**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D. C. 20549**

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**FORM 10-Q/A**

**AmendmentNo. 1**
| **(Mark One)** | ** ** | ** **                                                                                               |
|----------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **     | ** ** | ** **                                                                                               |
| **x**          | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**  |
| ** **     | ** ** | ** **                                                                                               |
| ** **     | ** ** | ** **                                                                                               | **For the  quarterly period ended March 31, 2006** | ** ** |
| ** **     | ** ** | ** **                                                                                               |
| ** **     | ** ** | ** **                                                                                               | **OR** | ** ** |
| ** **     | ** ** | ** **                                                                                               |
| **o**          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
| ** **     | ** ** | ** **                                                                                               |
| ** **     | ** ** | ** **                                                                                               | **For  the transition period from        to** | ** ** |
| ** **     | ** ** | ** **                                                                                               |
| ** **     | ** ** | ** **                                                                                               | **Commission  File Number: 333-115186** | ** ** |
|                |            |                                                                                                          |  |  |  |  |  |  |

**RIVERROCK ENTERTAINMENT AUTHORITY**

(Exact name ofregistrant as specified in its charter)

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

**3250Highway 128 East**

**Geyserville,California 95441**

**(707)857-2777**

(Address, including zipcode, and telephone number,

including areacode, of registrant’s principal executive offices)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  x       No  o

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

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

 

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

 

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**RIVERROCK ENTERTAINMENT AUTHORITY**

**INDEXTO FORM 10-Q/A**
| Item          | ** ** | ** **                                                                                                                                           | ** ** | ** ** | **Description** | ** ** |
|---------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------|------------|
|          |       | Explanatory  Note                                                                                                                                    |       |
|          |       | ** **                                                                                                                                           | ** ** |
|          |       | **PART  I—FINANCIAL INFORMATION**                                                                                                               | ** ** |
|          |       |                                                                                                                                                 |       |
| 1.            |       | Financial Statements (unaudited)                                                                                                                     |       |
|          |       | Balance  Sheets—March 31, 2006 and December 31, 2005                                                                                       |       |
|          |       | Statements of Revenues, Expenses and Changes in Fund  Deficit—Three-Months ended March 31, 2006  (as restated) and 2005 (as restated) |       |
|          |       |                                                                                                                                                 |       |
|          |       | Statements  of Cash Flows—Three-Months ended March 31, 2006 (as restated)  and 2005 (as restated)                                     |       |
|          |       | Notes to unaudited Financial Statements                                                                                                              |       |
| 2.            |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                          |       |
|          |       |                                                                                                                                                 |       |
| 4.            |       | Controls and Procedures                                                                                                                              |       |
|          |       |                                                                                                                                                 |       |
|          |       | **PART  II—OTHER INFORMATION**                                                                                                                  |       |
|          |       |                                                                                                                                                 |       |
| 6.            |       | Exhibits  and Reports on Form 8-K                                                                                                               |       |
|          |       |                                                                                                                                                 |
| Signatures    |       |                                                                                                                                                 |
|          |       |                                                                                                                                                 |
| Exhibit Index |       |                                                                                                                                                 |
|               |            |                                                                                                                                                      |            |            |                 |            |  |  |

 

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**EXPLANATORY NOTE**

River RockEntertainment Authority (the “Authority”) is filing this Amendment No. 1 to itsReport on Form 10Q/A to restate its previously issued financial statements forthe quarter ended March 31, 2006 initially filed with the Securities andExchange Commission (“SEC”) on May 22, 2006. See Note 14 to the financial statements for further information.

This Form 10Q/Aamends and restates only Items 1, 2, and 4 of Part I and Item 6 of Part II ofthe original filing solely to reflect the effects of the restatement of the Authority’sfinancial statements for the periods presented. The remaining Items of the original filing are not amended hereby andare therefore not included herein. Except for the forgoing amended information,this Form 10Q/A continues to describe conditions as of the date of the originalfiling, and the Authority has not updated the disclosures contained herein toreflect events that occurred at a later date. Accordingly, this Form 10Q/Ashould be read in conjunction with Authority filings made with the SECsubsequent to the filing of the original Form 10Q, including any amendments ofthose filings. In addition, pursuant to the rules of the SEC, exhibits 31.1 and32 of the original filing have been amended to contain currently datedcertifications from our Chief Executive Officer and Principal FinancialOfficer, as required by Sections 302 of the Sarbanes-Oxley Act of 2002. Theupdated certifications are attached to this Form 10Q as exhibits 31.1 and 32.

**CAUTIONARYSTATEMENT**

*Exceptfor the historical financial information contained herein, the mattersdiscussed in this report on Form 10-Q/A Amendment No. 1 (as well asdocuments incorporated herein by reference) may be considered forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Such forward-looking statements are based upon current expectationsthat involve risks and uncertainties and include declarations regarding theintent, belief or current expectations of us and our management and may besignified by the words “believes,” “anticipates”, “plan,” “expects,” “intends”and similar expressions. Our actual results and the timing of certain eventsmay differ significantly from the results discussed in the forward-lookingstatements. All forward-looking statements in this document are based oninformation available to us as of the date hereof, and we assume no obligationto update any such forward-looking statements, whether as a result of newinformation, future events, or otherwise. All discussion in this report shouldbe read in conjunction with our financial statements and the accompanying notescontained in this report.*

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

*Ourkey risks are described in our annual report on Form 10-K for the yearended December 31, 2005 filed with the Securities and Exchange Commission.*

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**PART1—FINANCIAL INFORMATION**

**ITEM1—FINANCIAL STATEMENTS (UNAUDITED)**

**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**BALANCE SHEETS**

**(Unaudited)**
| ** **                                      | ** ** | **March 31, 2006** | ** **  | **December 31, 2005** | ** ** |
|-------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **                   | ** **  | ** **                      | ** ** |
| ** **                                      | ** ** | ** **                   | ** **  | ** **                      | ** ** |
| CURRENT ASSETS:                                 |       |                         |        |                            |       |
| Cash and cash  equivalents                      |       | $                            | 25,269,143  |                            | $          | 17,649,658 |   |
| Restricted  cash-current                        |       | 466,517                      |        | 666,517                         |       |
| Accounts  receivable                            |       | 187,127                      |        | 93,252                          |       |
| Inventories                                     |       | 146,759                      |        | 159,434                         |       |
| Prepaid expenses  and other current assets      |       | 1,456,217                    |        | 1,427,906                       |       |
|                                            |       |                         |        |                            |       |
| Total current  assets                           |       | 27,525,763                   |        | 19,996,767                      |       |
|                                            |       |                         |        |                            |       |
| RESTRICTED CASH—Net of  Current            |       | 6,716,218                    |        | 6,706,964                       |       |
|                                            |       |                         |        |                            |       |
| PROPERTY AND EQUIPMENT:                         |       |                         |        |                            |       |
| Buildings and  building improvements            |       | 129,165,929                  |        | 128,858,771                     |       |
| Furniture,  fixtures and equipment              |       | 26,527,908                   |        | 26,015,944                      |       |
|                                            |       | 155,693,837                  |        | 154,874,715                     |       |
|                                            |       |                         |        |                            |       |
| Accumulated  depreciation                       |       | (24,650,708                  | )           | (21,801,767                     | )          |
| Construction in  progress                       |       | 2,223,181                    |        | 1,819,271                       |       |
|                                            |       |                         |        |                            |       |
| Property and  equipment—net                |       | 133,266,310                  |        | 134,892,219                     |       |
|                                            |       |                         |        |                            |       |
| DEPOSITS AND OTHER  ASSETS                      |       | 5,756,414                    |        | 6,081,955                       |       |
|                                            |       |                         |        |                            |       |
| TOTAL ASSETS                                    |       | $                            | 173,264,705 |                            | $          | 167,677,905 |   |
|                                            |       |                         |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                | ** ** | ** **                   | ** **  | ** **                      | ** ** |
|                                            |       |                         |        |                            |       |
| CURRENT LIABILITIES:                            |       |                         |        |                            |       |
| Accounts  payable:                              |       |                         |        |                            |       |
| Trade                                           |       | $                            | 3,096,708   |                            | $          | 2,178,031 |   |
| Construction                                    |       | 798,707                      |        | 1,114,618                       |       |
| Accrued  liabilities                            |       | 11,267,160                   |        | 6,463,556                       |       |
| Current  maturities of long-term debt           |       | 103,126                      |        | 103,545                         |       |
|                                            |       |                         |        |                            |       |
| Total current  liabilities                      |       | 15,265,701                   |        | 9,859,750                       |       |
|                                            |       |                         |        |                            |       |
| LONG-TERM DEBT—net of  current maturities  |       | 198,302,114                  |        | 198,243,209                     |       |
|                                            |       |                         |        |                            |       |
| Total long term  liabilities                    |       | 198,302,114                  |        | 198,243,209                     |       |
|                                            |       |                         |        |                            |       |
| FUND DEFICIT                                    |       |                         |        |                            |       |
| Invested in capital  assets-net of related debt |       | (65,138,930                  | )           | (63,454,535                     | )          |
| Restricted for capital  projects                |       | 7,182,734                    |        | 7,373,481                       |       |
| Unrestricted                                    |       | 17,653,086                   |        | 15,656,000                      |       |
|                                            |       |                         |        |                            |       |
| Total fund deficit                              |       | (40,303,110                  | )           | (40,425,054                     | )          |
|                                            |       |                         |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT              |       | $                            | 173,264,705 |                            | $          | 167,677,905 |   |

