** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D. C. 20549**

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**FORM 10-K**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe fiscal year ended December 31, 2006**

**OR**

**o**                                 TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from           to          **

**CommissionFile Number: 333-115186**

**RIVER ROCK ENTERTAINMENT AUTHORITY**

(Exact name of registrant asspecified in its charter)

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

 

**3250 Highway 128 East**

**Geyserville, California 95441**

**(707)857-2777**

(Address, including zip code, and telephone number, 

including area code, ofregistrant’s principal executive offices)

**Securitiesregistered pursuant to Section 12(b) of the Act:**

|                      |   | Name of Each  Exchange |
|----------------------|--------|------------------------|
| Title of Each  Class |   | On Which  Registered   |
| **NONE**             |   | **NONE**               |

 

**Securities registered pursuant to Section 12(g) of theAct:**

Title of Class

**NONE**

Indicate by check mark if registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act. Yes oNo x

Indicate by check mark if registrant is not requiredto file reports pursuant to Rule 13 or Section 15(d) of the Act. Yes xNo o

Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding twelve months (orsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes o No x

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is aLarge Accelerated filer, an Accelerated filer, or a Non-accelerated filer (asdefined in Exchange Act Rule 12b-2). Large Accelerated Filer oAccelerated Filer o Non-acceleratedFiler x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act) Yes oNo x

The aggregate market value of common stock held bynon-affiliates of the registrant was $0 on the last business day of theregistrant’s most recently completed second fiscal quarter (June 30,2006).

The registrant has nooutstanding common equity.

**DocumentsIncorporated By Reference**

None.

 

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**INDEX TO FORM 10-K**
|           | ** ** | ** **                                                                                                          | ** ** | ** ** |
|-----------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
|      |       | PART I                                                                                                              |       |       |
| Item  1.  |       | Business                                                                                                            |       |       |
| Item  1A. |       | Risk  Factors                                                                                                       |       |       |
| Item  2.  |       | Properties                                                                                                          |       |       |
| Item 3.   |       | Legal Proceedings                                                                                                   |       |       |
| Item 4.   |       | Submission of  Matters to a Vote of Security Holders                                                                |       |       |
|      |       | PART II                                                                                                             |       |       |
| Item 5.   |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       |       |
| Item 6.   |       | Selected Financial  Data                                                                                            |       |       |
| Item 7.   |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       |       |
| Item 7A.  |       | Quantitative  and Qualitative Disclosure About Market Risk                                                          |       |       |
| Item 8.   |       | Financial  Statements and Supplementary Data                                                                        |       |       |
| Item 9.   |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |       |       |
| Item 9A.  |       | Controls and  Procedures                                                                                            |       |       |
| Item 9B.  |       | Other Information                                                                                                   |       |       |
|      |       | PART III                                                                                                            |       |       |
| Item 10.  |       | Directors and  Executive Officers of the Registrant                                                                 |       |       |
| Item 11.  |       | Executive  Compensation                                                                                             |       |       |
| Item 12.  |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |       |       |
| Item 13.  |       | Certain  Relationships and Related Transactions                                                                     |       |       |
| Item 14.  |       | Principal  Accountant Fees and Services                                                                             |       |       |
|      |       | PART IV                                                                                                             |       |       |
| Item 15.  |       | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                                                    |       |       |

 

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**CAUTIONARY STATEMENT**

*Exceptfor the historical financial information contained herein, the mattersdiscussed in this report on Form 10-K (as well as documents incorporated hereinby reference) may be considered forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934, as amended. Such forward-lookingstatements are based upon current expectations that involve risks anduncertainties and include declarations regarding the intent, belief or currentexpectations of us and our management and may be signified by the words “believes,”“anticipates,” “plan,” “expects,” “intends” and similar expressions. Our actualresults and the timing of certain events may differ significantly from theresults discussed in the forward-looking statements. Factors that might causesuch a discrepancy include, but are not limited to, those discussed in “RiskFactors” and elsewhere in this report. All forward-looking statements in thisdocument are based on information available to us as of the date hereof, and weassume no obligation to update any such forward-looking statements, whether asa result of new information, future events, or otherwise. All discussion inthis report should be read in conjunction with our financial statements and theaccompanying notes contained in this report.*

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

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**PART I**

**Item 1.Business.**

**OVERVIEW**

River Rock Entertainment Authority (“we,” “us,” “our”or the “Authority”) is a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians of California (the “Tribe”). The Tribe is afederally recognized Indian tribe with 947 enrolled members, with anapproximately 75-acre reservation in Sonoma County, California. We were formedin 2003 as an unincorporated governmental instrumentality of the Tribe, to ownand operate the River Rock Casino in Sonoma County, California. The River RockCasino had previously operated as a wholly-owned governmental operatingproperty of the Tribe.

