**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C.  20549**

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**FORM10-Q**

| **(Mark One)**                                          | ** **                                                                                                    |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
| **x**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**  |
|                                                    |
| **For the  quarterly period ended March 31, 2007** |
| ** **                                              |
| **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 of registrant as specified in its charter)

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

 

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

Yes x       No o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes o   Large Accelerated - Filer o   Accelerated - Filer   x Non Accelerated Filer

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

Yes o       No x

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEXTO FORM 10-Q**
| Item          | ** ** | **Description**                                                                                                      | ** ** |
|---------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
|          |       |                                                                                                                 |       |   |
|          | ** ** | **PART  I — FINANCIAL INFORMATION**                                                                             | 4          |   |
|          |       |                                                                                                                 |       |   |
| 1.            |       | Condensed Financial Statements (unaudited)                                                                           | 4          |   |
|          |       | Condensed  Balance Sheets-  March 31, 2007 and December 31, 2006                                                     | 4          |   |
|          |       | Condensed Statements of Revenues, Expenses and Changes  in Fund Deficit-  Three-Months ended March 31, 2007 and 2006 | 5          |   |
|          |       | Condensed Statements of Cash Flows-  Three-Months ended March 31, 2007 and 2006                                      | 6          |   |
|          |       | Notes to unaudited Condensed Financial Statements                                                                    | 8          |   |
| 2.            |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                          | 15         |   |
| 3.            |       | Quantitative and Qualitative Disclosures About Market  Risk                                                          | 19         |   |
| 4.            |       | Controls and Procedures                                                                                              | 19         |   |
|          |       |                                                                                                                 |       |   |
|          | ** ** | **PART  II — OTHER INFORMATION**                                                                                | 19         |   |
|          |       |                                                                                                                 |       |   |
| 1.            |       | Legal  Proceedings                                                                                                   | 19         |   |
| 1A.           |       | Risk Factors                                                                                                         | 20         |   |
| 5.            |       | Other Information                                                                                                    |       |   |
| 6.            |       | Exhibits and Reports on Form 8-K                                                                                     | 20         |   |
|          |       |                                                                                                                 |       |   |
| Signatures    | 21         |                                                                                                                 |
|          |       |                                                                                                                 |       |   |
| Exhibit Index | 22         |                                                                                                                 |
|               |            |                                                                                                                      |            |  |  |  |

 

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**CAUTIONARYSTATEMENT**

*Exceptfor the historical financial information contained herein, the mattersdiscussed in this report on Form 10-Q (as well as documents incorporated hereinby reference) may be considered forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe 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,” “plans,” “expects,” “intends” and similar expressions. Ouractual results and the timing of certain events may differ significantly fromthe results 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-looking statements,whether as a result of new information, future events, or otherwise. Alldiscussion in this report should be read in conjunction with our financialstatements and the accompanying notes contained in this report.*

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

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

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**PART I.FINANCIAL INFORMATION**

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

**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED BALANCE SHEETS**

**(Unaudited)**
| **ASSETS**                                            | ** ** | **March 31, 2007** | ** **  | **December 31, 2006** | ** ** |
|-------------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
| CURRENT ASSETS:                                       |       |                         |        |                            |       |
| Cash and cash  equivalents                            |       | $                            | 33,176,276  |                            | $          | 32,549,001 |   |
| Restricted  cash-current                              |       | 466,517                      |        | 467,997                         |       |
| Accounts  receivable                                  |       | 346,770                      |        | 203,555                         |       |
| Inventories                                           |       | 149,479                      |        | 160,601                         |       |
| Prepaid expenses  and other current assets            |       | 1,386,370                    |        | 1,396,289                       |       |
| Total current  assets                                 |       | 35,525,412                   |        | 34,777,443                      |       |
| RESTRICTED CASH - net  of current                     |       | 6,803,202                    |        | 6,780,256                       |       |
|                                                  |       |                         |        |                            |       |
| PROPERTY AND EQUIPMENT:                               |       |                         |        |                            |       |
| Buildings and  building improvements                  |       | 129,257,675                  |        | 129,245,481                     |       |
| Furniture,  fixtures and equipment                    |       | 27,679,330                   |        | 27,110,280                      |       |
|                                                  |       |                         |        |                            |       |
| Accumulated  depreciation                             |       | (35,587,886                  | )           | (32,696,126                     | )          |
| Construction in  progress                             |       | 4,433,890                    |        | 4,385,195                       |       |
|                                                  |       |                         |        |                            |       |
| Property and  equipment-net                           |       | 125,783,009                  |        | 128,044,830                     |       |
|                                                  |       |                         |        |                            |       |
| DEPOSITS AND OTHER  ASSETS                            |       | 4,718,641                    |        | 5,266,658                       |       |
|                                                  |       |                         |        |                            |       |
| TOTAL ASSETS                                          |       | $                            | 172,830,264 |                            | $          | 174,869,187 |   |
|                                                  |       |                         |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                      |       |                         |        |                            |       |
| ** **                                            |       |                         |        |                            |       |
| CURRENT LIABILITIES:                                  |       |                         |        |                            |       |
| Accounts payable:                                     |       |                         |        |                            |       |
| Trade                                                 |       | $                            | 2,210,288   |                            | $          | 2,500,226 |   |
| Construction                                          |       | 466,517                      |        | 467,997                         |       |
| Accrued liabilities                                   |       | 11,119,798                   |        | 7,094,168                       |       |
| Current maturities of  long-term debt                 |       | 377,876                      |        | 642,413                         |       |
| Total current  liabilities                            |       | 14,174,479                   |        | 10,704,804                      |       |
| LONG-TERM DEBT - net  of current maturities |       | 198,553,616                  |        | 198,500,275                     |       |
|                                                  |       |                         |        |                            |       |
| Total long-term  liabilities                          |       | 198,553,616                  |        | 198,500,275                     |       |
|                                                  |       |                         |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES                        |       |                         |        |                            |       |
|                                                  |       |                         |        |                            |       |
| FUND DEFICIT:                                         |       |                         |        |                            |       |
| Invested in capital  assets-net of related debt       |       | (73,148,483                  | )           | (71,097,858                     | )          |
| Restricted for capital  projects                      |       | 7,269,719                    |        | 7,248,253                       |       |
| Unrestricted                                          |       | 25,980,933                   |        | 29,513,713                      |       |
|                                                  |       |                         |        |                            |       |
| Total fund deficit                                    |       | (39,897,831                  | )           | (34,335,892                     | )          |
|                                                  |       |                         |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT                    |       | $                            | 172,830,264 |                            | $          | 174,869,187 |   |

 

The accompanyingnotes are an integral part of these unaudited financial 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 INFUND DEFICIT**