 

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

1

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

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

**(Unaudited)**
| ** **                                 | ** **                                                                                 | **Three-Month**             | ** **  |
|--------------------------------------------|--------------------------------------------------------------------------------------------|-----------------------------|-------------|
| ** **                                 | ** **                                                                                 | **Period Ended**       | ** **  |
| ** **                                 | ** **                                                                                 | **March 31,**          | ** **  |
| ** **                                 | ** **                                                                                 | **2006**                    | ** **  | **2005** | ** ** |
| REVENUES:                                  |                                                                                       | (As restated,  see note 14) |        | (As restated,  see note 14) |   |
|                                       |                                                                                       |                        |        |   |   |
| Casino                                     |                                                                                       | $                           | 32,520,907  |   | $ | 31,026,955 |   |
| Food, beverage & retail           |                                                                                       | 1,476,386                   |        | 1,453,708 |   |
| Other                                      |                                                                                       | 152,855                     |        | 181,320 |   |
|                                       |                                                                                       |                        |        |   |   |
| Gross revenues                             |                                                                                       | 34,150,148                  |        | 32,661,983 |   |
|                                       |                                                                                       |                        |        |   |   |
| Promotional  allowance                     |                                                                                       | (2,525,888                  | )           | (776,927 | ) |
|                                       |                                                                                       |                        |        |   |   |
| Net revenues                               |                                                                                       | 31,624,260                  |        | 31,885,056 |   |
|                                       |                                                                                       |                        |        |   |   |
| OPERATING  EXPENSES:                       |                                                                                       |                        |        |   |   |
| Casino                                     |                                                                                       | 5,039,341                   |        | 4,734,428 |   |
| Food, beverage & retail           |                                                                                       | 1,516,682                   |        | 1,363,603 |   |
| Selling, general and administrative        |                                                                                       | 11,390,353                  |        | 10,434,062 |   |
| Depreciation                               |                                                                                       | 2,860,533                   |        | 2,633,958 |   |
| Credit enhancement fee                     |                                                                                       | 1,602,417                   |        | 1,942,849 |   |
| Gaming commission and surveillance expense |                                                                                       | 722,741                     |        | 536,613 |   |
| Compact revenue sharing trust fund         |                                                                                       | 333,750                     |        | 333,750 |   |
|                                       |                                                                                       |                        |        |   |   |
| Total Operating  expenses                  |                                                                                       | 23,465,817                  |        | 21,979,263 |   |
|                                       |                                                                                       |                        |        |   |   |
| INCOME FROM  OPERATIONS                    |                                                                                       | 8,158,443                   |        | 9,905,793 |   |
|                                       |                                                                                       |                        |        |   |   |
| OTHER  EXPENSE—Net                    |                                                                                       |                        |        |   |   |
| Interest expense                           |                 | (5,224,632                  | )           | (5,346,799 | ) |
| Interest income                            |                                                                                       | 191,504                     |        | 40,424 |   |
| Loss on sale of assets                     |                                                                                       | (3,384                      | )           | (33,977 | ) |
| Other income (expense)—net            |                                                                                       | 13                          |        | (441 | ) |
|                                       |                                                                                       |                        |        |   |   |
| Other expense—net                     |                                                                                       | (5,036,499                  | )           | (5,340,793 | ) |
|                                       |                                                                                       |                        |        |   |   |
| INCOME BEFORE  DISTRIBUTIONS TO TRIBE      |                                                                                       | 3,121,944                   |        | 4,565,000 |   |
|                                       |                                                                                       |                        |        |   |   |
| DISTRIBUTIONS TO  TRIBE                    |                                                                                       | (3,000,000                  | )           | (2,180,000 | ) |
|                                       |                                                                                       |                        |        |   |   |
| NET INCOME AFTER  DISTRIBUTIONS TO TRIBE   |                                                                                       | 121,944                     |        | 2,385,000 |   |
|                                       |                                                                                       |                        |        |   |   |
| FUND  DEFICIT—Beginning of period     |                                                                                       | (40,425,054                 | )           | (47,521,242 | ) |
|                                       |                                                                                       |                        |        |   |   |
| FUND DEFICIT—End of  period           |                                                                                       | $                           | (40,303,110 | ) | $ | (45,136,242 | ) |

 

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

2

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                    | ** ** | **Three-Month**              | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                    | ** ** | **Period Ended**        | ** ** |
| ** **                                                                                                    | ** ** | **March 31,**           | ** ** |
| ** **                                                                                                    | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                        |       | (As  restated,  see note 14) |       | (As  restated,  see note 14) |   |
| Cash received from  gaming winnings and concessions                                                           |       | $                            | 31,650,571 |   | $ | 32,025,336 |   |
| Cash paid for salaries  and benefits                                                                          |       | (7,478,278                   | )          | (7,734,218 | ) |
| Cash paid to suppliers                                                                                        |       | (11,773,213                  | )          | (10,747,957 | ) |
| Cash paid for compact  revenue sharing trust fund                                                             |       | (333,750                     | )          | (333,750 | ) |
|                                                                                                          |       |                         |       |   |   |
| Net cash  provided by operating activities                                                                    |       | 12,065,330                   |       | 13,209,411 |   |
|                                                                                                          |       |                         |       |   |   |
| CASH FLOWS FROM CAPITAL  AND RELATED FINANCING ACTIVITIES:                                                    |       |                         |       |   |   |
| Proceeds from long-term  financing                                                                            |       | (25,826                      | )          | — |   |
| Payments of long-term  debt                                                                                   |       | —                       |       | (10,113,853 | ) |
| Purchases of property  and equipment                                                                          |       | (211,234                     | )          | (8,040,229 | ) |
| Change in restricted  cash                                                                                    |       | 190,746                      |       | 5,898,017 |   |
| Interest paid                                                                                                 |       | (9,896                       | )          | (190,815 | ) |
| Credit enhancement fee                                                                                        |       | (1,651,256                   | )          | (1,714,915 | ) |
| Proceeds from sale of  assets                                                                                 |       | —                       |       | 2,000 |   |
| Other                                                                                                         |       | 70,117                       |       | (71,380 | ) |
|                                                                                                          |       |                         |       |   |   |
| Net cash used in  capital and related financing activities                                                    |       | (1,637,349                   | )          | (14,231,175 | ) |
|                                                                                                          |       |                         |       |   |   |
| CASH FLOW FROM  INVESTING ACTIVITIES                                                                          |       |                         |       |   |   |
| Interest Income                                                                                               |       | 191,504                      |       | 40,424 |   |
| CASH FLOW FROM  NON-CAPITAL FINANCING ACTIVITIES:                                                             |       |                         |       |   |   |
| Distributions to  Tribe                                                                                       |       | (3,000,000                   | )          | (2,180,000 | ) |
|                                                                                                          |       |                         |       |   |   |
| CHANGE IN CASH AND CASH  EQUIVALENTS                                                                          |       | 7,619,485                    |       | (3,161,340 | ) |
|                                                                                                          |       |                         |       |   |   |
| CASH AND CASH  EQUIVALENTS, Beginning of the period                                                           |       | 17,649,658                   |       | 18,618,826 |   |
|                                                                                                          |       |                         |       |   |   |
| CASH AND CASH  EQUIVALENTS, End of the period                                                                 |       | $                            | 25,269,143 |   | $ | 15,457,486 |   |
|                                                                                                          |       |                         |       |   |   |
| RECONCILIATION OF  INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING  ACTIVITIES:        |       |                         |       |   |   |
| Income before  Distributions to Tribe                                                                         |       | $                            | 3,121,944  |   | $ | 4,565,000 |   |
|                                                                                                          |       |                         |       |   |   |
| Adjustments to  reconcile income before distributions to Tribe to net cash provided by  operating activities: |       |                         |       |   |   |
| Depreciation                                                                                                  |       | 2,860,564                    |       | 2,633,958 |   |
| Interest expense                                                                                              |       | 5,224,632                    |       | 5,346,799 |   |
| Interest income                                                                                               |       | (191,504                     | )          | (40,424 | ) |
| Credit  enhancement fee                                                                                       |       | 1,602,417                    |       | 1,942,849 |   |
| Loss on sale of  assets                                                                                       |       | 3,384                        |       | 33,977 |   |
| Changes in  operating assets and liabilities:                                                                 |       |                         |       |   |   |
| Accounts  receivable                                                                                          |       | (93,875                      | )          | 8,546 |   |
| Inventories                                                                                                   |       | 12,675                       |       | 217 |   |
| Prepaid expenses  and other current assets                                                                    |       | (28,311                      | )          | 11,710 |   |
| Accounts payable—trade                                                                                   |       | (424,038                     | )          | (1,173,014 | ) |
| Accrued  liabilities                                                                                          |       | (22,558                      | )          | (120,207 | ) |
| Total  adjustments                                                                                            |       | 9,134,890                    |       | 8,684,835 |   |
|                                                                                                          |       |                         |       |   |   |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                                                                    |       | $                            | 12,065,330 |   | $ | 13,209,411 |   |
|                                                                                                          |       |                         |       |   |   |
| SUPPLEMENTARY SCHEDULE  OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES:                                  |       |                         |       |   |   |
| Acquisition of property  and equipment through third party financing                                          |       | $                            | —     |   | $ | 246,757 |   |
| Acquisition of property  and equipment through accounts payable construction                                  |       | 1,026,800                    |       | 1,895,614 |   |
| Trade in allowance on purchase of property and equipment                                                      |       | 2,000                        |       | 63,100 |   |

