimates under different assumptions orconditions. We believe that the following critical accounting policies affectsignificant judgments and estimates used in the preparation of our financialstatements:

 

·Casino Revenues – In accordance with industry practice, casino revenue isrecognized as the net win from gaming activities, which is the differencebetween gaming wins and losses. Casino revenues are net of accruals foranticipated payouts of progressive slot jackpots.

 

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

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

 

·We evaluate our property and equipment for impairment in accordance with theFinancial Accounting Standards Board’s Statement of Financial AccountingStandards No. 144, “*Accounting for theImpairment or Disposal of Long-Lived Assets*.”  When events orcircumstances indicate that an asset should be reviewed for impairment, wecompare the undiscounted cash flow derived from the asset or asset group to thenet carrying value. If an impairment is indicated, the impairment loss ismeasured by the amount in which the carrying value of the asset or asset groupexceeds its fair value. Fair value is measured by comparable sales, solicitedoffers or discounted cash flow models.

 

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

 

·Contingencies – We assess our exposure to loss contingencies, including legalmatters, and provide for an exposure if it is judged to be probable andestimable. If the actual loss from a contingency differs from management’sestimate, operating results could be materially impacted. As of June 30,2008, we have determined that no accruals for claims and legal actions arerequired. If circumstances surrounding claims and legal actions change, the additionof accruals for such items in future periods may be required, which accrualsmay be material.

 

·Fair Value Measurements - The Authority adopted the required provisions of SFASNo. 157 on January 1, 2008. SFAS No. 157 clarifies the principlethat fair value should be based on the assumptions market participants woulduse when pricing an asset or liability and establishes a fair value hierarchythat prioritizes the information used to develop those assumptions. There wasno material impact to the condensed financial statements upon the adoption ofSFAS No. 157.

 

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

 

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

 

AccountingStandards – There are differences between financial statements prepared inaccordance with GASB pronouncements and those prepared in accordance with FASBpronouncements. The statements of revenues, expenses and changes in funddeficit are a combined statement under GASB pronouncements. FASB pronouncementsallow a statement of income or operations and a statement of owners’ orshareholders’ (deficit) equity, which is where distributions to owners would bepresented under FASB pronouncements. The amount shown on our statements ofrevenues, expenses and changes in fund deficit as income before distributionsto the Tribe, would not be different if we followed all FASB pronouncements todetermine net income, and would be the most comparable amount to net incomecomputed under FASB pronouncements. We are an unincorporated instrumentalitycreated by tribal law and accounted for as a separate fund of the Tribe. As such, there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements. The most comparable measure of owners’(deficit) equity presented on our balance sheet would be Fund Deficit.

 

**Resultsof Operations**

 

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

 

*Netrevenues*. Net revenues for the three months ended June 30,2008 decreased by $1.1 million to $33.7 million, from $34.8 million, for thethree months ended June 30, 2007.  The decrease in net revenues isattributable to the industry-wide slow down in the gaming and entertainmentindustry during the second quarter of 2008.  Approximately 97.1% of ournet revenues, net of promotional allowances, were from our gaming activities inthe second quarter of 2008. We generated $27.6 million, or 85.2% of our netrevenues, from gaming devices, net of respective promotional allowances of $3.3million, and $3.6 million, or 11.4% of our net revenues, from table games, netof promotional allowances of $0.1 million for the three months ended June 30,2008, compared to $28.9 million from gaming devices, or 86.0% of our netrevenues, net of respective promotional allowances of $3.4 million, and $3.5million, or 10.8% of net revenues, from table games, net of respectivepromotional allowances of $80,034 for three months ended June 30, 2007.Our win 

 

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per slot machineper day was $193 in the three months ended June 30, 2008, which decreasedby $20 from $213 in the three months ended June 30, 2007.  Thedecrease in net win per machine per day is attributable to the general marketslow down mentioned above.

 

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

 

Additionalpromotional allowances include Players Club points of $2.5 million for thethree months ended June 30, 2008 and $4.6 million for the six monthsended June 30, 2008.