**(Unaudited)**
| ** **                                      | ** ** | **Three-Month**       | ** **  |
|-------------------------------------------------|------------|-----------------------|-------------|
| ** **                                      | ** ** | **Period Ended** | ** **  |
| ** **                                      | ** ** | **March 31,**    | ** **  |
| ** **                                      | ** ** | **2007**              | ** **  | **2006** | ** ** |
| REVENUES:                                       |       |                  |        |   |   |
|                                            |       |                  |        |   |   |
| Casino                                          |       | $                     | 35,459,655  |   | $ | 32,520,907 |   |
| Food, beverage  & retail                    |       | 1,715,042             |        | 1,476,386 |   |
| Other                                           |       | 159,759               |        | 152,855 |   |
|                                            |       |                  |        |   |   |
| Gross revenues                                  |       | 37,334,456            |        | 34,150,148 |   |
|                                            |       |                  |        |   |   |
| Promotional  allowances                         |       | (3,230,052            | )           | (2,525,888 | ) |
|                                            |       |                  |        |   |   |
| Net revenues                                    |       | 34,104,404            |        | 31,624,260 |   |
|                                            |       |                  |        |   |   |
| OPERATING  EXPENSES:                            |       |                  |        |   |   |
| Casino                                          |       | 5,194,744             |        | 5,039,341 |   |
| Food, beverage  & retail                    |       | 1,442,220             |        | 1,516,682 |   |
| Selling, general  and administrative            |       | 9,836,560             |        | 11,390,353 |   |
| Depreciation                                    |       | 2,928,076             |        | 2,860,533 |   |
| Credit  enhancement fee                         |       | 11,348,897            |        | 1,602,417 |   |
| Gaming  commission and surveillance expense     |       | 675,404               |        | 722,741 |   |
| Compact revenue  sharing trust fund             |       | 333,750               |        | 333,750 |   |
|                                            |       |                  |        |   |   |
| Total Operating Expenses                        |       | 31,759,651            |        | 23,465,817 |   |
|                                            |       |                  |        |   |   |
| INCOME FROM  OPERATIONS                         |       | 2,344,753             |        | 8,158,443 |   |
|                                            |       |                  |        |   |   |
| OTHER EXPENSE-Net                               |       |                  |        |   |   |
| Interest expense                                |       | (5,218,434            | )           | (5,224,632 | ) |
| Interest income                                 |       | 367,754               |        | 191,504 |   |
| Gain (Loss) on  sale of assets                  |       | 4,547                 |        | (3,384 | ) |
| Other income  (Expense) - net         |       | (559                  | )           | 13 |   |
|                                            |       |                  |        |   |   |
| Other expense-net                               |       | (4,846,692            | )           | (5,036,499 | ) |
|                                            |       |                  |        |   |   |
| INCOME (LOSS)  BEFORE DISTRIBUTIONS TO TRIBE    |       | (2,501,939            | )           | 3,121,944 |   |
|                                            |       |                  |        |   |   |
| DISTRIBUTIONS TO  TRIBE                         |       | (3,060,000            | )           | (3,000,000 | ) |
|                                            |       |                  |        |   |   |
| NET INCOME  (LOSS) AFTER DISTRIBUTIONS TO TRIBE |       | (5,561,939            | )           | 121,944 |   |
|                                            |       |                  |        |   |   |
| FUND DEFICIT-Beginning  of period               |       | (34,335,892           | )           | (40,425,054 | ) |
|                                            |       |                  |        |   |   |
| FUND DEFICIT-End  of period                     |       | $                     | (39,897,831 | ) | $ | (40,303,110 | ) |

 

The accompanyingnotes are an integral part of these unaudited financial statements.

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| ** **                                                 | ** ** | **Three-Month**       | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **Period Ended** | ** ** |
| ** **                                                 | ** ** | **March 31,**    | ** ** |
| ** **                                                 | ** ** | **2007**              | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                     |       |                  |       |   |   |
| Cash received  from gaming winnings and concessions        |       | $                     | 33,961,189 |   | $ | 31,650,571 |   |
| Cash paid for  salaries and benefits                       |       | (7,537,632            | )          | (7,478,278 | ) |
| Cash paid to  suppliers                                    |       | (9,947,052            | )          | (11,773,213 | ) |
| Cash paid for  compact revenue sharing trust fund          |       | (333,750              | )          | (333,750 | ) |
|                                                       |       |                  |       |   |   |
| Net cash  provided by operating activities                 |       | 16,142,755            |       | 12,065,330 |   |
|                                                       |       |                  |       |   |   |
| CASH FLOWS FROM CAPITAL  AND RELATED FINANCING ACTIVITIES: |       |                  |       |   |   |
| Payments of  long-term debt                                |       | (295,509              | )          | (25,826 | ) |
| Purchases of  property and equipment                       |       | (696,633              | )          | (211,234 | ) |
| Change in  restricted cash                                 |       | (21,466               | )          | 190,746 |   |
| Interest paid                                              |       | (3,697                | )          | (9,896 | ) |
| Credit  enhancement fee                                    |       | (12,131,967           | )          | (1,651,256 | ) |
| Proceeds from  sale of assets                              |       | 33,445                |       | — |   |
| Other                                                      |       | 292,593               |       | 70,117 |   |
|                                                       |       |                  |       |   |   |
| Net cash used in  capital and related financing activities |       | (12,823,234           | )          | (1,637,349 | ) |
|                                                       |       |                  |       |   |   |
| CASH FLOW FROM  INVESTING ACTIVITIES:                      |       |                  |       |   |   |
| Interest Income                                            |       | 367,754               |       | 191,504 |   |
|                                                       |       |                  |       |   |   |
| CASH FLOW FROM NON-CAPITAL  FINANCING ACTIVITIES:          |       |                  |       |   |   |
| Distributions to  Tribe                                    |       | (3,060,000            | )          | (3,000,000 | ) |
|                                                       |       |                  |       |   |   |
| CHANGE IN CASH AND CASH  EQUIVALENTS                       |       | 627,275               |       | 7,619,485 |   |
|                                                       |       |                  |       |   |   |
| CASH AND CASH  EQUIVALENTS, Beginning of the period        |       | 32,549,001            |       | 17,649,658 |   |
|                                                       |       |                  |       |   |   |
| CASH AND CASH EQUIVALENTS, End of the period               |       | $                     | 33,176,276 |   | $ | 25,269,143 |   |

 

The accompanyingnotes are an integral part of these unaudited financial statements.

 

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| Income (loss)  before Distributions to Tribe                                                                         |   | (2,501,939 | )          | 3,121,944 |   |
|----------------------------------------------------------------------------------------------------------------------|--------|------------|------------|-----------|--------|
|                                                                                                                 |   |       |       |      |   |
| Adjustments to  reconcile income (loss) before distributions to Tribe to net cash provided by  operating activities: |   |       |       |      |   |
| Depreciation                                                                                                         |   | 2,928,076  |       | 2,860,564 |   |
| Interest expense                                                                                                     |   | 5,218,434  |       | 5,224,632 |   |
| Interest income                                                                                                      |   | (367,754   | )          | (191,504  | )      |
| Credit enhancement fee                                                                                               |   | 11,348,897 |       | 1,602,417 |   |
| Loss (Gain) on sale of assets                                                                                        |   | (4,547     | )          | 3,384     |   |
| Changes in operating assets and liabilities:                                                                         |   |       |       |      |   |
| Accounts receivable                                                                                                  |   | (143,215   | )          | (93,875   | )      |
| Inventories                                                                                                          |   | 11,122     |       | 12,675    |   |
| Prepaid expenses and other current assets                                                                            |   | 9,919      |       | (28,311   | )      |
| Accounts payable                                                                                                     |   | (289,938   | )          | (424,038  | )      |
| Accrued liabilities                                                                                                  |   | (66,300    | )          | (22,558   | )      |
| Total adjustments                                                                                                    |   | 18,644,694 |       | 8,943,386 |   |
|                                                                                                                 |   |       |       |      |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                                           |   | $          | 16,142,755 |      | $      | 12,065,330 |   |
|                                                                                                                 |   |       |       |      |   |
| SUPPLEMENTARY  SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES:                                         |   |       |       |      |   |
| Acquisition of  property and equipment through accounts payable construction                                         |   | $          | —     |      | $      | 1,026,800 |   |
| Trade in allowance on  purchase of property and equipment                                                            |   | —     |       | 2,000     |   |

The accompanying notesare an integral part of these unaudited financial statements.