 

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

3

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**RIVERROCK ENTERTAINMENT AUTHORITY**

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

**NOTES TO UNAUDITED FINANCIALSTATEMENTS**

**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(as defined 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 uponapproval by the Secretary of Interior on May 5, 2000. The Compact expireson December 31, 2020.

The Tribe opened aportion of the Casino on September 14, 2002. Following completion ofconstruction the Casino was fully opened on April 1, 2003.

The Authority wasformed as an unincorporated instrumentality of the Tribe on November 5,2003 pursuant to a reorganization whereby the Tribe’s gaming business becameowned and 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 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.

Income beforedistributions to the Tribe was $3,121,949 and $4,565,000 for the three monthsended March 31, 2006 and 2005, respectively.  A fund deficit of$40,303,110 exists as of March 31, 2006. The Authority’s current assetsexceeded its current liabilities by $12,260,062 as of March 31, 2006. OnNovember 7, 2003, the Authority issued $200.0 million in its 93⁄4% SeniorNotes, due 2011 (the “Notes”), and used a portion of the proceeds to reduce itscurrent payables, accruals and debt. The Authority’s ability to fund futuredebt service payments is dependent upon the success of the Casino. Managementbelieves that the Casino will attract sufficient patronage levels to continueto provide sufficient cash flows and to repay its indebtedness. The Authorityreached its substantial completion of the construction of the enhanced parkingstructures on December 29, 2004. On September 13, 2005, the Authorityreceived a certificate of occupancy on the parking structures. OnOctober 1, 2005, the Authority’s certificate of occupancy for the parkingstructure was revoked and a temporary occupancy permit was issued due to someremaining construction issues. On November 4, 2005, a full certificate ofoccupancy was issued to the Authority for the parking structures.

**2.             SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

*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,unless those pronouncements conflict with or contradict GASB pronouncements.The Authority is given the option whether to apply all FASB Statements andInterpretations issued after November 30, 1989, except for those thatconflict with or contradict GASB pronouncements. Accordingly, the Authority haselected to implement non conflicting FASB Statements and Interpretations issuedafter November 30, 1989.

There are differences between financial statements prepared inaccordance with GASB pronouncements and those prepared in accordance with FASBpronouncements. The statements of revenues, expenses and changes in fund deficit is a combined statementunder GASB pronouncements, FASB pronouncements allow a statement of income oroperations and a separate statement of owners’ or shareholders’ (deficit)equity, which is where distributions to owners would be presented under FASBpronouncements. The amount shown as income before distributions to Tribe wouldnot be different if the Authority followed all FASB pronouncements to determinenet income and would be the most comparable amount to net income computed underFASB pronouncements. The Authority is a separate fund of the Tribe, agovernmental entity, and as such there is no owners’ or shareholders’ (deficit)equity as traditionally represented under FASB pronouncements. The mostcomparable measure of owners’ (deficit) equity is presented on the Authority’sbalance sheet as fund (deficit) equity.

4

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*NewAccounting Pronouncements*—In March 2003, GASB issuedStatement No. 40,*Deposit andInvestment Risk Disclosures* —an amendment of GASB StatementNo. 3, which became effective for the Authority at January 1, 2005.This statement requires state and local governments to communicate keyinformation about deposit and investment risks. The adoption of this statementdid not have a material impact on the financial statements of the Authority.

InNovember 2003, GASB issued Statement No. 42,*Accounting and Financial Reporting for Impairment ofCapital Assets and for Insurance Recoveries* , effective for periodsbeginning after December 15, 2004. This statement establishes accountingand financial reporting standards for impairment of capital assets. Thisstatement also clarifies and establishes accounting requirements forinsurancerecoveries. The adoption of this statement did not have a material impact onthe financial statements of the Authority.

*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 Federal DepositInsurance Corporation (“FDIC”) has insured $100,000 of the cash on deposit withthe banks. The Authority believes that there is little risk of loss regardingthe uninsured amounts of cash and cash equivalents on deposit with the banks.

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

*RestrictedCash*—Restricted cash consists of estimated constructionexpenses for three parking structures, related infrastructure improvements andconstruction contingencies. It also includes funds that are reserved foradditional construction contingencies and the funds necessary to develop anapproximately 18 acre parcel of land adjacent to the Tribe’s reservation. Thesefunds are held in escrow accounts which are restricted for authorizedconstruction disbursements. These escrow accounts are invested in CD markets,which generate interest on a monthly basis. The FDIC has insured $100,000 ofthis balance. The Authority believes that there is little risk of lossregarding the uninsured amounts of restricted cash held in the escrow account.Restricted cash was $7,182,735 and $7,373,481 at March 31, 2006 and December 31,2005, respectively. As of March 31, 2006, restricted cash includes amountsavailable for construction of $2,694,083 and land development funds of$4,488,652.

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

 

The Authority evaluates its property and equipment for impairment in accordancewith the FASB’s Statement of Financial Accounting Standards (“SFAS”)No. 144,*  Accounting for the Impairment or Disposal ofLong-Lived Assets* . When events or circumstances indicate that anasset should be reviewed for impairment, the Authority compares theundiscounted cash flows derived from the asset or asset group to the netcarrying value. If impairment is indicated, the impairment loss is measured by the amount inwhich the carrying value of the asset or asset group exceeds its fair value. Fairvalue is measured by comparable sales, solicited offers or discounted cash flowmodels.

*Depositsand Other Assets*—As of March 31, 2006 andDecember 31, 2005, deposits and other assets include $5,706,803 and$5,962,226 in unamortized bond spread, legal fees and other issuance costsrelated to the issuance of the Notes, $0 and $78,618 of equipment deposits,$12,700 and $4,200 of performance deposits and $36,911 and $36,911 of rentaldeposits. Deferred loan costs are amortized using the effective interest methodto interest expense 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 jackpotsconsist of estimates for prizes relating to various games that have accumulatedjackpots. The Authority has recorded the cost of these anticipated payouts as areduction of casino revenues, and the cost is included as a component ofaccrued liabilities.

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

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*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 freely in the gamingarea 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, 2006 and 2005 are **$**501,833and**$**702,524, respectively. The distributions of electronic coupons (e-coupons) to customers are includedin Casino revenues and are also deducted as promotional allowances.  Thetotal e-coupons for the three months ended March 31, 2006 and 2005 was$1,648,120 and $0, respectively. E-coupons became available in the second quarter of 2005.  The redemption of cash incentives earned bythe Players Club members is also recorded as promotional allowances. The costof cash incentives for the three months ended March 31, 2006 and 2005 were$375,935 and**$**74,402, 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 costs of suchservices were $1,065,745 and $939,149****forthe three months ended March 31, 2006 and 2005, respectively.

*AdvertisingCost—*Advertising costs are expensed the first timeadvertising takes place. Advertising costs included in selling, general andadministrative expenses were $2,231,976 and $1,081,442 for the three monthsended March 31, 2006 and 2005, respectively.

*Gamingcommission & surveillance expenses*—The Authority paid forvarious expenses for the Tribal Gaming Commission and surveillance. TribalGaming Commission expenses were reported as Gaming Commission expenses andsurveillance costs were reported in Selling General and Administrative Expenseson the Statement of Revenues, Expenses and Change in Fund Balance. EffectiveJuly 1, 2005, the Tribal Gaming Commission adopted regulation on payments ofregulatory fees from the Authority. For Fiscal Year 2005, Tribal GamingCommission and surveillance expenses are being recorded in Gaming Commissionand surveillance expenses on the Statement of Revenues, Expenses and Changes inFund Balance. Gaming Commission and surveillance expenses for the three monthsended March 31, 2006 and 2005 are $722,741 and $536,613, respectively.