 

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

 

*Operatingexpenses*. Operating expenses for the three months ended June 30,2008 were $22.7 million, or 67.6% of net revenues, compared to $21.6 million,or 62.2% of net revenues, for the three months ended June 30, 2007. Theincrease in operating expenses is primarily due to marketing initiativespartially offset by management programs that were initiated to reduceunnecessary expenses to adjust for the slow down in the general market.

 

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

 

Food, beverage andretail expense for the three months ended June 30, 2008 was $2.5 million,or 182.6%, food, beverage and retail revenue, net of promotional allowances,compared to $1.4 million, or 204.2%, of food, beverage and retail revenue, netof promotional allowances for the three months ended June 30, 2007. Ourfood, beverage and retail expense ratio is significantly higher than theindustry average because we have utilized these amenities as an opportunity tobuild customer loyalty rather than as a source of income.  The decrease infood, beverage and retail expenses as percentage of food, beverage and retailrevenues, net of promotional allowances, for the three months ended June 30,2008, results from rising food costs and the start of alcohol sales.

 

Selling, generaland administrative expense for the three months ended June 30, 2008increased by $0.7 million to $11.8 million, or 35% of net revenues, from $11.1million, or 31.9% of net revenues, for the three months ended June 30, 2007.

 

Depreciationexpense for three months ended June 30, 2008 and 2007 was $2.4 million and$3.0 million, respectively.  Depreciation expense was computed using thestraight-line method over the useful life of property, plant and equipment. Nowthat the casino is over five years old, much of its original equipment has beenfully depreciated.

 

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

 

The Compactrequires us to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theAuthority. Revenue sharing trust fund fees assessed were $0.3 million for thethree months ended June 30, 2008 and 2007, respectively.

 

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

 

*Otherexpense, net.* Other expense, net for the three months ended June 30,2008 was $5.0 million, or 14.1% of net revenues, compared to $4.9 million or16.1% of net revenues, for the three months ended June 30, 2007. Other expense, net included $5.2 million of interest expense for the threemonths ended June 30, 2008, compared to $5.2 million of interest expensefor the three months ended June 30, 2007.  No interest costs werecapitalized in 2008 or 2007.

 

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

 

*Distributionsto the Tribe*. Distributions to the Tribe for the three monthsended June 30, 2008 increased by $1.1 million to $4.2 million, compared to$3.1 million, for the three months ended June 30, 2007. In May 2008,the Authority concluded that it had not previously distributed to the Tribe themaximum allowable amount of service payments that are permitted by theIndenture (the “Service Payments” and each a “Service Payment”). Under theIndenture, the Authority was restricted from being able to make its firstService Payment to the Tribe until the 90th day following thecompletion of the Expansion Project (as defined in the Indenture).  In 

 

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April 2005,the Authority made it first Service Payment to the Tribe on the 90thday following the completion of the Expansion Project in the amount of$500,000.  Service Payments are subject to an annual escalation of 4%under the Indenture.  The Authority had applied the 4% escalator oneach of the anniversaries of the first Service Payment. However, the Indenturedefines Service Payments as “payments to the Tribe by the Authority in anamount of up to $500,000 per month, commencing with the first full month afterthe date of issuance of the Senior Notes, which amount shall increase by 4% perannum on each anniversary of the first date of such month...”  The Authorityhas concluded that the escalator should have been applied on the firstanniversary of the issuance of the Senior Notes and not on the firstanniversary of the completion of the Expansion Project and that, although theAuthority was restricted from making the Service Payment by other covenants ofthe Indenture, the 4% escalator could have been applied to increase theamount of the first permitted Service Payment.  By applying the escalatoron each anniversary of the issuance of the Senior Notes, the first permittedService Payment could have been in the amount of $520,000, not $500,000. Further, since the Indenture permits the Authority to make Service Payments tothe Tribe that it could have, but did not, previously make, theAuthority has determined to apply the escalator as permitted by theIndenture and calculate the amount that could have been paid to the Tribe butwas not by failing to apply the escalator on earliestdates permitted by the Indenture. On May 7, 2008, the Authorityissued payment to the Tribe in the amount of $1,008,901 as the amount ofService Payments that could have been paid by applying the escalator on theearliest dates permitted by the Indenture.  Further, the Authority hasrecalculated the current amount of the permitted monthly Service Payment to be$584,929.28.  In December 2008, the Authority intends to again applythe 4% escalator and increase the monthly Service Payments to $608,326.45.