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**RIVER ROCKENTERTAINMENT AUTHORITY(A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)**

**NOTES TO UNAUDITEDFINANCIAL STATEMENTS**

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

River RockEntertainment Authority (the “Authority”) is a governmental instrumentality ofthe Dry Creek Rancheria Band of Pomo Indians (the “Tribe”), a federallyrecognized Indian tribe. River Rock Casino (the “Casino”) is a governmentaldevelopment project of the Authority. The Casino offers Class III gaming (asdefined by the Indian Gaming Regulatory Act) on tribal land located inGeyserville, California. The legal authority for slot machines and table gamesis provided by the Tribe’s gaming compact with the State of California (the “Compact”),which was entered into in September 1999 and became effective upon approval bythe Secretary of Interior on May 5, 2000.  The Compact expires onDecember 31, 2020.

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

The Authorityoperates as a separate, wholly owned operating unit of the Tribe and is not aseparate legal entity. These financial statements reflect the financialposition and activity of only the Authority and do not purport to represent thefinancial position and activity of the Tribe.

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

The accompanyingunaudited condensed financial statements have been prepared from the records ofthe Authority without audit and, in the opinion of management, include alladjustments that are normal and recurring in nature necessary to present fairlythe Authority’s financial position at March 31, 2007, the interim results ofoperations for the three month periods ended March 31, 2007 and 2006, andchanges in cash flows for the three month periods ended March 31, 2007 and2006. The balance sheet at December 31, 2006, presented herein, has beenderived from the audited financial statements of the Authority for the yearthen ended December 31, 2006.

Accounting policiesfollowed by the Authority are described in Note 2 to the audited financialstatements for the fiscal year ended December 31, 2006. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted for purposes ofpresenting the interim condensed financial statements. Such statements should beread in conjunction with the audited financial statements, including notesthereto, for the year ended December 31, 2006.

*AccountingStandards*—The Authority prepares its financial statements inaccordance with accounting principles generally accepted in the United Statesof America (“generally accepted accounting principles”). The financialstatements presented are prepared on the accrual basis of accounting from theaccounts and financial transactions of the Authority. Generally acceptedaccounting principles require the Authority to apply all applicablepronouncements of the Governmental Accounting Standards Board (“GASB”). TheAuthority 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, unlessthose pronouncements conflict with or contradict GASB pronouncements.  TheAuthority is given the option whether to apply all FASB Statements and Interpretationsissued after November 30, 1989, except for those that conflict with orcontradict GASB pronouncements. Accordingly, the Authority has elected toimplement non-conflicting FASB Statements and Interpretations issued afterNovember 30, 1989.

There aredifferences between financial statements prepared in accordance with GASBpronouncements and those prepared in accordance with FASB pronouncements. Thestatements of revenues, expenses and changes in fund deficit are a combinedstatement under GASB pronouncements. FASB pronouncements allow a statement ofincome or operations and a separate statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements.  The amount shown as income beforedistributions to Tribe would not be different if the Authority followed allFASB pronouncements to determine net income and would be the most comparableamount to net income computed under FASB pronouncements. The Authority is aseparate fund of the Tribe, a governmental entity, and as such there is noowners’ or shareholders’ (deficit) equity as traditionally represented underFASB pronouncements.  The most comparable measure of owners’ (deficit)equity is presented on the Authority’s balance sheet as fund (deficit) equity.

*NewAccounting Pronouncements*—In September 2006, the FASB issuedSFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value,establishes a framework for measuring fair value in accordance with generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements. The provisions of SFAS No. 157 are effective for the fiscal yearbeginning January 1, 2008. The future impact of the adoption of SFAS No. 157 bythe Authority has not yet been evaluated.

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In February 2007,the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets andFinancial Liabilities, including an amendment of FASB Statement No. 115. SFASNo. 159 permits an entity to measure certain financial assets and financial liabilitiesat fair value and offers an irrevocable option to carry the vast majority offinancial assets and liabilities at fair value, with changes in fair valuerecorded in earnings. The provisions of SFAS No. 159 are effective for thefiscal year beginning January 1, 2008. The future impact of the adoption ofSFAS No. 159 by the Authority has not yet been evaluated.

*Useof Estimates*—The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from these estimates.

*Cashand Cash Equivalents*—The Authority considers all highlyliquid investments with a maturity of three months or less at date of purchaseas cash equivalents. The carrying amount of cash and cash equivalentsapproximates its fair value. Cash and cash equivalents include cash on hand,cash on deposit with banks and highly liquid investments.  The FederalDeposit Insurance Corporation (“FDIC”) has insured $100,000 of the cash ondeposit with the banks. The Authority believes that there is little risk ofloss regarding the uninsured amounts of cash and cash equivalents on depositwith the banks.

*Inventories*—Inventories,consisting principally of gaming supplies and concession items, are stated atthe lower of cost (first-in, first-out) or market.

*RestrictedCash*—Restricted cash consists of estimated construction expensesfor three parking structures, related infrastructure improvements andconstruction contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds necessary to develop anapproximately 18-acre parcel of land adjacent to the Tribe’s reservation. Thesefunds are held in escrow accounts which are restricted for authorizedconstruction disbursements. These escrow accounts are invested in CD’s, whichgenerate interest on a monthly basis. The FDIC has insured $100,000 of thisbalance. The Authority believes that there is little risk of loss regarding theuninsured amounts of restricted cash held in the escrow account. Restrictedcash was $7,269,719 and $7,248,253 at March 31, 2007 and December 31, 2006, respectively. As of March 31, 2007, restricted cash includes amounts available forconstruction of $2,726,909 and land development funds of $4,542,810.

*Propertyand Equipment*—Property and equipment are stated at cost.Depreciation and amortization are computed using the straight-line method overthe estimated useful lives of the assets as follows:
| Buildings and improvements        | 21 years |   |   |
|-----------------------------------|----------|--------|--------|
| Furniture, fixtures and equipment | 5 years  |   |   |

 

The Authorityevaluates its property and equipment for impairment in accordance with the FASB’sStatement of Financial Accounting Standards (“SFAS”) No. 144, Accounting forthe Impairment or Disposal of Long-Lived Assets. When events or circumstancesindicate that an asset should be reviewed for impairment, the Authoritycompares the undiscounted cash flows derived from the asset or asset group tothe net carrying value. If 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.

*Depositsand Other Assets*—As of March 31, 2007 and December 31, 2006,deposits and other assets include $4,685,108 and $4,940,532 in unamortized bonddiscount, legal fees and other issuance costs related to the issuance of theNotes; $19,450 and $0 of equipment deposits; $13,183 and $213,218 ofperformance deposits and $900 and $112,908 of rental deposits.  Deferredloan costs are amortized using the effective interest method to interestexpense over the term of the related financial arrangement.

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

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

*AccruedSlot Players Club*—In accordance with Emerging Issues TaskForce Issue No. 00-22, Accounting for “Points” and certain other time-based orvolume-based sales incentive offers and offers for free products or services tobe delivered in the future, the Authority has recorded a liability related toprizes and cash incentives earned by the members of our Players Club and haveadjusted the liability for the estimated future breakage. The Authority has recordedthe cost of the estimated redemption of the liability related to prizes as anoperating expense and the estimated redemption of the liability related to cashas promotional allowance in the accompanying statements of revenues, expensesand changes in fund deficit.

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

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progressive slot jackpots.

*Food,Beverage and Retail*—The Authority recognizes as food,beverage and retail revenues the proceeds from its food, beverage and gift shopsales. The Authority continues to distribute beverages without cost in thegaming area for playing guests.