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

*Distributionsto Tribe*—Distributions to Tribe are made up of a stated drawamount and permitted payments. They are included in the statement of revenues,expenses and changes in fund deficit as distributions to Tribe. The Tribal drawwas $1,000,000 per month for the three months ended March 31, 2006. In2005, the Tribal draw was $500,000 per month for the three months endedMarch 31, 2005 plus $680,000 in distributions as part of reimbursementsfor construction costs incurred by the Tribe prior to the formation of theAuthority. As of March 31, 2006, the remaining balance to be reimbursed tothe Tribe for construction costs incurred before the formation of theAuthority was $1,960,000. Distributions to the Tribe for the three months endedMarch 31, 2006 and 2005 were $3,000,000 and $2,180,000, respectively.

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**3.             CERTAIN RISKS 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.             RELATED PARTIES**

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

StartingJanuary 1, 2004, the Authority paid for various expenses for the followingdepartments operated by the Tribe: Tribal Gaming Commission, surveillance,plant operations, human resources, purchasing and warehousing. OnJanuary 1, 2005, the Authority started to operate purchasing and warehousingbut continued to pay for expenses for the other departments operated by theTribe. These departmental expenses include but are not limited to payroll andrelated expenses, legal and other operational expenses. Total amounts billed bythe Tribe for these departments, excluding Tribal Gaming Commission andsurveillance, were $598,174 and $524,838 for the three months endedMarch 31, 2006 and 2005, respectively. They are recorded as a component ofselling, general and administrative expenses.

The Authority paidfor various expenses for the Tribal Gaming Commission and surveillance in 2006and 2005. Prior to July 1, 2005, Tribal Gaming Commission expenses werereported as Gaming Commission expenses and surveillance costs were reported inSelling, General and Administrative Expenses on the Statement of Revenues,Expenses and Change in Fund Balance. Effective July 1, 2005, the TribalGaming Commission adopted a regulation on payments of regulatory fees from theAuthority. The Tribal Gaming Commission charges the Authority to cover anyoperating expenses incurred by the Tribal Gaming Commission and surveillancewhich are directly related and necessary to the regulation of the Casino.Gaming Commission and surveillance expenses for the three months endedMarch 31, 2006 and 2005 are $722,741 and $536,613, 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’s providing creditenhancement and other services under the Development Agreement, the Tribe isobligated to pay DCC the Credit Enhancement Fee. The Credit Enhancement Fee isdefined as 20% of the Authority’s net income before distributions to the Tribeplus depreciation and amortization plus annual interest on $25.0 millionprincipal amount of the Notes less revenues from sales of alcoholic beverages.The Credit Enhancement Fee is required to be paid monthly for a period of fiveyears commencing on June 1, 2003. The Credit Enhancement Fee was$1,602,417 and $1,942,849 for the three months ended March 31, 2006 and2005, respectively.

The Authority hasthe right to terminate the Development Agreement by exercising a buy-out optionon or after June 1, 2006 (the “Buy-Out Option”). If exercised, theAuthority is obligated to pay all amounts outstanding with respect tofinancing, including outstanding development advances and accrued interest plusan amount determined by multiplying the average monthly credit enhancement feeearned during the 12-month period immediately preceding the month the buy-outoption is exercised, by the number of months remaining in the five-year term.The buy-out fee is required to be paid in equal monthly installments ofprincipal plus interest at the rate of

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12% per annum, on the15th day of each month over a period equal to the remaining term of theDevelopment Agreement.

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

Cash and cash equivalents and restricted cash consisted of thefollowing as of March 31, 2006 and December 31, 2005:

|                                                      | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Operating  accounts                                  |       | $                            | 5,086,150  |                            | $          | 5,241,644 |   |
| Money Market  Accounts                               |       | 51,532                       |       | 62,420                          |       |
| Short Term  Investments                              |       | 16,627,649                   |       | 8,988,622                       |       |
| Cash on hand                                         |       | 3,503,812                    |       | 3,356,972                       |       |
|                                                 |       |                         |       |                            |       |
| Cash and cash  equivalents                           |       | 25,269,143                   |       | 17,649,658                      |       |
| Restricted cash                                      |       | 7,182,735                    |       | 7,373,481                       |       |
| Total cash and  cash equivalents and restricted cash |       | $                            | 32,451,878 |                            | $          | 25,023,139 |   |

The Authority’s cash in banks and cash equivalents(the “Investments”) are categorized by level of credit risk assumed by theAuthority. Category 1 includes investments that are insured or registeredor for which the investments are held by the Authority or its agent in theAuthority’s name. Category 2 includes uninsured and unregisteredinvestments for which the investments are held by the counterparty’s trustdepartment or agent in the Authority’s name. Category 3 includes uninsuredand unregistered investments for which the investments are held by thecounterparty’s agent but not in the Authority’s name. At March 31, 2006,the Authority had $200,000 in Category 1 investments, $4,886,150 cash inbanks, $51,532 in money market accounts and $16,627,649 in short terminvestments which are Category 2 investments and $7,182,735 restricted cash inbank over the FDIC insurance limits, which are Category 3 investments.Amounts in Category 2 and Category 3 investments are invested in short term,highly liquid cash equivalents and investments. As of March 31, 2006 andDecember 31, 2005, these amounts are composed of money market accounts inthe amount of $51,532 and $62,420, respectively, and A1/P1 bonds in the amountof $16,627,649 and $8,988,622, respectively.

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

Property and equipment at December 31, 2005 and March 31, 2006consisted of the following:
| ** **                         | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**       | ** ** |
|------------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|--------------------|------------|
| ** **                         | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **March 31,** | ** ** |
| ** **                         | ** ** | **2005**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2006**           | ** ** |
| Buildings and  improvements        |       | $                     | 128,858,771 |          | $          | 307,158          |       | $                  | —     |   | $ | 129,165,929 |   |
| Furniture,  fixtures and equipment |       | 26,015,944            |        | 528,966       |       | (17,002          | )          | 26,527,908         |       |
| Less accumulated  depreciation     |       | (21,801,767           | )           | (2,860,559    | )          | 11,618           |       | (24,650,708        | )          |
|                               |       | 133,072,948           |        | (2,024,435    | )          | (5,384           | )          | 131,043,129        |       |
|                               |       |                  |        |          |       |             |       |               |       |
| Construction in  progress          |       | 1,819,271             |        | 403,910       |       | —           |       | 2,223,181          |       |
|                               |       |                  |        |          |       |             |       |               |       |
| Property and  equipment—net   |       | $                     | 134,892,219 |          | $          | (1,620,525       | )          | $                  | (5,384     | ) | $ | 133,266,310 |   |

Construction in progress consists of payments tovarious vendors related to the Authority’s master plan development and landimprovements. Substantially all of the Authority’s personal property is pledgedas collateral to secure its debt. At March 31, 2006 and 2005, theAuthority had $315,012 and $670,000 in capital lease assets with relatedaccumulated depreciation of $63,974 and $78,167, respectively.

**8.****                              ACCRUEDLIABILITIES**

Accrued liabilities consisted of the following as of March 31,2006 and December 31, 2005:
| ** **                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Accrued in-house  progressive slot jackpots |       | $                  | 542,655    |                  | $          | 495,588 |   |
| Accrued payroll  and related benefits       |       | 1,639,060          |       | 1,677,290             |       |
| Accrued interest                            |       | 8,125,000          |       | 3,250,000             |       |
| Accrued credit  enhancement fees            |       | 636,820            |       | 685,659               |       |
| Accrued other  expenses                     |       | 323,625            |       | 355,019               |       |
| Total accrued  liabilities                  |       | $                  | 11,267,160 |                  | $          | 6,463,556 |   |

** **

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**9.****                              LONG-TERMDEBT**

Long-term debt consisted of the following as of March 31, 2006 andDecember 31, 2005:
| ** **                                                                                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                     | ** ** | **2006**           | ** **  | **2005**              | ** ** |
| 9 3/4% Senior  Notes, net of unamortized issue discount of $1,882,976 and $1,967,289 due  2011 |       | $                  | 198,117,024 |                  | $          | 198,032,711 |   |
| Vehicles Notes                                                                                 |       | 46,960             |        | 51,937                |       |
| Capital leases  obligations                                                                    |       | 241,256            |        | 262,106               |       |
| Total Long Term  Debt                                                                          |       | 198,405,240        |        | 198,346,754           |       |
| Less: current  portion                                                                         |       | (103,126           | )           | (103,545              | )          |
| Total long-term  debt—net of current maturities                                           |       | $                  | 198,302,114 |                  | $          | 198,243,209 |   |

On November 7, 2003, the Authority issued theNotes. The proceeds were utilized to fund an expansion project, which includesthree parking structures and related infrastructure improvements, repayment ofvarious debt and advances and fund payment of various accruals and payables, aswell as to increase cash on hand. The proceeds were also utilized to fund aland purchase and settle litigation. The Notes are secured by a first prioritypledge of the Authority’s revenue and substantially all of the existing andfuture tangible and intangible personal property. Before November 1, 2007,the Authority may redeem the Notes, in whole or in part, at a redemption priceequal to 100% of their principal amount plus a make-whole premium and accruedand unpaid interest. On or after November 1, 2007, the Authority mayredeem the Notes, in whole or in part, at a redemption price that is at apremium to the principal amount of the Notes (expressed as percentages ofprincipal amount), plus accrued and unpaid interest.