 

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

 

*Netrevenues*. Net revenues for the six months ended June 30,2008 decreased by $2.1 million to $66.8 million, from $68.9 million, for thesix months ended June 30, 2007. The decrease in net revenues isattributable to the industry-wide slow down in the gaming and entertainmentindustry during the three months ended June 30, 2008.  Approximately$54.9 million, or 82.0% of our net revenues, were from gaming devices, net ofrespective promotional allowances of $6.9 million, and $3.6 million, or11.85% of our net revenues, were from table games, net of promotional allowanceof $0.1 million, for the six months ended June 30, 2008, compared to $57.5million from gaming devices, or 86.3% of our net revenues, net of respectivepromotional allowances of $6.6 million, and $7.6 million from table games, netof respective promotional allowances of $0.1 million, or 11.1% of our netrevenues, for the six months ended June 30, 2007. Our win per slot machineper day was $193 in the first six months of 2008, which increased by $6 from$187, in the first six months of 2007. We generated $3.1 million, net of promotional allowance of $1.0 million,for the six months ended June 30, 2008 and $2.5 million, net ofpromotional allowances of $1.0 million, in food, beverage and retail sales forthe six months ended June 30, 2007.  The retail value of our food andbeverage provided to customers without charge is included in gross revenues andthen deducted as promotional allowances. Revenues from food, beverage andretail sales increased for the six months ended June 30, 2008 as comparedto June 30, 2007, due largely to strategic price increases and increasedadvertising and promotional items offered.

 

*Promotionalallowances*. Promotional allowances for the six months ended June 30,2008 were $7.0 million, or 10.4% of net revenues, compared to $6.6 million, or9.6% of net revenues for the six months ended June 30, 2007. The increasein promotional allowances is attributable to the expanded use ofe-coupons.  E-coupons cannot be cashed out and requires the patron to usetheir Players Club card.  The increase in e-coupons can be attributed tothe shift of promotional incentives from cash to e-coupons.

 

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

 

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

 

Food, beverage andretail expense for the six months ended June 30, 2008 was $4.2 million, or133.7% of food, beverage and retail revenue, net of promotional allowances,compared to $2.9 million, or 148.4% of food, beverage and retail revenue, netof promotional allowances, for the six months ended June 30, 2008. Ourfood, beverage and retail expense ratio is significantly higher than theindustry average because we have utilized these amenities as an opportunity tobuild customer loyalty rather than as a source of income. The increase in food,beverage, and retail costs is attributable to an increase in sales and a newliquor license.

 

Selling, generaland administrative expense for the six months ended June 30, 2008increased by $1.3 million to $22.2 million, or 33.2% of net revenues, from$20.9 million, or 9.7% of net revenues, for six months ended June 30,2007.  The increase in selling, general and administrative expense isattributable to increases in advertising and promotional costs.

 

Depreciationexpense for the six months ended June 30, 2008 and 2007 was $5.4 millionand $5.9 million, respectively.  Depreciation expense was computed usingthe straight-line method over the useful life of property, plant and equipment.The decrease in depreciation expense is due to the full depreciation of certainassets purchased in early 2003.

 

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

 

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

 

The Compactrequires us to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $0.7 million for the sixmonths ended June 30, 2008 and 2007, respectively.

 

*Incomefrom operations.* Income from operations for the six monthsended June 30, 2008 was $22.6 million, or 33.9% of net revenues, comparedto $15.4 million, or 22.5% of net revenues, for the six months ended June 30,2007.  The increase in income from operations is attributable to theelimination of the Credit Enhancement Fee for 2008.