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

*PromotionalAllowances*—The retail value of food and beverages provided tocustomers without charge or at a discount is included in Food, beverage andretail revenues and then deducted as promotional allowances. Such amounts thatare included in Food, beverage and retail revenues for the three months endedMarch 31, 2007 and 2006 were $566,071 and $501,833, respectively.  The distributionof electronic coupons (e-coupons) to customers is included in Casino revenuesand is also deducted as promotional allowances.  The total e-coupons forthe three months ended March 31, 2007 and 2006 were $2,228,218 and $1,648,120,respectively.   The redemption of cash incentives earned by thePlayers Club members is also recorded as promotional allowances. The cost ofcash incentives for the three months ended March 31, 2007 and 2006 were$435,763 and $375,935, respectively.

*Foodand Beverage Costs*—Food and beverage costs include costsassociated with food and beverage, excluding amounts reclassified as Casinoexpenses.  The estimated costs of providing complimentary services arereclassified from Food and beverage to Casino expenses.  The estimatedcosts of such services were $1,179,708 and $1,065,745 for the three monthsended March 31, 2007 and 2006, respectively.

*AdvertisingCosts*—Advertising costs are expensed the first timeadvertising takes place. Advertising costs included in Selling, general andadministrative expenses were $1,164,506 and $2,231,976 for the three monthsended March 31, 2007 and 2006, respectively.

*GamingCommission & Surveillance Expenses*—The Authority pays forvarious expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission expenses are reported as Gaming Commission andsurveillance expense on the Statement of Revenues, Expenses and Changes in FundDeficit. Gaming Commission and Surveillance expenses for the three months endedMarch 31, 2007 and 2006 were $675,404 and $722,741, respectively.

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

*Distributionsto Tribe*—Distributions to Tribe are made up of permittedpayments.  They are included in the Statement of Revenues, Expenses andChanges in Fund Deficit as distributions to Tribe allowed pursuant to theIndenture for the Notes.  Monthly permitted payments increased by $20,000from $1,000,000 to $1,020,000 in April 2006.  Total distributions to theTribe for the three months ended March 31, 2007 and 2006 were $3,060,000 and$3,000,000, respectively.

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

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

**4.****                             RELATEDPARTIES**

The Authority hasbeen constructed on federal land beneficially owned by the Tribe. The Authoritydoes not pay the Tribe for the use of the land.

Commencing January1, 2004, the Authority paid for various expenses for the following departmentsoperated by the Tribe: Tribal Gaming Commission, surveillance, plantoperations, human resources, purchasing and warehousing.  On January 1,2005, the Authority operated the Purchasing and Warehouse departments, andcontinued to pay expenses for the other departments operated by theTribe.  These departmental expenses include but are not limited to payrolland related expenses, legal and other operational expenses.  Underdirection of the River Rock Entertainment Authority Board and the TribalCouncil, the Tribe assumed responsibility of the Purchasing and Warehousedepartments on May 8, 2006.  The expenses associated with the Purchasingand Warehouse departments incurred by the Tribe are included in these amountsand will be reimbursed to the Tribe by the Authority as with other Tribaldepartments.

Total amountsbilled by the Tribe for these departments, excluding Tribal Gaming Commissionand surveillance, were $766,665 and $598,174 for the three months ended March31, 2007 and 2006, respectively. They are recorded as a component of Selling,general and administrative expenses.

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The Authority paysfor various expenses for the Tribal Gaming Commission and surveillance.Effective July 1, 2005, the Tribal Gaming Commission adopted a regulation onpayments of regulatory fees from the Authority.  Tribal Gaming Commissionand surveillance expenses are being recorded in Gaming Commission andsurveillance expenses on the Statement of Revenues, Expenses and Changes inFund Deficit.  Gaming Commission and surveillance expenses for the threemonths ended March 31, 2007 and 2006 were $675,404 and $722,741, respectively.

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

The Tribe enteredinto a Development and Loan Agreement with Dry Creek Casino, LLC (“DCC”) onAugust 26, 2001, which has been amended from time to time (as amended, the“Development Agreement”). In consideration of DCC providing credit enhancementand other services under the Development Agreement, the Tribe is obligated topay DCC a Credit Enhancement Fee. The Credit Enhancement Fee is defined as 20%of the Authority’s net income before distributions to the Tribe plusdepreciation and amortization plus annual interest on $25.0 million principalamount of the Notes less revenues from sales of alcoholic beverages. The CreditEnhancement Fee is required to be paid monthly for a period of five yearscommencing on June 1, 2003.

The Authority had the right to terminate the Development Agreement byexercising a buy-out option (the “Buy-Out Option”) and did so on January 31, 2007.  Subsequently on March 2, 2007, the Authorityand DCC signed a mutual agreement to fix the amounts due to DCC in respect ofsuch exercise to the sum of $11,350,000 less the amount paid after the Authorityexercised the buy-out option of $737,491. The net payment of $10,612,509 wasmade in March 2007 and expensed in full in the three months ended March 31,2007.  Credit Enhancement Feeexpense was $11,348,897 and $1,602,417 for the three months ended March 31,2007 and 2006, respectively.

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

Cash and cash equivalentsand restricted cash consisted of the following as of March 31, 2007 andDecember 31, 2006:

|                                                      | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Operating  accounts                                  |       | $                            | 3,542,843  |                            | $          | 5,573,333 |   |
| Money Market  Accounts                               |       | 2,949                        |       | 31,967                          |       |
| Short Term  Investments                              |       | 24,125,045                   |       | 22,304,924                      |       |
| Cash on hand                                         |       | 5,505,439                    |       | 4,638,777                       |       |
|                                                 |       |                         |       |                            |       |
| Cash and cash  equivalents                           |       | 33,176,276                   |       | 32,549,001                      |       |
| Restricted cash                                      |       | 7,269,719                    |       | 7,248,253                       |       |
|                                                 |       |                         |       |                            |       |
| Total cash and cash  equivalents and restricted cash |       | $                            | 40,445,996 |                            | $          | 39,797,254 |   |

 

The Authority’scash in banks and cash equivalents (the “Investments”) are categorized by levelof credit risk assumed by the Authority. Category 1 includes investmentsthat are insured or registered or for which the investments are held by theAuthority or its agent in the Authority’s name. Category 2 includesuninsured and unregistered investments for which the investments are held bythe counterparty’s trust department or agent in the Authority’s name.Category 3 includes uninsured and unregistered investments for which theinvestments are held by the counterparty’s agent but not in the Authority’sname. At March 31, 2007, the Authority had $200,000 in Category 1investments, $3,342,843 cash in banks, $2,949 in money market accounts and$24,125,045 in short-term investments, which are Category 2 investments, and$7,269,719 restricted cash in bank over the FDIC insurance limits, which are Category 3investments.  Amounts in Category 2 and Category 3 investments areinvested in short-term, highly liquid cash equivalents and investments. As of March 31, 2007 and December 31, 2006, these amounts are composed of moneymarket accounts in the amount of $2,949 and $31,967, respectively, and A1/P1bonds in the amount of $24,125,045 and $22,304,924, respectively.