The Indian Gaming Regulatory Act of 1988, (“IGRA”) asamended, permits federally recognized Indian tribes to conduct casino gaming operationson certain Indian lands, subject to, among other things, the negotiation of acompact with the affected state. The Tribe and the State of California enteredinto a compact (the “Compact”) in September, 1999 which became legallyeffective when it was approved by the U.S. Department of the Interior andnotice of approval was published in the Federal Register in May, 2000. TheCompact authorizes certain forms of Class III casino gaming, including slotmachines and house-banked card games.

Our physical address is 3250 Highway 128 East,Geyserville, California 95441, our mailing address is P.O. Box 908 Healdsburg,California 95448 and our telephone number is (707) 857-2777.

**Our River Rock Casino**

We own and operate the River Rock Casino, a gaming andentertainment facility located on the Tribe’s reservation, approximately 75miles north of San Francisco, California. Our 62,000 square-foot gaming andentertainment facility, which is located in the Alexander Valley, has views ofthe surrounding countryside, is open 24-hours a day, seven days a week, andcurrently features:

·                  35,500 square feet of gaming spacecontaining 1,570 slot and video poker gaming machines, 22 table games featuringBlackjack, Three Card Poker, Mini Baccarat and Pai Gow Poker, and 6 tablesfeaturing Texas Hold’em Poker. We offer state-of-the-art gaming devicesincluding video poker, video keno, progressive slots and guest favorites, suchas Fort Knox, Red Hot 7’s, Hot Shot, Jackpot Party, Quick Hits and othervarious themes;

·                  both smoking andnon-smoking gaming rooms in order to satisfy customer preferences;

·                  the PlayersClub, a player tracking system which offers our guests incentives foradditional play;

·                  the Quail Run Restaurant, offering24-hour menu dining, with lunch, dinner and Sunday brunch buffets, and 152indoor seats and 96 outdoor seats, overlooking the Alexander Valley wine regionand the Russian River;

·                  two snack bars, a lounge, the OakBar, which offers “bar top” video poker games in an elegant setting, a giftshop and a historic and contemporary Pomo basketry and art display;

·                  three parking structures and anadjacent parking lot allows us to accommodate approximately 1,584 customervehicles;

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·                  an Arts and Crafts CaliforniaBungalow-style design and furnishings, incorporating Native American elements,that feature a cultural arts collection of traditional and contemporary Pomoart, including historical basketry for which the Tribe is known. The interiorof our gaming facility utilizes an extensive amount of wooden casework andnatural rock to emphasize the architectural style found throughout Californiawine country. In keeping with this motif, our gaming facility’s counters areconstructed of natural stone and wood, and oak wainscoting grace the food andbeverage facilities.;

·                  a location in the heart of thebeautiful Alexander Valley with spectacular views of the surroundingcountryside. Guests entering our gaming facility are treated to a large,open-beamed porte cochere that faces out towards sweeping vistas of AlexanderValley vineyards. Our gaming and entertainment facility was designed tocapitalize on the scenic vistas with the food and beverage facilitiesstrategically placed to feature the expansive views;

In addition, to enhance the comfort of our guests, wehave installed a state-of-the-art ventilation system that greatly reducescigarette smoke and impurities, circulates air from the ground level andprovides 100% fresh-air return. Our gaming facility also incorporates otherenvironmentally sensitive engineering features, including irrigation usingsurplus wastewater and non-intrusive lighting in the parking lot. Furthermore,our state-of-the-art back-up and redundant generators are designed to provideelectricity in the event of a power failure.

We maintain a digital surveillance system that tracksthe entire casino floor to secure our facility and operations. We employ a 61officer security force.

**Our Market**

Our gaming facility is accessible to all the residentsof the San Francisco Bay area, including those within Sonoma, Marin, Mendocino,Napa, San Mateo, Contra Costa, San Francisco, Alameda and Lake Counties. Ourprimary market thus includes the major Bay area metropolitan cities of SanFrancisco and Oakland, and the smaller cities of San Rafael, Berkeley, SantaRosa and Petaluma. According to 2004 Scarborough, Simmons & MRI studies,there are 6.9 million residents in the greater San Francisco Bay Area andsurrounding counties and the median household income for the San Francisco BayArea was approximately $73,864 per annum.