 

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

 

*Incomebefore distributions to the Tribe*. Income beforedistributions to the Tribe for the six months ended June 30, 2008increased by $7.2 million to $12.9 million, or 19.4% of net revenues, from $5.8million, or 8.4% of net revenues, for the six months ended June 30, 2007.

 

*Distributionsto the Tribe*. Distributions to the Tribe for the six monthsended June 30, 2008 increased by $1.2 million to $7.4 million, compared to$6.2 million, for the six months ended June 30, 2007. The increase is dueto annual increases in the Service Payments permitted by the Indenture and aone-time catch up distribution to the Tribe of $1.0 million of ServicePayments that could have been previously distributed to the Tribe.

 

**Liquidityand Capital Resources**

 

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

 

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

 

Our capitalexpenditures for the six months ended June 30, 2008 and 2007 were $13.5million and $2.0 million, respectively.  This increase is attributable toa May 2008 payment of $9.6 million to reimburse costs paid by theTribe for 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.  Other capital expenditures included the new accounting system,new slot machine purchases and the costs associated with the establishment ofour new Geyserville offices.

 

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

 

Restricted cashconsists of net proceeds from the Senior Notes and investment earnings thereonset aside in construction financing accounts for construction costs for thethree parking structures, related infrastructure improvements and constructioncontingencies. It also includes funds that are reserved for additionalconstruction contingencies and the funds for the development of the DuganProperty. Our restricted cash is held in escrow accounts that can only be usedfor authorized construction disbursements until the related projects arecompleted.

 

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

 

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

 

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

 

We believe theexisting cash balances, cash from operations, as well as permitteddisbursements from our restricted cash escrow accounts will provide adequatefunds for our working capital needs and debt service requirements for theforeseeable future.  We anticipate that funding for future capital expendituresand expansions will derive from additional third party financing. However, our ability to fund our operations, make capital expenditures, makescheduled debt payments and refinance our indebtedness depends on our futureoperating performance and cash flow, which, in turn, are subject to prevailingeconomic conditions and to financial, business and other factors, some of whichare beyond our control. Additionally, the Indenture limits our ability to incuradditional indebtedness.

 

Last year we andthe Tribe announced plans to build a destination resort, which plans are morefully described in our Form 8-K dated June 28, 2007, and exhibitslisted therein.  The proposed project includes the construction of acasino, hotel and spa, several food and beverage venues, administrativefacilities, a garden and terrace plaza, a retail area, and back of housefacilities. The proposed project includes three above-ground levels and a hoteltower (up to eight levels) and two below-ground levels.  We do not currentlyhave adequate liquidity or cash flow to finance the project as proposed. We will consider various sources of liquidity to finance the first phase of theproposed project.

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into the MOAthat, among other things, settled several long-standing legal disputes betweenSonoma County and the Tribe, and will provide a binding framework for resolvingfuture disputes.  The MOA enables the Tribe to move forward with itsproposed resort development project, including a new and expanded “Tuscan-themed”casino and hotel with luxury resort amenities.  A copy of the MOA wasfiled as an exhibit to the Authority’s Form 10-K for the fiscal yearending December 31, 2007.  Under the MOA, the County agreed to dropits 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 hasagreed to restrict the sale 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 midnightexcept for Friday and Saturday nights and the nights before holidays. The Tribehas also agreed not to serve liquor on the Casino floor, although patrons maybring drinks 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.  In addition, the MOA commits theCounty Sheriff’s Department and Fire Marshall to provide public safety and fireservices to the Casino and the Tribe’s future gaming projects on the reservationand provides detailed agreements on off-reservation impact mitigationmeasures.  Pursuant to the MOA, the County withdrew its opposition to theTribe’s application to take into trust an approximately 18-acre parcel of landadjacent to the Tribe’s reservation (the “Dugan Property”).  Previously,the trust application had been approved by the Department of the Interior,which approval had been opposed by the County.  Pursuant to the MOA, theTribe has agreed to pay the County $75 million in mitigation fees over the next12 years, subject to adjustment under certain circumstances described in theMOA, to offset the potential losses and impacts to the County resulting fromthe Tribe’s various ongoing projects and to support the services being providedby the County.  An initial payment of $3.0 million has been made, with anadditional $4.5 million due on September 30, 2008 and $2.8 million on June 30,2009.  In addition, the Tribe has agreed to pay a fee in lieu of theCounty’s Transient Occupancy Tax in the amount of 9% of the rental chargescollected on occupied hotel rooms.  Such fees are required to be paidquarterly until five years after the later to occur of the termination of theMOA, as may be extended, or the Tribe’s Compact with the State.