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**7.****                             PROPERTYAND EQUIPMENT**

Property and equipment at December 31, 2006 and March 31, 2007consisted of the following:
| ** **                               | ** ** | **Balance,  December 31,  2006** | ** **  | **Additions**                                                           | ** ** | **Dispositions**                                                                                                        | ** ** | **Balance,  March 31,  2007,** | ** **  |
|------------------------------------------|------------|---------------------------------------|-------------|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|-------------|
| **Buildings and improvements** | ** ** | **$ 129,245,481**                | ** **  | **$          12,194** | ** ** | **$                  —** | ** ** | **$129,257,675**                    | ** **  |
| Furniture, fixtures and  equipment       |       | 27,110,280                            |        | 634,263                                                                 |       | (65,213                                                                                                                 | )          | 27,679,330                          |        |
| Less accumulated depreciation            |       | (32,696,126                           | )           | (2,928,075                                                              | )          | 36,315                                                                                                                  |       | (35,587,886                         | )           |
|                                     |       |                                  |        |                                                                    |       |                                                                                                                    |       |                                |        |
|                                     |       | 123,659,635                           |        | (2,281,618)                                                             |       | (28,898                                                                                                                 | )          | $                                   | 121,349,119 |   |
|                                     |       |                                  |        |                                                                    |       |                                                                                                                    |       |                                |        |
| Construction in progress                 |       | 4,385,195                             |        | 48,695                                                                  |       | —                                                                                                                  |       | 4,433,890                           |        |
|                                     |       |                                  |        |                                                                    |       |                                                                                                                    |       |                                |        |
| Property and equipment—net          |       | $                                | 128,044,830 |                                                                    | $          | (2,232,923                                                                                                              | )          | $                              | (28,898     | ) | $ | 125,783,009 |   |
|                                          |            |                                       |             |                                                                         |            |                                                                                                                         |            |                                     |             |  |  |  |  |

 

Construction in progressconsists of payments or amounts owed to various vendors related to theAuthority’s master plan development and land improvements. Substantially all ofthe Authority’s personal property is pledged as collateral to secure itsdebt.  At March 31, 2007 and 2006, the Authority had $376,636 and $315,012in capital lease assets with related accumulated depreciation of $136,210 and$63,974, respectively.

**8.****                             ACCRUEDLIABILITIES**

Accrued liabilities consisted of the following as of March 31, 2007 andDecember 31, 2006:

|                                             | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Accrued in-house  progressive slot jackpots |       | $                        | 941,183    |                        | $          | 779,408 |   |
| Accrued payroll and  related benefits       |       | 1,834,825                |       | 2,005,731                   |       |
| Accrued interest                            |       | 8,125,000                |       | 3,250,000                   |       |
| Accrued credit  enhancement fees            |       | —                   |       | 783,070                     |       |
| Accrued other expenses                      |       | 218,790                  |       | 275,958                     |       |
| Total accrued  liabilities                  |       | $                        | 11,119,798 |                        | $          | 7,094,168 |   |

 

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**9.   LONG-TERMDEBT**

Long-term debt consisted of the following as of March31, 2007 and December 31, 2006:

|                                                                                                 | ** ** | **March 31,  2007** | ** **  | **December 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| 9 3/4% Senior Notes,  net of unamortized issue discount of $1,545,726 and $1,630,039. Due 2011. |       | $                        | 198,454,274 |                        | $          | 198,369,961 |   |
| Vehicles Notes                                                                                  |       | 22,905                   |        | 25,439                      |       |
| Capital leases  obligations                                                                     |       | 454,313                  |        | 747,288                     |       |
| Total Long Term Debt                                                                            |       | 198,931,492              |        | 199,142,688                 |       |
| Less: current portion                                                                           |       | (377,876                 | )           | (642,413                    | )          |
|                                                                                            |       |                     |        |                        |       |
| Total long-term debt - net of current maturities                                                |       | $                        | 198,553,616 |                        | $     | 198,500,275 |   |

 

On November 7, 2003, the Authority issued the Notes.The proceeds were utilized to fund an expansion project, which included threeparking structures, related infrastructure improvements, repayment of variousdebt and advances and fund payment of various accruals and payables, as well asto increase cash on hand. The proceeds were also utilized to fund a landpurchase and settle litigation.  The Notes are collateralized by a firstpriority pledge of the Authority’s revenue and substantially all of theexisting and future tangible and intangible personal property. Before November1, 2007, the Authority may redeem the Notes, in whole or in part, at aredemption price equal to 100% of their principal amount plus a make-wholepremium and accrued and unpaid interest. On or after November 1, 2007, theAuthority may redeem the Notes, in whole or in part, at a redemption price thatis at a premium to the principal amount of the Notes (expressed as percentagesof principal amount), plus accrued and unpaid interest.

**10.****                      LEASES**

The Authorityleases a sprung structure, which is accounted for as an operating lease. Suchlease expense was $108,690 and $129,220 for the three months ended March 31,2007 and 2006, respectively.  The Authority renewed the leaseagreement on August 17, 2005 for $36,230 per month for twenty four monthsending August 17, 2007.

On October 1,2003, the Tribe entered into a five year operating lease agreement for officeand warehouse space to replace existing facilities.  Prior to the Tribetaking control over the Purchasing and Warehouse departments, the Authorityreimbursed the Tribe for lease fees allocated based on the square footageutilized.  Since May 2006, when the Tribe assumed responsibility for thePurchasing and Warehouse departments, the Authority no longer reimburses theTribe lease fees as a separate transaction.  The reimbursement is madethrough the reimbursement of Tribal department’s monthly allotment andquarterly reconciliations.  The Authorityreimbursed the Tribe for such lease fees in the amount of $0 and $127,963 forthe three months ended March 31, 2007 and 2006, respectively.

·                                               OnSeptember 1, 2004, the Authority entered into a five year capital lease topurchase two licenses to operate three-card poker tables in the amount of$120,000.  The capital lease is at 7.25% interest with monthly lease feesof $2,390 and a $1 buyout at the end of the lease term.

·                                               OnJuly 31, 2005, the Authority entered into a thirty six month capital lease topurchase 13 Multi-deck shufflers in the amount of $88,307.  The capitallease is at 7.09% interest with monthly lease fees of $2,640 and a $1 buyout atthe end of the lease term.

·                                               OnJuly 31, 2005, the Authority entered into a thirty six month capital lease topurchase 6 King shufflers in the amount of $61,422.  The capital lease isat 7.09% interest with monthly lease fees of $1,899 and a $1 buyout at the endof the lease term.

·                                               OnJuly 31, 2005, the Authority entered into a thirty six month capital lease topurchase 4 Ace shufflers in the amount of $45,283.  The capital lease isat 7.09% interest with monthly lease fees of $1,400 and a $1 buyout at the endof the lease term.

·                                               OnApril 27, 2006, the Authority entered into a thirty six month capital lease topurchase 5 Deckmate shufflers in the amount of $61,827.  The capital leaseis at 7.92% interest with monthly lease fees of $2,387 and a $1 buyout at theend of the lease term.

Lease expenseswere $114,476 and $244,092 for the three months ended March 31, 2007 and 2006,respectively.  Lease expenses areincluded in general and administrative expenses in the accompanying statementof revenues, expenses and changes in fund deficit.  Expected remaining payments under operatingleases are $150,814 and $4,741 for the years ending December 31, 2007 and 2008,respectively. Expected remaining payments under capital leases are $84,043,$88,762 and $26,246 for the years ending December 31, 2007, 2008 and 2009,respectively.