**FairValue**—Our long-term debt is recorded at an amortizedhistorical cost basis. The fair value of long-term debt approximates$215,500,000 at March 31, 2006.

**10.****                       LEASES**

The Authorityleases a Sprung structure, which is accounted for as an operating lease. Suchlease expense was $129,220 and $151,243 for the three months endedMarch 31, 2006 and 2005, respectively. The Authority renewed the leaseagreement on August 17, 2005 for twenty four (24) months endingAugust 17, 2007.

On October 1,2003, the Tribe entered into a five year operating lease agreement for officeand warehouse space to replace existing facilities. The Authority uses aportion of the space and reimburses the Tribe lease fees allocated based on thesquare footage utilized. The Authority reimbursed the Tribe such lease fees inthe amount of $127,963 and $105,982 for the three months ended March 31,2006 and 2005, 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 fees of$2,390 and a $1 buyout at the end of the lease term.

On July 31,2005, the Authority entered into a thirty six month capital lease to purchase13 Multi-deck shufflers in the amount of $88,307. The capital lease is at 7.09%interest with monthly lease fees of $2,730 and a $1 buyout at the end of thelease term.

On July 31,2005, the Authority entered into a thirty six month capital lease to purchase 6King shufflers in the amount of $61,422. The capital lease is at 7.09% interestwith monthly lease fees of $1,899 and a $1 buyout at the end of the lease term.

On July 31,2005, the Authority entered into a thirty six month capital lease to purchase 4Ace shufflers in the amount of $45,283. The capital lease is at 7.09% interestwith monthly lease fees of $1,400 and a $1 buyout at the end of the lease term.

Lease expenseswere $244,092 and $266,237 for the three months ended March 31, 2006 and2005, respectively, and are included in general and administrative expenses inthe accompanying statement of revenues, expenses and changes in fund deficit.Expected remaining payments under operating leases are $789,364, $798,829, $414,484,$2,910 and $1,213 for the years ending December 31, 2006, 2007, 2008, 2009and 2010, respectively. Expected remaining payments under capital leases are$85,138, $91,037, $67,032, $18,612 and $0 for the years endingDecember 31, 2006, 2007, 2008, 2009 and 2010, respectively.

 

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**11.****      LEGALMATTERS**

 

*SonomaCounty Fire Marshal Inspection Case*

 

On October 7, 2002,the Sonoma County Fire Chief (the “County Fire Chief ”) filed an*ex parte* application for an inspectionwarrant in the Superior Court of the State of California for the County ofSonoma, seeking to inspect the casino. The Tribe believes that there is nobasis for the County’s Fire Chief to assert jurisdiction over the Tribe’slands, which are governed by tribal and federal law and the Compact. OnOctober 9, 2002, the Tribe removed the case to the United States DistrictCourt for the Northern District of California. The County Fire Chief moved toremand and moved for summary judgment and the Tribe moved to dismiss underFederal Rules of Civil procedure 12(b)(6) and 12(b)(7). OnDecember 9, 2004, the Court issued an order granting in part and denyingin part the Tribe’s 12(b)(6) motion and denying the County Fire Chief   ‘s summary judgment motion. Theorder reaffirmed the Court’s prior ruling denying the remand of that Public Law280 does not authorize the County Fire Chief to inspect the casino. OnMarch 1, 2005 the Court issued an order granting in part and denying inpart the Tribe’s 12(b)(7) motion. On March 4, 2005, the Tribe movedfor summary judgment, and on April 29, 2005, the Court granted the Tribe’smotion. The County Fire Chief filed a Notice of Appeal on May 26, 2005, atthe Ninth Circuit Court of Appeals. Briefing was completed at the Ninth Circuiton November 8, 2005. The case has not yet been set for oral argument.

 

*CaliforniaDepartment of Alcoholic Beverage Control*

 

OnSeptember 13, 2004, the Department of Alcoholic Beverage Control (“ABC”)denied the Tribe’s application for a liquor license based on the State FireMarshal’s interpretation of the Uniform Building Code. In May 2005, anAdministrative Law Judge heard the Tribe’s appeal of the ABC’s denial andrecommended that the ABC reverse itself and approve the license. OnAugust 25, 2005, the ABC announced that, effective October 11, 2005;it would adopt the Administrative Law Judge’s decision to approve the licensetransfer pending a hearing on protests filed by citizens and governmentofficials. The ABC has received over 65 protests against the license fromcitizens and government officials. The ABC held a hearing on the protests fromMarch 7 to March 9, 2006. The deadline for filing post hearing briefshad been scheduled for early May 2006 and the judge was to make hisdecision within 30 days after receipt of the final brief. However, on April 21,2006, the California 4th District Court of Appeal issued an unpublisheddecision which held that “the applicant bears the burden of proof regarding theapplicant’s eligibility for a liquor license from the start of the applicationprocess until the Department makes the final determination.”  Coffin v. Department of Alcoholic BeverageControl (Barona Tribal Gaming Authority Real Party in Interest  , No. D047218, Alcoholic BeverageControl Appeals Board Case Number AB 8336. On May 4, 2006, theadministrative law judge on this matter suspended the deadline for filingwritten briefs until such time as the Appellate Court acts on requests tocertify the decision for publication. On May 12, 2006, the Court of Appealcertified the decision for publication. Therefore, the Tribe’s case may have tobe reheard in order to include references to the appropriate standard of proof.Once the judge makes a decision to approve or deny the license transferapplication, it may be appealed by any parties to the proceeding so long as theappeal is filed within forty (40) days of the ABC’s decision. The first appealis to the ABC Appeals Board, and its decision may be appealed to the CaliforniaState court system.

 

The Authority is involvedin other litigation and disputes from time to time in the ordinary course ofbusiness with vendors and patrons. The Authority  believes that the aggregate liability, ifany, arising from such litigation or disputes will not have a material adverseeffect on its results of operations, financial condition or cash flows.

 

**12.****      COMPACTREVENUE SHARING TRUST FUND**

 

The Compact requires theAuthority to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $333,750 and $333,750 forthe three months ended March 31, 2006 and 2005.

 

**13.****      COMMITMENTSAND CONTINGENCIES**

 

The Authority is anunincorporated instrumentality of the Tribe formed pursuant to a law of theTribe. While the Authority is not a separate corporation or other legal entitydistinct from the Tribe, this tribal law allows the Authority to own andoperate its business. This tribal law also provides that the Authority’sobligations and other liabilities are not those of the Tribe and that theobligations and liabilities of the Tribe are not the Authority’s. This law isuntested and generally has no direct counterpart in other areas of the law. Ifthis law should prove to be ineffective at limiting the Authority’s liability,the Authority’s business and assets could become subject to claims assertedagainst the Tribe or its assets. Similarly, the Authority would be liable forsuch claims if the Tribe waived its sovereign immunity to an extent thatallowed enforcement of such claims against the Authority’s business or assets.

 

The Authorityrenewed an employment agreement with Mr. Norman Runyan on November 8,2005 to continue to serve as the Chief Operations Officer of the Authority.This three year employment agreement commenced on October 14, 2005 andprovides Mr. Runyan an annual salary of $250,000 and a discretionarybonus, as determined by the Tribal Board, of not less than 7% and not more than25% of his annual salary based on various criteria. If Mr. Runyan’s employmentis terminated for other reasons set forth in the employment agreement includingdeath or disability, Mr. Runyan will be entitled to his salary for threemonths. Either party may terminate the agreement with a 90 day written notice.