 

**ContractualObligations as of June 30, 2008**

 

Contractualobligations and commitment amounts as of June 30, 2008 have not materiallychanged from the prior quarter.

 

**Regulationand Taxes**

 

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

 

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

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”).  The MOA commits the County Sheriff’sDepartment and Fire Marshall to provide public safety and fire services to the 

 

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Casino and theTribe’s future gaming projects on the reservation and provides detailedagreements on off-reservation impact mitigation measures.  Pursuant to theMOA, the County withdrew its opposition to the Tribe’s application to take intotrust an approximately 18-acre parcel of land adjacent to the Tribe’sreservation (the “Dugan Property”).  Previously, the trust application hadbeen approved by the Department of the Interior, which approval had beenopposed by the County.  Pursuant to the MOA, the Tribe has agreed to paythe County $75 million in mitigation fees over the next 12 years, subject toadjustment under certain circumstances described in the MOA, to offset thepotential losses and impacts to the County resulting from the Tribe’s variousongoing projects and to support the services being provided by theCounty.  An initial payment of $3.0 million has been made, with anadditional $4.5 million due on September 30, 2008 and $2.8 million on June 30,2009.  In addition, the Tribe has agreed to pay a fee in lieu of theCounty’s Transient Occupancy Tax in the amount of 9% of the rental chargescollected on occupied hotel rooms.  Such fees are required to be paidquarterly until five years after the later to occur of the termination of theMOA, as may be extended, or the Tribe’s Compact with the State.

 

Since we are anunincorporated governmental instrumentality of the Tribe located on reservationland held in trust by the United States of America, we are not subject tofederal or state income taxes. Various efforts have been made in Congress over thepast several years to enact legislation that would subject the income of tribalgovernmental business entities, such as us, to federal income tax. Although nosuch legislation has been enacted, similar legislation could be passed in thefuture. It is not possible to determine with certainty the likelihood ofpossible changes in tax law or in the administration of such law. Such changes,if adopted, could have a material adverse effect on our operating results andcash flow from operations.

 

**Impactof Inflation**

 

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

 

**Seasonality**

 

We anticipate thatactivity at our gaming facility may be modestly seasonal with stronger resultsexpected during the summer due in part to the relatively higher levels oftourism during such times of the year. In addition, our operations may beimpacted by adverse weather conditions and fluctuations in the tourismbusiness. Accordingly, our results may fluctuate from quarter to quarter andthe results of one quarter may not be indicative of results expected fromfuture quarters.

** **

**PART II.         OTHERINFORMATION**

 

**ITEM1A.             RISK FACTORS**

 

There have been nomaterial changes from the risk factors previously disclosed in our Form 10-Kother than the following:

 

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

 

The gamingindustry is very competitive. We face or will face competition from existingand proposed California Indian gaming facilities in the surrounding area, andelsewhere in California, and with casino gaming in Nevada, including gamingfacilities that could be located closer to the San Francisco Bay area. We alsocompete with card rooms located in the surrounding area, and other forms ofgaming that are legal in California, including on and off-track wagering andthe California State Lottery, as well as with non-gaming leisureactivities.  The availability of such alternative gaming and non-gamingactivities may increase in the future. Many of our competitors havesubstantially greater resources and name recognition than our Casino. Inaddition, we may also face competition in our market from new facilities that maybe built by other Indian tribes in the future.