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**11.             LEGAL MATTERS**

*Sonoma County Fire Marshal Inspection Case*

On October 7, 2002, the Sonoma County Fire Chief (the “CountyFire Chief”) filed an*ex parte*application for an inspection warrant in the Superior Court of the State ofCalifornia for the County of Sonoma, seeking to inspect the Casino. The Tribebelieves that there is no basis for the County’s Fire Chief to assertjurisdiction over the Tribe’s lands, which are governed by tribal and federallaw and the Compact. On October 9, 2002, the Tribe removed the case to theUnited States District Court for the Northern District of California. TheCounty Fire Chief moved to remand, which such motion was denied by the court andsubsequently moved for summary judgment. The Tribe moved to dismiss underFederal Rules of Civil procedure 12(b)(6) and 12(b)(7). On December 9, 2004,the Court issued an order granting in part and denying in part the Tribe’s12(b)(6) motion and denying the County Fire Chief’s summary judgment motion.The order reaffirmed the Court’s prior ruling denying the remand of that PublicLaw 280 does not authorize the County Fire Chief to inspect the Casino. OnMarch 1, 2005, the Court issued an order granting in part and denying in partthe Tribe’s 12(b)(7) motion. On March 4, 2005, the Tribe moved for summaryjudgment, and on April 29, 2005, the Court granted the Tribe’s motion. TheCounty Fire Chief filed a Notice of Appeal on May 26, 2005, at the NinthCircuit Court of Appeals.

On April 5, 2007, the Ninth Circuit Court of Appealsaffirmed the district court in an unpublished opinion, ruling for the Tribe onall issues. On or about April 19, 2007, the County Fire Chief filed a petitionfor rehearing or rehearing en banc.  The Court has not asked the Tribe tofile a response.

*California Department of Alcoholic Beverage Control*

In September 2004, the Department of AlcoholicBeverage Control (“ABC”) denied the Tribe’s application for a liquor licensebased on a building code interpretation by a state officer who was laterdetermined to lack jurisdiction to make a code determination, and did sowithout consulting the Tribe’s building code official having jurisdiction. TheTribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which the ABC did as of October, 2005, pending a hearing on the protests. TheABC has received approximately 65 protests to issuance of the license from variouscitizens and local government officials. The ABC had scheduled a hearing onthose protests in May 2007, which was recently continued by stipulation of theparties to August 2007, because the Tribe and various protestants are engagedin settlement discussions with respect to certain protest issues. The Tribeintends to vigorously defend its application and believes the protests arewithout merit.

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

**12.****             COMPACT REVENUESHARING TRUST FUND**

The Compactrequires the Authority to pay a quarterly fee to the State of California’srevenue sharing trust fund, based on the number of licensed gaming devicesoperated by the Tribe. Revenue sharing trust fund fees assessed were $333,750for the three months ended March 31, 2007 and 2006, respectively.

**13.****             COMMITMENTS ANDCONTINGENCIES**

The Authority isan unincorporated instrumentality of the Tribe formed pursuant to a recentlyadopted law of the Tribe. While the Authority is not a separate corporation orother legal entity distinct from the Tribe, this tribal law allows theAuthority to own and operate its business. This tribal law also provides thatthe Authority’s obligations and other liabilities are not those of the Tribeand that the obligations and liabilities of the Tribe are not those of theAuthority. This law is untested and generally has no direct counterpart inother areas of the law. If this law should prove to be ineffective at limitingthe Authority’s liability, the Authority’s business and assets could becomesubject to claims asserted against the Tribe or its assets. Similarly, theAuthority would be liable for such claims if the Tribe waived its sovereignimmunity to an extent that allowed enforcement of such claims against theAuthority’s business or assets.

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

     Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with the accompanying financialstatements and related notes included in Item 1 of this report.

**Overview**

          Wehave historically operated as a separate wholly-owned operating property of theTribe. We were formed as an unincorporated governmental instrumentality of theTribe to own and operate the River Rock Casino. Upon the issuance of our Notes,the Tribe reorganized so that its gaming business became owned and operated byus. This reorganization was accounted for as a reorganization of entities undercommon control. In accordance with Statement of Financial Accounting Standards141, Business Combinations, the assets and liabilities of the Casino arepresented by us on a historical cost basis.

     Weoffer Class III slot and video poker gaming machines, house banked table games(including Blackjack, Three card poker, Mini-baccarat and Pai Gow poker),Poker, featuring Texas Hold’em, comprehensive food and non-alcoholic beverageofferings 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 withaccounting principles generally accepted in the United States of America,requires that we make estimates and judgments that affect the reported amountsof assets and liabilities, revenues and expenses, and related disclosures ofcontingent assets and liabilities. On an on-going 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 — Inaccordance with industry practice, casino revenue is recognized as the net winfrom gaming activities, which is the difference between gaming wins and losses.Casino revenues are net of accruals for anticipated payouts of progressive slotjackpots.

• Property and Equipment —Property and equipment are stated at cost. Depreciation and amortization arecomputed using the straight-line method over the estimated useful lives of theassets as follows:

                                Buildingsand improvements             21 years

                                Furniture,fixtures and equipment       5years

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

• Accrued ProgressiveSlot Jackpots — Accrued progressive slot jackpots consist of estimates forprizes relating to various games that have accumulated jackpots. We haverecorded the cost of these anticipated payouts as a reduction of casinorevenues and the cost is included as a component of accrued liabilities.

• Contingencies — Weassess our exposure to loss contingencies, including legal matters, and providefor an exposure if it is judged to be probable and estimable. If the actualloss from a contingency differs from management’s estimate, operating resultscould be materially impacted. As of March 31, 2007, we have determined that noaccruals for claims and legal actions are required. If circumstancessurrounding claims and legal actions change, the addition of accruals for suchitems in future periods may be required, which accruals may be material.

AccountingStandards — There are differences between financial statements prepared inaccordance with Governmental Accounting Standards Board (“GASB”) pronouncementsand those prepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statement of revenues, expenses and fund deficit is acombined statement under GASB pronouncements. FASB pronouncements allow astatement of income or operations and a statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements. The amount shown on our 

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statement of revenues,expenses and fund deficit as income before distributions to the Tribe, wouldnot be different if we followed all FASB pronouncements to determine netincome, and would be the most comparable amount to net income computed underFASB pronouncements. We are an unincorporated instrumentality created by triballaw and accounted for as a separate fund of the Tribe.  As such, there is no owners’ or shareholders’(deficit) equity as traditionally represented under FASB pronouncements. Themost comparable measure of owners’ (deficit) equity presented on our balancesheet would be Fund Deficit.

**Resultsof Operations**

**Comparisonof the three months ended March 31, 2007 and 2006**

*Netrevenues*. Net revenues for the three months ended March 31,2007 increased by $2.5 million to $34.1 million from $31.6 million for thethree months ended March 31, 2006. Our net revenues for the three monthsended March 31, 2006 were negatively impacted by flooding in early January 2006and the subsequent closure of the Highway 128 Bridge in Geyserville.Improvements in our net revenues for the three months ended March 31, 2007resulted from a change in marketing initiative from branding to direct marketing,updated slot offerings, and the expansion of our drive-up customer base whichgenerated more frequent and longer guest visits than in the first quarter 2006.Approximately 96.2% of our net revenues, net of promotional allowances, werefrom our gaming activities in the first quarter 2007. We generated $29.2million, or 85.6% of our net revenues from gaming devices, net of respectivepromotional allowances of $2.6 million, and $3.6 million, or 10.6% of our netrevenues from table games, net of promotional allowance of $47,050, for thethree months ended March 31, 2007, compared to $26.8 million from gamingdevices, or 84.8% of our net revenues, net of respective promotional allowancesof $2.0 million, and $3.7 million from table games, net of respective promotionalallowances of $37,000, or 11.7% of our net revenues, for three months endedMarch 31, 2006. Our win per slot machine per day was $206 in the first quarter2007, which increased by $16 from $190, in the first quarter 2006.  Thechange in win per slot machine per day is attributed to the impact of thefactors discussed above.

     Wegenerated $0.9 million, net of promotional allowance of $0.6 million, for thethree months ended March 31, 2007, and $1.0 million, net of promotionalallowances of $0.5 million, in food, beverage and retail sales for the threemonths ended March 31, 2006.  The retail value of our food and beverageprovided to customers without charge is included in gross revenues and thendeducted as promotional allowances.