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**14.****      RESTATEMENTOF PRIOR PERIOD FINANCIAL STATEMENTS:**

Subsequentto the filing of the Authority’s quarterly report on Form 10-Q for the quarterended March 31, 2006, the Authority identified certain classification errors inits recording of promotional allowances and gaming revenues and losses.  As a result, the Authority has restated theaccompanying financial statements for the quarters ended March 31, 2006 and2005 from amounts previously reported. The restatement has no impact on Income from Operations, Net IncomeBefore or After Distributions to the Tribe, the Balance Sheet, or net cashflows. .  The following table shows the effect of our restatement:
| ** **                                          | ** ** | **Three-Month Period Ended  March 31, 2006** | ** **  | **Three-Month Period Ended  March 31, 2005** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------------------|-------------|------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **As  previously  reported**                                     | ** **  | **Adjustment**                                                   | ** ** | **As Restated** | ** ** | **As  previously  reported** | ** ** | **Adjustment** | ** ** | **As Restated** | ** ** |
| REVENUE                                             |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Casino                                              |       | $                                                                | 33,136,425  |                                                             | $          | (615,518 | ) | $ | 32,520,907 |   | $ | 31,726,625 |   | $ | (699,670 | ) | $ | 31,026,955 |   |
| Food, beverage & retail                         |       | 1,603,210                                                        |        | (126,824                                                         | )          | 1,476,386 |   | 1,566,240 |   | (112,532 | ) | 1,453,708 |   |
| Other                                               |       | 152,855                                                          |        |                                                             |       | 152,855 |   | 181,320 |   |   |   | 181,320 |   |
| Gross Revenues                                      |       | $                                                                | 34,892,490  |                                                             | $          | (742,342 | ) | $ | 34,150,148 |   | $ | 33,474,185 |   | $ | (812,202 | ) | $ | 32,661,983 |   |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Promotional Allowances                              |       | (916,300                                                         | )           | (1,609,588                                                       | )          | (2,525,888 | ) | (792,476 | ) | 15,549 |   | (776,927 | ) |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Net Revenues                                        |       | $                                                                | 33,976,190  |                                                             | $          | (2,351,930 | ) | $ | 31,624,260 |   | $ | 32,681,709 |   | $ | (796,653 | ) | $ | 31,885,056 |   |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES                                  |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Casino                                              |       | $                                                                | 5,580,232   |                                                             | $          | (540,891 | ) | $ | 5,039,341 |   | $ | 5,372,268 |   | $ | (637,840 | ) | $ | 4,734,428 |   |
| Food,beverage & retail                          |       | 1,589,890                                                        |        | (273,208                                                         | )          | 1,516,682 |   | 1,446,610 |   | (83,007 | ) | 1,363,603 |   |
| Selling, general and administrative                 |       | 13,128,184                                                       |        | (1,737,831                                                       | )          | 11,390,353 |   | 10,509,868 |   | (75,806 | ) | 10,434,062 |   |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Total Operating  Expenses                           |       | $                                                                | 25,817,747  |                                                             | $          | (2,351,930 | ) | $ | 23,465,817 |   | $ | 22,775,916 |   | $ | (796,653 | ) | $ | 21,979,263 |   |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Cash received from  gaming winnings and concessions |       | $                                                                | 34,194,005  |                                                             | $          | (2,543,434 | ) | $ | 31,650,571 |   | $ | 32,862,413 |   | $ | (837,077 | ) | $ | 32,025,336 |   |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Cash paid to  suppliers                             |       | $                                                                | (14,125,143 | )                                                                | $          | 2,351,930 |   | $ | (11,773,213 | ) | $ | (11,544,610 | ) | $ | 796,653 |   | $ | (10,747,957 | ) |
| Interest income  received                           |       | $                                                                | —      |                                                             | $          | 191,504 |   | $ | 191,504 |   | $ | — |   | $ | 40,424 |   | $ | 40,424 |   |
|                                                |       |                                                             |        |                                                             |       |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities           |       | $                                                                | 12,256,834  |                                                             | $          | (191,504 | ) | $ | 12,065,330 |   | $ | 13,249,835 |   | $ | (40,424 | ) | $ | 13,209,411 |   |

 

11

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

The followingdiscussion and analysis of our financial condition and results of operationsshould be read in conjunction with the accompanying financial statements andrelated notes included in Item 1 of this report.

**Overview**

 

*General*

 

We havehistorically 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 Standards “141,Business Combinations,” the assets and liabilities of the Casino are presentedby us on a historical cost basis.

We offerClass 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.

Our business hasincreased since we commenced operations on September 14, 2002, primarilydue to increases in the number of gaming positions as we opened additionalportions of our facility. On April 1, 2003, we opened our food andbeverage facilities and on June 18, 2003, we reached full operation with 1,600slot machines. The history of our operations is as follows:

·                    OnSeptember 14, 2002, we commenced operations with approximately 66 gamingdevices located in a portion of our current gaming facility.

·                    BetweenSeptember 14, 2002 and March 31, 2003, we periodically installed andremoved a number of our gaming devices in preparation for the opening of ourentire gaming facility. During such period, the number of gaming devicesoperated increased to 242.

·                    OnApril 1, 2003, we opened the remainder of our 62,000 square-foot gamingfacility, including our food and beverage facilities, our Players Club, 16table games and an additional 302 gaming devices.

·                    BetweenApril 1, 2003 and June 18, 2003, we gradually increased the number ofgaming devices from 544 to our current total of 1,600.

·                    InFebruary 2005, we increased the number of our table games from 16 to 24.

·                    OnDecember 2, 2005, we removed 3 table games and added 5 Poker tablesfeaturing Texas Hold’em.

We commencedoperations with one parking lot located directly adjacent to our gamingfacility, designed to accommodate 225 customer vehicles or up to approximately325 customer vehicles when operated by a valet service during peak demandperiods. On March 23, 2003, we completed the construction of our secondparking lot, designed to accommodate 80 customer vehicles or up toapproximately 100 customer vehicles when operated by a valet service. OnApril 20, 2003, we completed the construction of our third parking lot,designed to accommodate 70 customer vehicles or up to approximately 75 customervehicles when operated by a valet service.

OnNovember 7, 2003, we issued the Notes. A portion of the net proceeds fromthe sale of the Notes was used to fund our expansion project, which includesthree new parking structures and related infrastructure improvements, to repayvarious debts and accrued expenses of the Tribe, as well as to increase ourcash on hand. The balance of the net proceeds was used to fund a land purchaseby the Tribe and settle litigation of the Tribe. The Notes are secured by afirst priority pledge of our revenues and substantially all of our existing andfuture tangible and intangible personal property.

At the beginningof 2003, we started our infrastructure projects, including the excavation of ahillside and the construction of retaining walls. In April 2003, we beganthe design process for the three new parking structures. The parking structuresportion of the expansion project was completed in two phases and our existinggaming facility remained open during construction. On October 29, 2004, weobtained a temporary certificate of occupancy to open the entire first parkingstructure for self and valet parking. On December 1, 2004, we received acertificate of substantial completion on the first parking structure. Thesecond phase, which included our second and third parking structures withapproximately 445 and approximately 470 spaces, respectively, opened onDecember 29, 2004. As of March 31, 2006, we have parking spacesavailable to accommodate a total of approximately 1,642 (decreasing from 1,735due to construction of a retention basin in lot B) customer parked vehicles and2,100 vehicles when operated by a valet service.

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**Critical Accounting Policies andEstimates**

 

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 Americarequires 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 those estimates,including those related to asset impairment, accruals for our promotional slotclub, compensation and related benefits, revenue recognition, allowance fordoubtful accounts, contingencies and litigation. These estimates are based onthe information that is currently available to us and on various otherassumptions that we believe to be reasonable under the circumstances. Actualresults 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:

 

·                    CasinoRevenues — In accordance with industry practice, casino revenue is recognizedas the net win from gaming activities, which is the difference between gamingwins and losses. Casino revenues are net of accruals for anticipated payouts ofprogressive slot jackpots.

 

·                    Propertyand Equipment — Property and equipment are stated at cost. Depreciation andamortization are computed using the straight-line method over the estimateduseful lives of the assets as follows:

 

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

 

·                    Weevaluate our property and equipment for impairment in accordance with theFinancial Accounting Standards Board’s Statement of Financial AccountingStandards No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.”  When events or circumstances indicate that an assetshould 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.

 

·                    AccruedProgressive Slot Jackpots — Accrued progressive slot jackpots consist ofestimates for prizes relating to various games that have accumulated jackpots.We have recorded the cost of these anticipated payouts as a reduction of casinorevenues and the cost is included as a component of accrued liabilities.

 

·                    Contingencies— We assess 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, 2006, we have determinedthat no accruals 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.

 

There aredifferences between financial statements prepared in accordance withGovernmental Accounting Standards Board (“GASB”) pronouncements and thoseprepared 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 statement of revenues,expenses and fund deficit as income before distributions to the Tribe would notbe different if we followed all FASB pronouncements to determine net income andwould be the most comparable amount to net income computed under FASBpronouncements. We are an unincorporated instrumentality created by tribal lawand accounted for as a separate fund of the Tribe; as such there is no owners’or shareholders’ (deficit) equity as traditionally represented under FASBpronouncements. The most comparable measure of owners’ (deficit) equitypresented on our balance sheet would be Fund Deficit.

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**Results of Operations**

 

The followingdiscussion and analysis should be read together with the Company’s financialstatements and related notes thereto included in Item 1 in this Form10-Q/A and gives effect to the restatement discussed in Note 14 of the Notes toFinancial Statements.