 

Federal andCalifornia law currently permits Class III casino gaming only on federallyrecognized tribal lands pursuant to compacts negotiated with the State ofCalifornia and approved by the U.S. Secretary of the Interior. Class IIgaming for tribes is permitted only on federally recognized tribal lands. Thereare currently 55 tribes operating 56 compacted gaming facilities in the Stateof California. The closest existing competitors are the Hopland Sho-ka-wahCasino, located approximately 35 miles north of the Tribe’s reservation, theKonocti Vista Casino, located approximately 45 miles northeast of the Tribe’sreservation, the Thunder Valley Casino, located approximately 124 miles east ofthe Tribe’s reservation, and Cache Creek Indian Casino and Bingo, locatedapproximately 95 miles east of the Tribe’s reservation.  In addition, several potential competitorsare attempting to develop and open casinos near our Casino.

 

The greatestcompetition may also come from the proposed Graton Rancheria casino.  In April 2003,the Federated Indians of the Graton Rancheria, also known as the Coast Miwoks,announced plans to purchase land in Sonoma County near Highway 37 and LakevilleHighway, approximately 20 miles south of our gaming facility and closer to SanFrancisco than our reservation. The proposed location would lie directlybetween our Casino and the majority of the 7 million population base of the SanFrancisco Bay area.  The announced plans include construction of acasino-hotel complex that will be managed by Station Casinos, Inc. basedin Las Vegas, Nevada.  The proposed facility will house approximately2,000 slot machines, 120 card tables and bingo, as well as a 300-room hotel,five restaurants and a theater with up to 2,000 seats.  As a result ofenvironmental opposition to the development of such location, the FederatedIndians of the Graton Rancheria announced plans to move the proposedcasino-hotel complex to a site near 

 

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Rohnert Park,California. The Rohnert Park City Council has approved an agreement with theFederated Indians of the Graton Rancheria to share with Rohnert Park andvarious community groups, approximately $200.0 million over 20 years, tooffset the impact of the proposed project.  In May 2008, the U.S.Department of Interior published in the Federal Register a notice to take theproposed Rohnert Park site into federal trust on behalf of the GratonRancheria.  This represents a significant step towards the development ofa casino at Rohnert Park, as do the separate agreements negotiated between theGraton Rancheria and Sonoma County and Marin County, whereby the countiespledged to not challenge the land-into-trust decision and the Graton Rancheriaagreed not to build any additional casinos in Sonoma or Marin counties. The U.S. Department of Interior’s land-into-trust decision has, however, beenchallenged by citizens groups opposed to a casino in Rohnert Park.  Underestablished policy, the Department will not actually take the land into trust –a prerequisite for gaming to occur there – until the litigation is resolved.

 

The HoplandSho-ka-wah Casino is located several miles east of Highway 101 on Route175.  The facility features a 40,000 square foot casino offering 550 slotmachines, 6 table games and a small 3 table poker room.  The facilitycontains a small cafe-type food and beverage area, a bar and a fine-diningsteak house.  Entertainment is provided occasionally, which includesmusical acts and boxing.  Hopland operates a small bus program; but doesnot operate a hotel.

 

East of theSho-ka-wah Casino is the Konocti Casino in Lakeport, California.  Lakeportis located approximately 37 miles from Cloverdale with access off Highway20.  The casino houses 660 slot machinesand 8 table games.  The facility also offers an 80-room hotel and marinawith small pool as well as a 74-space recreational vehicle park.  The foodand beverage program includes a small restaurant, buffet and a new full-servicerestaurant serving liquor.

 

The Thunder ValleyCasino opened in June 2003 and is located at the intersection of Highway65 and Interstate 80 just outside of Sacramento, California.  TheNevada-style property offers more than 2,700 slot machines and some 100 tablegames that include blackjack, baccarat, and a variety of poker games includingLet It Ride and Pai Gow.  The facility features a salon, private diningrooms, bars and butler service.  In addition, it houses a 500-seat buffetand various fast food options, including Fat Burger, Panda Express andStarbucks, and fine dining options such as Austin’s Steakhouse.  Thefacility also features a nightclub and live entertainment is offered every twoweeks.  The Thunder Valley Casino recently announced that it plans toconstruct a new 650-room, 23-story hotel and 3,000-seat performing arts center,and to expand the casino to include three new restaurants, more gaming spaceand new poker room, a parking structure capable of holding 5,000 cars, and aspa and has obtained financing for such expansion.