**Our Marketing Strategy**

Our marketing strategy continues significant focus onincreased drive-up volume. Our advertising program reallocated our use of manybroad reach mediums to a more targeted direct mail program, aimed at thegrowing player database. Our use of the Players Club database identifies newprofitable market segments that we are reaching with our direct mail program.Other elements of our marketing program included:

·                  tailoredprograms to increase Players Club Card sign-ups and usage;

·                  implementationof a sales program to tap into the annual tourism market;

·                  continueduse of special events and promotions to broaden our market share; and

·                  maintenanceof the bus program as a secondary mode of attracting guests to our gaming facility.

**OurBusiness Strengths**

*StrongMarket Demographics.*     Our gamingfacility is easily accessible by car for nearly all the approximately6.9 million residents of the San Francisco Bay area market, including themajor metropolitan cities of San Francisco 

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and Oakland and the smaller cities of San Rafael,Berkeley, Santa Rosa and Petaluma. We also benefit from the approximately7.0 million annual visitors to Sonoma County and the approximately4.9 million annual visitors to Napa County and the world-renowned wineriesand related amenities in our vicinity. Our gaming facility is convenientlylocated approximately three miles from Highway 101, a four-lane highway thatserves as a major thoroughfare between Los Angeles and Oregon.  Highway 101 travels directly through thenearby cities of San Francisco, San Rafael, Petaluma and Santa Rosa. Accordingto the California Department of Transportation, approximately 21.9 millionvehicles passed our facility on Highway 101 in 2004.

*LimitedCompetitive Environment and High Barriers to Entry.*     ClassIII casino gaming may not be conducted in California other than on certainlands held for the benefit of federally recognized Indian tribes and pursuantto negotiated compacts with California and approved by the U.S. Secretary ofthe Interior. We believe these restrictions significantly limit potentialfuture competition. We are not subject to any betting limits on Indian gamingactivities.

*HighQuality Products and Amenities.*     Ourgaming facility offers state-of-the-art gaming devices and table games in anupscale, relaxed gaming environment. Our gaming devices feature comprehensive,integrated cashless technology permitting faster wagering and payouts. Inaddition, our restaurant offers premium food and beverages and was designed tocapitalize on the spectacular views of the Alexander Valley. Our gaming andfood and beverage facilities emphasize a high level of customer service,created and maintained through comprehensive employee training.

*Emphasison Gaming Devices.*     Our gamingfacility emphasizes slot and video poker gaming devices, which we believe,based on industry studies, represents the most consistently profitable andlowest risk segment of the gaming business. We offer a wide variety of gamesnot only to attract guests but also to encourage them to play for longerperiods of time.

*SignificantCash Flow from Operations.*     Wecurrently generate significant cash flow from operations. In addition, becausethese are governmental operations, they are not subject to any local, state orfederal income taxes.

**Our Business Strategy**

Our strategy is to grow our business by increasing thenumber and duration of visits to our gaming facility, and increasing theaverage revenue per visit by offering an upscale gaming and entertainmentexperience. Throughout 2006, we engaged in significant marketing initiatives,such as television commercials, extensive billboards, print, broadcast,promotional and mail advertising programs.

*Implementour Expanded Marketing Plan.*     In2006 we continued with a comprehensive marketing plan to promote our locationas the closest and most accessible gaming facility to nearly all of theresidents of the San Francisco Bay area, Sonoma, Napa and Lake Counties. Thishelped promote our amenities and encouraged guests to become more familiar withour gaming facility, so they would visit more frequently and for longerdurations. Our marketing mediums included billboard signage in the SanFrancisco Bay area and along Highway 101, production of three televisioncommercials, more diverse print, broadcast, promotional and direct mailadvertising programs, and sponsorship of selected events, organizations andactivities. We also expanded our cooperative marketing programs with localbusinesses, wineries, hotels and restaurants.

*BuildCustomer Loyalty.*     We haveinstituted programs to engender loyalty from our customers by rewardingfrequent play. One such existing program is our Players Club.  This club qualifies customers for differinglevels of cash and awards based upon their level of slot and table game play.Our comprehensive player tracking system allows us to track wagering levels andlength of play.  This helps us evaluateand identify our best customers in order to provide incentives to foster customerloyalty and more frequent and longer visits. Our database of players has grownto 249,502 as of December 31, 2006. We have also promoted more frequent andlonger visits and increased wagering at off-peak demand periods throughpromotions such as our “Hot Nights, Cool Cash” and “Pick Your Dream Car”programs. These promotions offer customers cash rewards on weekday nights andhas resulted in increased net revenue whenever offered.

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*Capitalizeon the Tourism Appeal of the Alexander Valley and Wine Country.*     Thepicturesque Alexander Valley region is a premier tourist destination. We intendto capitalize on its appeal, including its reputation as one of California’spremier wine producing regions, to further expand our customer base. Ourlocation benefits from the large number of annual visitors to the worldrenowned wineries of Sonoma and Napa counties. Sonoma County receivesapproximately 7.0 million tourists annually and approximately4.9 million tourists visit Napa County annually.