**Comparison of the three months endedMarch 31, 2006 and 2005**

 

*Netrevenues*. Our net revenues for the three months endedMarch 31, 2006 decreased by $0.3 million to $31.6 million from $31.9million for the three months ended March 31, 2005. The decrease isattributed to the lack of access to our Casino from the Geyserville Bridge inGeyserville, California which was closed from January 1, 2006 through the dateof this filing.  The Geyserville Bridge approach is one of the primaryroutes to our Casino.  The new Geyserville Bridge is expected to betterwithstand significantly more rainfall and flooding than the previousbridge.  Approximately 96.5% of our net revenues, net of promotionalallowance, were from our gaming activities in the first quarter 2006. Wegenerated $26.8 million, or 84.8% of our net revenues, from gaming devices, netof respective promotional allowances of $2.0 million, and $3.7 million, or11.7% of our net revenues, from table games, net of respective promotionalallowance of $37,000 for the three months ended March 31, 2006 compared to$27.7 million from gaming devices, or 86.5% of our net revenues, net ofrespective promotional allowance of $0.1 million, and $3.4 million, or 10.7% ofour net revenue from table games, net of respective promotional allowance of$0, for three months ended March 31, 2005. Our win per slot machine per day was $190 in the first quarter 2006,which decreased by $5 from $191 in the first quarter 2005. The change in winper slot machine per day is also attributed to the Geyserville Bridge Closure.

We generated $1.0million, net of promotional allowance of $0.5 million for the three monthsended March 31, 2006, and $0.8 million, net of promotional allowance of$0.7 million, in food, beverage and retail sales for the three months endedMarch 31, 2005. The retail value of our food and beverage provided to customerswithout charge is included in gross revenues and then deducted as promotionalallowances.

*PromotionalAllowances*. Promotional allowances for the three months endedMarch 31, 2006 were $2.5 million, or 8.0% of net revenues, compared to $0.8million, or 2.4% of net revenues, for the first quarter 2005. The increase inpromotional allowances is attributable to the use of e-coupons.  E-couponscannot be cashed out and requires the patron to use their Players Clubcard.  This technology was not available in Q1 2005.

*Operatingexpenses*. Operating expenses for the three months endedMarch 31, 2006 were $23.5 million, or 74.2% of net revenues, compared to$22.0 million, or 68.9% of net revenues, for the first quarter 2005. Theincrease in operating expenses is attributable to the Casino’s increasedoperating activities. Operating expense as a percentage of net revenuesincreased in selling, general and administrative expenses, due to an increasedmarketing effort to promote the Casino following the closure of the Casino onNew Year’s Eve due to flooding in the Geyserville, California area and thetraffic interruptions caused by the closure of the Geyserville Bridge.

Casino expenseincludes costs associated with our gaming operations and the allocation of foodand beverage expense related to the cost of complimentary activities. Casinoexpense for three months ended March 31, 2006 increased to $5.0 million,or 16.3% of Casino revenues, net of promotional allowances, from $4.7 million,or 15.3% of Casino revenues, net of promotional allowances for the firstquarter 2005.  The increase in Casinoexpense is attributable to increased operational and labor costs from theestablishment of the Poker room, and increases in participation fees on slotmachines from the increased number of machines with participatory feearrangements.

Food, beverage andretail expense for three months ended March 31, 2006 was $1.5 million, or155.6% of food, beverage ,and retail revenue, net of promotional allowances,increasing from $1.4 million, or 181.5% of food, beverage and retail revenuefor the first quarter 2005. We have increased our use of promotional food andbeverage as part of our marketing initiatives.  Our food, beverage andretail expense ratio is significantly higher than the industry average becausewe have utilized these amenities as an opportunity to build customer loyaltyrather than as a source of income.

14

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Selling, generaland administrative expense for three months ended March 31, 2006 increasedby $1.0 million to $11.4 million, or 36.0% of net revenues, from $10.4 million,or 32.7% of net revenues, for the first quarter 2005. The increase in selling,general and administrative expense is attributable to increased marketingefforts to promote the Casino following the closure of the Casino on New Year’sEve due to flooding in the Geyserville, California area and the trafficinterruptions caused by the closure of the Geyserville Bridge.

Depreciationexpense for three months ended March 31, 2006 was $2.9 million, comparedto $2.6 million, for the first quarter 2005. Depreciation expense was computedusing the straight-line method over the useful lives of property, plant andequipment. The increase in depreciation expense is due to the addition ofdepreciable assets. On December 1, 2004, we obtained a certificate ofsubstantial completion on the first of our three parking structures andcapitalized $22.6 million in related construction costs. We started todepreciate the first of our three parking structures in December 2004. Theremaining structures were substantially complete on December 29, 2004.Depreciation on the remaining structures began January 1, 2005.

We began payingthe credit enhancement fee in June 2003. The credit enhancement fee was$1.6 million, or 5.1% of net revenues, for three months ended March 31,2006, compared to $1.9 million, or 6.1% of net revenues, for the first quarter2005. The decrease is attributable to lower net income.

Gaming commissionand surveillance expense for three months ended March 31, 2006 increasedby $0.2 million to $0.7 million, from $0.5 million for the first quarter 2005.This is attributable to adding surveillance costs to Gaming commission expensestarting the quarter ended September 30, 2005 and an increase inregulatory staffing. Gaming commission and surveillance costs for the firstquarter 2006 and the first quarter 2005 were $722,741 and $536,613,respectively.  The Gaming commission and surveillance expense consists ofour reimbursement of the tribal gaming agency, known as the Dry Creek GamingCommission’s (“TGA”) costs in connection with the inspection of all gamingoperations within the Tribe’s reservation boundaries, enforcement of allprovisions of the tribal gaming ordinance, investigation of all allegations ofviolations of the tribal gaming ordinance, conducting or arranging forbackground investigations of all applicants for tribal gaming licenses, issuinggaming licenses in accordance with the tribal gaming ordinance and the compact,the payment of the salaries of the gaming commissioners and other employees ofthe TGA, surveillance costs and the payment of auditors fees.

Prior toJuly 1, 2005, TGA and surveillance costs were reimbursed by the Authorityas incurred. Tribal Gaming Commission expenses were reported as Gaming  Commission expenses and surveillance costs were reported in Selling, General andAdministrative Expenses on the Statement of Revenues, Expenses and Change inFund Balance. Effective July 1, 2005, the TGA adopted a regulation onpayments of regulatory fees from the Authority. Pursuant to the regulation, theTGA charges us a flat monthly fee of $235,000 to cover any operating expensesincurred by the TGA and surveillance, which are directly related and necessaryto the regulation of the Casino. Following the end of each calendar quarter,the TGA shall reconcile the monthly regulatory fee and actual operatingexpenses and make necessary adjustments. Beginning July 1, 2005, TGA andsurveillance expenses are being recorded in Gaming Commission and surveillanceexpenses on the Statement of Revenues, Expenses and Changes in Fund Balance.

Compact revenuesharing trust fund expense remained the same at $0.3 million for three monthsended March 31, 2006 and 2005. Compact revenue sharing trust fund expenseincludes payments associated with operating 1,600 gaming devices. These feesbecame payable by the Tribe when we commenced operations in September 2002and are based on the number of our gaming device licenses. Compact revenuesharing trust fund expense includes payments to the Revenue Sharing Trust Fund(“RSTF”) as required by our Compact with the State of California. The Tribe isobligated to remit certain fees to the California Gambling Control Commission (“CGCC”)on a quarterly basis for inclusion in the RSTF. The RSTF is for the benefit oftribes that have no or limited gaming. We pay these fees on behalf of theTribe.

*Incomefrom operations.* Income from operations for three monthsended March 31, 2006 was $8.2 million, or 25.8% of net revenues, comparedto $9.9 million, or 31.1% of net revenues, for the first quarter 2005. Thedecrease in income from operations is attributable to the Casino’s increasedmarketing and promotional efforts following the closure of the Casino on NewYear’s Eve due to flooding in the Geyserville, California area and the trafficinterruptions caused by the closure of the Geyserville Bridge.

*Otherexpense, net.* Other expense, net for three months endedMarch 31, 2006 decreased to $5.0 million, or 15.9% of net revenues, from$5.3 million, or 16.8% of net revenues, for first quarter 2005. Other expense,net included $5.2 million of interest expense for the three months endedMarch 31, 2006, compared to $5.3 million of interest expense for the firstquarter 2005. No interest costs were capitalized in 2005 or 2006.

*Incomebefore distributions to the Tribe*. Income beforedistributions to the Tribe for three months ended March 31, 2006 decreasedby $1.4 million to $3.1 million, or 9.9% of net revenues, from $4.6 million, or14.3% of net revenues, in the first quarter 2005.

15

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**Liquidity and Capital Resources**

 

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

Construction ofour Casino and infrastructure improvements commenced on April 1, 2002. Thefirst portion of our gaming facility was completed in September 2002. Asof March 31, 2006, we had spent approximately $155.7 million on theplanning, development and construction of our gaming facility, infrastructure,furniture, fixtures and equipment excluding the expansion project. We financedthe development with borrowings and development advances.

We originallyexpected completion of our expansion project to cost approximately$64.6 million, which we planned to fund with $61.4 million from the netproceeds of the offering of our Notes (the “Notes Offering”) and $3.2 millionfrom an advance from the Tribe. From the proceeds from the Notes Offering, wehad also placed an additional $10.0 million in a construction escrow account tobe available to fund additional construction contingencies. The originalexpansion budget included $35.4 million for the three parking structures,$24.1 million for infrastructure improvements and a $5.1 millionconstruction contingency.