*     Promotionalallowances*. Promotional allowances for the three months endedMarch 31, 2007 were $3.2 million, or 9.5% of net revenues, compared to $2.5million, or 8.0% of net revenues, for the first quarter 2006. The increase inpromotional allowances is attributable to the expanded use of e-coupons. E-coupons cannot be cashed out and requires the patron to use their PlayersClub card.

     *Operating expenses*. Operating expenses forthe three months ended March 31, 2007 were $31.8 million, or 93.1% of netrevenues, compared to $23.5 million, or 74.2% of net revenues, for the firstquarter 2006. The increase in operating expenses is attributable to creditenhancement fee buy-out as described in footnote 5 of the unaudited condensedfinancial statements.

     Casinoexpense includes costs associated with our gaming operations and the allocationof food and beverage expense related to the cost of complimentary activities.Casino expense for three months ended March 31, 2007 increased to $5.2 million,or 15.6% of Casino revenues, net of promotional allowances, from $5.0 million,or 16.3% of Casino revenues, net of promotional allowances, for the firstquarter 2006. The increase in Casino expense results an updated slot floor andthe increases in the costs associated with complimentary beverage services.

     Food,beverage and retail expense for three months ended March 31, 2007 was $1.4million, or 125.5% of food, beverage and retail revenue, net of promotionalallowances, compared to $1.5 million, or 155.6% of food, beverage and retailrevenue, net of promotional allowances for the first quarter 2006. Our food,beverage and retail expense ratio is significantly higher than the industryaverage because we have utilized these amenities as an opportunity to buildcustomer loyalty rather than as a source of income.

     Selling,general and administrative expense for three months ended March 31, 2007decreased by $1.6 million to $9.8 million, or 28.8% of net revenues, from $11.4million, or 36.0% of net revenues, for the first quarter 2006. The decrease inselling, general and administrative expense is attributable to a reduction inadvertising costs, resulting from the restructuring of our marketing approachto focus on direct marketing, as well as other operational efficiency changes.

     Depreciation expense for three months endedMarch 31, 2007 and 2006 was $2.9 million and $2.9 million, respectively.  Depreciation expense was computed using the straight-linemethod over the useful life of property, plant and equipment.

     Wehave been paying the credit enhancement fee since June 2003. The creditenhancement fee was $11.3 million, or 33.3% of net revenues, for three monthsended March 31, 2007, compared to $1.6 million, or 5.1% of net revenues, for thefirst quarter of 2006.  The increase isdue to our termination of the Development Agreement with Dry Creek Casino, LLC(“DCC”) by exercising the buy-out option on January 31, 2007.  On March 2, 2007, we signed an agreement withDCC to fix the amounts due DCC in respect of such exercise to the sum of$11,350,000 less the amount paid after we exercised the buy-out option of$737,491. The net payment of $10,612,509 was made in March 2007 and expensed infull in the first quarter of 2007.

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     GamingCommission and surveillance expense for three months ended March 31, 2007 and2006 was $0.7 and $0.7, 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 theTribe. Revenue sharing trust fund fees assessed were $333,750 for the threemonths ended March 31, 2007 and 2006, respectively.

     *Income from operations.* Income fromoperations for three months ended March 31, 2007 was $2.3 million, or 6.9% ofnet revenues, compared to $8.2 million, or 25.8% of net revenues, for the firstquarter of 2006.  The decrease in income from operations is attributableto the credit enhancement fee buy-out.

     *Other expense, net.* Other expense, net forthree months ended March 31, 2007 decreased to $4.8 million, or 14.2% of netrevenues, from $5.0 million, or 15.9% of net revenues, for the first quarter of2006.  Other expense, net included $5.2 million of interest expense forthe three months ended March 31, 2007, compared to $5.2 million of interestexpense for the first quarter of 2006. No interest costs were capitalized in 2007 or 2006.

     *Income (loss) before distributions to the Tribe*.Income before distributions to the Tribe for three months ended March 31, 2007 decreasedby $5.6 million to a loss of $2.5 million, or (7.3)% of net revenues, from $3.1million, or 9.9% of net revenues, in the first quarter of 2006.  The net loss before distributions to theTribe is a direct result of the credit enhancement fee buy-out that resulted inan expense of $10,612,509 that has been recognized in the three months endedMarch 31, 2007.

     *Distributions to the Tribe*. Distributionsto the Tribe for the three months ended March 31, 2007 increased by $0.1million to $3.1 million compared to $3.0 million for the three months endedMarch 31, 2006.

**Liquidityand Capital Resources**

     Sinceour inception, we have funded our capital expenditures and working capitalrequirements primarily through debt financing, gaming equipment supplierfinancing, and other financing and operating cash flow.

    Construction of our Casino andinfrastructure improvements commenced on April 1, 2002. The first portion ofour gaming facility was completed in September 2002. As of March 31, 2007, wehad spent approximately $156.9 million on the planning, development andconstruction of our gaming facility, infrastructure and furniture, fixtures andequipment, excluding the expansion project. We financed the development withborrowings and development advances.

     As of March 31, 2007, we spent $0.8million on the development of an approximately 18-acre parcel of land adjacentto the Tribe’s reservation (referred to as the “Dugan Property”) which isexpected to include an additional access road to our Casino. We have $4.5million remaining in a restricted account funded from the proceeds of our NotesOffering for the development of the Dugan Property.

     Ourcapital expenditures for the three months ended March 31, 2007 and 2006 were$0.7 million and $1.2 million, respectively. The decrease in 2007 compared to2006 is because our capital expenditures for 2006 consisted of a series ofminor infrastructure improvements that we did not have in the first quarter of2007.

     Asof  March 31, 2007, we had cash and cashequivalents net of restricted cash of $33.2 million, as compared to $32.5million, as of December 31, 2006. As of March 31, 2007, we had restricted cashof $7.3 million, as compared to $7.2 million, as of December 31, 2006. Ourprincipal source of liquidity during the three months ended March 31, 2007consisted of cash flow from operating activities. Net cash provided byoperating activities for the three months ended March 31, 2007 was $16.1million, an increase of $4.0 million, from $12.1 million in 2006. The increasein our net cash provided by operations is a result of increased cash receivedfrom gaming winnings and concessions combined with decreased amounts paid tosuppliers in 2007.

     Restrictedcash consists of net proceeds from the Notes Offering and investment earningsthereon set aside in construction financing accounts for construction costs forthe three parking structures, related infrastructure improvements andconstruction contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds for the development of theDugan Property. Our restricted cash is held in escrow accounts that can only beused for authorized construction disbursements until the related projects arecompleted.

     Netcash used for capital and related financing activities for the three monthsended March 31, 2007 was $12.8 million, compared to $1.6 million, for the threemonths ended March 31, 2006. Cash flow used in capital and related financingactivities was primarily for payment and the buy-out settlement of the creditenhancement fee and interest payments.

     Cash flow from investing activities forthe three months ended March 31, 2007 was $0.4 million, compared to $0.2million for the three months ended March 31, 2006.

     Cash flow used in non-capital financingactivities for the three months ended March 31, 2007 was $3.1 million, anincrease of $0.1

 

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million, from $3.0million, for the three months ended March 31, 2006.  Cash flow used innon-capital financing activities consisted of distributions to the Tribe. The increase is due to permitted increase in distributions pursuant to the termsof our Indenture for the Notes.  Since April 1, 2006, our monthly paymentsto the Tribe have been in the amount of $1.02 million.