 

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

 

The Lytton Band ofPomo Indians currently operates a 70,000 square-foot casino with 1,050 Class IIelectronic bingo machines on the 9-acre site of a card room in San Pablo, nearOakland, California, on land that was placed in trust for the tribe throughcongressional legislation.  The Lytton Band signed a compact with GovernorArnold Schwarzenegger for operating Class III casino gaming on the SanPablo site, but the state legislature withheld its approval.  In May 2007,legislation was introduced in the U.S. Senate, which has the support of theLytton Band that would require the Lytton Band to forego any Class IIImachines at the San Pablo site and instead limit itself to operating itsexisting Class II machines.  This legislation was passed by theSenate in November 2007 and referred to the House Committee on NaturalResources of the U.S. House of Representatives, but no further action has beentaken.

 

The Twin Pine Casino,owned and operated by the Middletown Rancheria of Pomo Indians, is locatedapproximately 4 miles off of Highway 29 in Napa County, approximately 34 milesfrom our gaming and entertainment facility. The Twin Pine Casino currently offers 12,000 square feet of gamingspace, with 438 slot machines and 8 table games including blackjack and poker,and houses a café.  The MiddletownRancheria has announced plans to add a 60-room hotel and expand the facility toinclude 50,000 square feet of gaming space with approximately 700 slot machinesand 20 table games, three food areas, and a wine tasting room.

 

There are a numberof other Indian tribes, including the Scotts Valley Band of Pomo Indians andthe Guidiville Band of Pomo Indians, that have announced preliminary plans todevelop gaming projects in the San Francisco Bay area.  The GuidivilleBand hopes to have transferred to it land at the former Point Molate Naval Basein Richmond, California on which it hopes to operate a casino along with a 1,100-roomhotel, theater, convention center, and retail shops, but the project is stillin its early stages, as the land transfer has not been approved andenvironmental reviews must be completed. The Guidiville Band must also obtainapproval from the federal government to take the land into trust, obtain anopinion from the federal government that the land is eligible for gaming, andnegotiate a compact with the State of California.

 

The CloverdaleRancheria has announced preliminary plans to build a 596,00 square-foothotel/spa and casino resort some ten miles north of our Casino on U.S. Highway101, and they and their financial backers have purchased approximately 79 acresfor the proposed facility.  The environmental review process for theproposed Cloverdale Rancheria project began in July 2008.

 

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

 

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

 

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

 

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

 

These and otherinitiatives that might be proposed in various locations could adversely affectour business of our gaming and entertainment facility.

 

**ITEM 6. EXHIBITS**

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

 

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**SIGNATURE**

 

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

 
| Dated: August 26,  2008 | RIVER ROCK  ENTERTAINMENT AUTHORITY   (Registrant) |
|------------------------------|---------------------------------------------------------|
|                         |                                                    |   |
|                         | By:                                                     | /s/ SHAWN S.  SMYTH |
|                         |                                                    | Shawn S. Smyth,  Chief ExecutiveOfficer |
|                         |                                                    |   |
|                         |                                                    |   |
|                         | By:                                                     | /s/ JOSEPH R.  CALLAHAN |
|                         |                                                    | Joseph R.  Callahan,  Chief Financial Officer |

 

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**EXHIBIT INDEX**

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

 

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*               This certificationis being furnished solely to accompany the Original Filing and this Form 10-Q/Apursuant to 18 U.S.C. Section 1350, and is not being filed for purposes ofSection 18 of the Exchange Act and is not to be incorporated by referenceinto any filing of River Rock Entertainment Authority whether made before orafter the date hereof, regardless of any general incorporation language in suchfiling.

 

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