During the springof 2004, we revised our budget for the expansion project to approximately $73.7million. We have spent $75.8 million as of March 31, 2006 on design andconstruction, which was funded through our restricted cash and cash fromoperations. The excess expenditure of $2.1 million is due to the out of scopework related to our infrastructure portion of the project, which was funded byour operating cash flow. Our final budget estimate is comprised of $39.4million for the three parking structures, which is $0.5 million more than ouroriginal budget, and $34.3 million for infrastructure improvements, which is$8.6 million more than our original estimate. The total cost for the expansionproject was greater than original estimates because in an effort to expediteconstruction, we commenced construction before all design documents werefinalized, which resulted in inefficiencies and modifications that causedactual construction costs to exceed budgeted amounts. In addition, theinfrastructure improvements portion of our expansion project resulted in higherthan expected costs due to weather delays and to unforeseeable soil conditions,which required us to substantially increase the scope of the work and quantityof the construction material.

As ofMarch 31, 2006, we spent $0.8 million on the development of anapproximately 18-acre parcel of land adjacent to the Tribe’s reservation(referred to as the “Dugan Property”) which is expected to include anadditional access road to our Casino. We have $4.5 million remaining in arestricted account funded from the proceeds of our Notes Offering for thedevelopment of the Dugan Property.

Our capitalexpenditures for the three months ended March 31, 2006 and 2005 were $1.2million and $6.2 million, respectively. The decrease in 2006 is primarilyattributable to the completion of our expansion project and infrastructureimprovements in the first quarter of 2005.

As ofMarch 31, 2006, we had cash and cash equivalents net of restricted cash of$25.2 million, as compared to $17.6 million, as of December 31, 2005. Asof March 31, 2006, we had restricted cash of $7.2 million, as compared to$7.4 million, as of December 31, 2005. Our principal source of liquidityduring the three months ended March 31, 2006 consisted of cash flow fromoperating activities. Net cash provided by operating activities for threemonths ended March 31, 2006 was $12.3 million, a decrease of $0.9 millionfrom $13.2 million in the first quarter of 2005. The decrease in our net cashprovided by operations is a result of increases in our selling, general andadministrative expenses resulting from efforts to promote the Casino followingthe flooding in the Geyserville, California area at the beginning of the yearand the closure of the Geyserville Bridge.

Restricted cashconsists 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.

Net cash used forcapital and related financing activities for the three months endedMarch 31, 2006 was $1.6 million, compared to $14.2 million net cashused in capital and related financing activities for three months endedMarch 31, 2005. Cash flow used in capital and related financing activitieswas primarily for payment of the credit enhancement fees. Cash flow used innon-capital financing activities for the three months ended March 31, 2006was $3.0 million, an increase of $0.8 million from $2.2 million, for threemonths ended March 31, 2005. Cash flow used in non-capital financingactivities consisted of distributions to the Tribe. On April 1, 2005, ourpayments to the Tribe were allowed to increase from $0.5 million per month to$1.0 million under the Indenture.

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We believe thatexisting cash balances, cash from operations, as well as permitteddisbursements from our restricted cash escrow accounts will provide adequatefunds for our working capital needs, planned capital expenditures and debtservice requirements for the foreseeable future. However, our ability to fundour operations, make planned capital expenditures, make scheduled debt paymentsand refinance our indebtedness depends on our future operating performance andcash flow, which in turn, are subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control.Additionally, the Indenture limits our ability to incur additionalindebtedness.

**ContractualObligations as of March 31, 2006**

The followingtable summarizes our contractual obligations and commitments as ofMarch 31, 2006:
| ** **                           | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
|--------------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|------------|
| Long-term debt  obligations (a) |       | $         | 200,046,960 |            | $          | 16,332             |       | $                  | 29,167     |   | $ | 200,001,461 |   |
| Operating lease  obligations         |       | 1,952,349 |        | 981,945         |       | 969,220            |       | 1,184              |       |
| Capital lease  obligations           |       | 241,256   |        | 86,794          |       | 154,462            |       | —             |       |
| Total obligations (b)                |       | $         | 202,240,565 |            | $          | 1,085,071          |       | $                  | 1,152,849  |   | $ | 200,002,645 |   |

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(a)             Excluded fromlong-term debt obligations above are interest payments of $19.5 million in 1year; $39.0 million in 2-3 years; $39.0 million in 4-5 years and $16.4 millionin more than 5 years.

(b)            TheCompact requires us to pay a quarterly fee of $0.4 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 TGA, the CGCC and the National Indian GamingCommission. Changes in applicable laws or regulations could have a significantimpact on our operations.

OnSeptember 13, 2004, the Department of Alcoholic Beverage Control (“ABC”)denied the Tribe’s application for a liquor license based on the State FireMarshal’s interpretation of the Uniform Building Code. In May 2005, anAdministrative Law Judge heard the Tribe’s appeal of the ABC’s denial andrecommended that the ABC reverse itself and approve the license. OnAugust 25, 2005, the ABC announced that, effective October 11, 2005;it would adopt the Administrative Law Judge’s decision to approve the licensetransfer pending a hearing on protests filed by citizens and governmentofficials. The ABC has received over 65 protests against the license fromcitizens and government officials. The ABC held a hearing on the protests fromMarch 7 to March 9, 2006. The deadline for filing post hearing briefshad been scheduled for early May 2006 and the judge was to make hisdecision within 30 days after receipt of the final brief. However, onApril 21, 2006, the California 4th District Court of Appeal issued anunpublished decision which held that “the applicant bears the burden of proofregarding the applicant’s eligibility for a liquor license from the start ofthe application process until the Department makes the final determination.”  Coffin v. Department of Alcoholic BeverageControl (Barona Tribal Gaming Authority Real Party in Interest  , No. D047218, Alcoholic BeverageControl Appeals Board Case Number AB 8336. On May 4, 2006, theadministrative law judge on this matter suspended the deadline for filingwritten briefs until such time as the Appellate Court acts on requests tocertify the decision for publication. On May 12, 2006, the Court of Appealcertified the decision for publication. Therefore, the Tribe’s case may have tobe reheard in order to include references to the appropriate standard of proof.Once the judge makes a decision to approve or deny the license transferapplication, it may be appealed by any parties to the proceeding so long as theappeal is filed within forty (40) days of the ABC’s decision. The first appealis to the ABC Appeals Board, and its decision may be appealed to the CaliforniaState court system.

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**

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

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**ITEM 4.  CONTROLS AND PROCEDURES**

**Evaluation of Disclosure Controls and Procedures**

We maintaindisclosure controls and procedures that are designed to ensure that theinformation required to be disclosed in our reports filed with, or furnishedto, the SEC, pursuant to the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), 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, Principal Financial Officer and Chief Operations Officer, asappropriate, to allow timely decisions regarding required disclosure based onthe definition of “disclosure controls and procedures” in Rule 13a-15(e) and15d-15(e) of the Exchange Act.

Our current Chief Executive Officer and AssistantFinancial Controller (Principal Financial Officer) have reviewed and evaluatedthe effectiveness of our disclosure controls and procedures (as defined inExchange Act Rules 240.13a — 15(e) and 15d — 15(e)) as of the end of thequarterly period ended June 30, 2006 and have concluded that our “disclosurecontrols and procedures” as of the end of the period covered by this report,which had previously been concluded to be effective, were not effective for theperiod covered by this report as a result of the restatement described in Note14 to the financial statements. Since the end of the period covered bythis report, there have been personnel changes that have impacted ourdisclosure controls and procedures. Our disclosure controls and procedures aredesigned to provide reasonable assurances of achieving its objectives.

** **

**PART II.OTHER INFORMATION**

**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**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| Dated: April 17, 2007 | RIVER ROCK ENTERTAINMENT AUTHORITY  (Registrant) |
|-----------------------|--------------------------------------------------|
|                  |                                             |
|                  |                                             |
|                  | By:                                              | /s/ SHAWN S.  SMYTH |
|                  |                                             | Shawn S. Smyth,  Chief Executive Officer |
|                  |                                             |   |
|                  |                                             |   |
|                  |                                             |   |
|                  | By:                                              | /s/ JACOB A.  COUGHLIN |
|                  |                                             | Jacob A.  Coughlin,  Assistant Financial Controller (Principal Financial Officer) |

 

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**EXHIBIT INDEX**
| Exhibit No. | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                   |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1             |       | Certification by Shawn S. Smyth, Chief Executive  Officer pursuant to Exchange Act Rules 13a-14(a) and  15d-14(a) (filed herewith)                                                                                                                                             |
| 31.2             |       | Certification by 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 annual 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 beincorporated by reference into any filing of River Rock Entertainment Authoritywhether made before or after the date hereof, regardless of any generalincorporation language in such filing.

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