We believe that existingcash balances, cash from operations, as well as permitted disbursements fromour restricted cash escrow accounts will provide adequate funds for our workingcapital needs, planned capital expenditures and debt service requirements forthe foreseeable future. However, our ability to fund our operations, makeplanned capital expenditures, make scheduled debt payments and refinance ourindebtedness depends on our future operating performance and cash flow, which,in turn, are subject to prevailing economic conditions and to financial,business and other factors, some of which are beyond our control. Additionally,the Indenture limits our ability to incur additional indebtedness.

**ContractualObligations as of March 31, 2007**

The following tablesummarizes our contractual obligations and commitments as of March 31, 2007:
| ** **                      | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
|---------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|------------|
| Long-term debt  obligations (a) |       | $         | 200,277,651 |            | $          | 264,878            |       | $                  | 12,773     |   | $ | 200,000,000 |   |
| Operating lease  obligations    |       | 155,555   |        | 152,696         |       | 2,859              |       | —             |       |
| Capital lease  obligations      |       | 199,050   |        | 112,998         |       | 86,052             |       | —             |       |
|                            |       |      |        |            |       |               |       |               |       |
| Total obligations (b)           |       | $         | 200,632,25  |            | $          | 530,571            |       | $                  | 101,684    |   | $ | 200,000,000 |   |

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(a)             Excludedfrom long-term debt obligations listed above are interest payments of $14.6million in 1 year; $39.0 million in 2-3 years and $35.8 million in 4-5 years.

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

**Regulationand Taxes**

We are subject toextensive regulation by the tribal gaming agency, 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, theDepartment of Alcoholic Beverage Control (“ABC”) denied the Tribe’s applicationfor a liquor license based on a building code interpretation by a state officerwho was later determined to lack jurisdiction to make a code determination, anddid so without consulting the Tribe’s building code official havingjurisdiction. The Tribe appealed and, in May 2005, an Administrative Law Judgeruled for the Tribe and recommended that the ABC reverse itself and approve thelicense, which the ABC did as of October, 2005, pending a hearing on theprotests. The ABC has received approximately 65 protests to issuance of the licensefrom various citizens and local government officials. The ABC had scheduled ahearing on those protests in May 2007, which was recently continued bystipulation of the parties to August 2007, because the Tribe and variousprotestants are engaged in settlement discussions with respect to certainprotest issues. The Tribe intends to vigorously defend its application andbelieves the protests are without merit.

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

**Impactof Inflation**

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

**Seasonality**

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

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

Market risk is the riskof loss arising from adverse changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.

Through March 31, 2007,we had not invested in derivative or foreign currency-based financialinstruments.  Additionally, we primarily have invested in short-term,fixed rate debt.  As such, we do not believe we have material exposure tomarket risk.

**ITEM 4. CONTROLS AND PROCEDURES**

**Evaluationof Disclosure Controls and Procedures**

We maintain disclosurecontrols and procedures that are designed to ensure that the informationrequired to be disclosed in our reports filed with, or furnished to the SEC,pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules, regulations and forms, and that such informationis accumulated and communicated to our management, including our ChiefExecutive Officer, Assistant Financial Controller (Principal Financial Officer)and Chief Operations Officer, as appropriate, to allow timely decisionsregarding required disclosure based on the definition of “disclosure controlsand procedures” in Rule 13a-15(e) and 15d-15(e) of the Exchange Act.  Our disclosure controls and procedures aredesigned to provide reasonable assurances of achieving its objectives.

Our Chief ExecutiveOfficer and our Assistant Financial Controller (Principal Financial Officer)have reviewed and evaluated the effectiveness of our disclosure controls andprocedures (as defined in Exchange Act Rules 240.13a -15(e) and 15d — 15(e)) asof March 31, 2007. Based on that evaluation they have concluded that ourdisclosure controls and procedures as of the end of the period covered by thisreport are effective in reaching that level of reasonable assurance.

**Changesto Internal Controls Over Financial Reporting**

There were no changes inthe quarter ended March 31, 2007.  Webelieve that we have implemented controls and procedures to correct thepractices that led to certain restatements of our prior financial statements.

** **

**PART II.              OTHER INFORMATION**

** **

**ITEM1.                LEGAL PROCEEDINGS**

*Sonoma County Fire Marshal InspectionCase*

On October 7, 2002, theSonoma County Fire Chief (the “County Fire Chief”) filed an ex parteapplication for an inspection warrant in the Superior Court of the State ofCalifornia for the County of Sonoma, seeking to inspect the casino. The Tribebelieves that there is no basis for the County’s Fire Chief to assertjurisdiction over the Tribe’s lands, which are governed by tribal and federallaw and the Compact. On October 9, 2002, the Tribe removed the case to theUnited States District Court for the Northern District of California. TheCounty Fire Chief moved to remand, which such motion was denied by the courtand subsequently moved for summary judgment. The Tribe moved to dismiss underFederal Rules of Civil procedure 12(b)(6) and 12(b)(7). On December 9, 2004,the Court issued an order granting in part and denying in part the Tribe’s12(b)(6) motion and denying the County Fire Chief’s summary judgment motion.The order reaffirmed the Court’s prior ruling denying the remand of that PublicLaw 280 does not authorize the County Fire Chief to inspect the casino. OnMarch 1, 2005, the Court issued an order granting in part and denying in partthe Tribe’s 12(b)(7) motion. On March 4, 2005, the Tribe moved for summaryjudgment, and on April 29, 2005, the Court granted the Tribe’s motion. TheCounty Fire Chief filed a Notice of Appeal on May 26, 2005, at the NinthCircuit Court of Appeals.

On April 5, 2007, theNinth Circuit Court of Appeals affirmed the district court in an unpublishedopinion, ruling for the Tribe on all issues. On or about April 19, 2007, theCounty Fire Chief filed a petition for a rehearing or rehearing en banc.  The Court has not asked the Tribe to file aresponse.

*California Department ofAlcoholic Beverage Control*

     In September 2004, the Department ofAlcoholic Beverage Control (“ABC”) denied the Tribe’s application for a liquorlicense based on a building code interpretation by a state officer who waslater determined to lack jurisdiction to make a code determination, and did sowithout consulting the Tribe’s building code official having jurisdiction. TheTribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which the ABC did as of October, 2005, pending a hearing on the protests. TheABC has received approximately 65 protests to issuance of the license fromvarious citizens and local government officials. The ABC had scheduled ahearing on those protests in May 2007, which was recently continued bystipulation of the parties to August 2007, because the Tribe and variousprotestants are engaged in settlement discussions with respect to certainprotest issues. The Tribe intends to vigorously defend its application andbelieves the protests are 

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without merit.

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

**ITEM 1A.               RISK FACTORS**

There have been nomaterial changes from the risk factors previously disclosed in our Form 10-K.

**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 theundersigned thereunto duly authorized.
| Dated: May 15, 2007 | RIVER ROCK ENTERTAINMENT AUTHORITY |
|---------------------|------------------------------------|
|                | (Registrant)                       |   |
|                |                               |   |
|                | By:                                | /s/ Shawn  S. Smyth |   |
|                |                               | Shawn S. Smyth, |   |
|                |                               | Chief Executive  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 Jacob A. Coughlin, Assistant Financial  Controller (Principal 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 Jacob A. Coughlin, Assistant Financial Controller (Principal 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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*                    Thiscertification is being furnished solely to accompany this quarterly reportpursuant to 18 U.S.C. Section 1350, and is not being filed for purposes ofSection 18 of the Securities Exchange Act of 1934 and is not to be incorporatedby reference into any filing of River Rock Entertainment Authority whether madebefore or after the date hereof, regardless of any general incorporationlanguage in such filing.

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