*Operateour Facility as an Upscale Gaming and Entertainment Experience.*     Weoperate our facility as an upscale gaming and integrated entertainmentexperience, featuring quality service in a friendly environment. Our premiumfood and beverage operations supplement our gaming experience, offering highquality dining 24-hours a day. Our other features and amenities, including ourexpansive views, gift shop and cultural exhibit completes the  entertainment experience and creates a lively,exciting environment for our guests.

*Maintainour Bus Program.*     Through 2006,we maintained our line and charter bus program to provide customertransportation to our gaming facility. We believe that this program enabled usto maximize our number of guests during the off-peak times.  Our guests have appreciated the convenienceoffered by this program and we have experienced an increase in the use of ourbus program.  We operated an average ofapproximately 33 buses a day in 2006. Our bus program brings guests from SanFrancisco, San Mateo, Contra Costa, Alameda and Marin Counties.  Our River Rock Line Run guests pay between $8to $13 roundtrip to and from our Casino. Upon arrival, they receive anincentive package in the range of $15 to $25 to use on gaming in our Casino.Our special charter bus guests also receive $20 to use on gaming in our Casino.

**COMPETITION**

Federal and California law currently permits Class IIIcasino gaming only on federally recognized tribal lands pursuant to compactsnegotiated with the State of California and approved by the U.S. Secretary ofthe Interior. Class II gaming for tribes is permitted only on federallyrecognized tribal lands. There are currently 55 tribes operating 56 compactedgaming facilities in the State of California. The closest existing competitorsare the Hopland Sho-Ka-Wah Casino, located approximately 35 miles north of theTribe’s reservation, the Konocti Vista Casino, located approximately 45 milesnortheast of the Tribe’s reservation, and Cache Creek Indian Casino and Bingo,located approximately 40 miles east of the Tribe’s reservation. Severalpotential competitors are attempting to develop and open casinos near ourfacility. In April 2003, the Federated Indians of the Graton Rancheria, alsoknown as the Coast Miwoks, announced plans to purchase land in Sonoma Countynear Highway 37 and Lakeville Highway, approximately 20 miles south of ourgaming facility and closer to San Francisco. The announced plans includeconstruction of a casino-hotel complex that will be managed by Station Casinos,Inc. based in Las Vegas, Nevada.  As aresult of environmental opposition to the development of such location, theFederated Indians of the Graton Rancheria announced plans to move the proposedcasino-hotel complex to a site near Rohnert Park, California. The Rohnert ParkCity Council has approved an agreement with the Federated Indians of the GratonRancheria to share with Rohnert Park and various community groups,approximately $200.0 million over 20 years, to offset the impact of theproposed project. The Lytton Band of Pomo Indians is operating a gamingfacility with Class II gaming machines at the site of the former San Pablo CardRoom, located in the City of San Pablo, near Oakland, California, on land thatwas placed in trust for the Tribe, through congressional legislation. TheLytton Band has signed a compact with Governor Arnold Schwarzenegger foroperating Class III casino gaming on the San Pablo site, but the statelegislature has withheld its approval. Each project described above faces numerous obstacles includingnegotiation and approval of a compact with the State of California, approvalfrom the Bureau of Indian Affairs to put the land, on which the project wouldbe located, into federal trust on behalf of the tribe, and certain environmentalapprovals.

In addition, there are a number of other Indiantribes, including the Scotts Valley Band of Pomo Indians and the GuidivilleBand of Pomo Indians, who have announced preliminary plans to develop gamingprojects in the San Francisco Bay area. We also compete with other forms ofgaming such as statewide lotteries, live and simulcast pari-mutuel wagering andcard rooms.

Many of our competitors serve alcoholic beverages ontheir premises. We have not yet obtained a liquor license for our Casino. We hadinitially applied for a liquor license for our Casino in 2002. In September 2004, the Department ofAlcoholic Beverage Control (“ABC”) denied the Tribe’s application for a liquorlicense based on a building code interpretation by a state officer who waslater determined to lack jurisdiction to make a code determination, and did sowithout consulting the Tribe’s building code official having jurisdiction. TheTribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which ABC did as of October 2005, pending a hearing on the protests. The ABChas received approximately 65 protests to issuance of the license from variouscitizens and local government officials. The ABC had scheduled a hearing onthose protests in May 2007, which was recently continued by stipulation of theparties to August 2007 because the Tribe and various protestants are engaged insettlement discussions with respect to certain protest issues. The Tribeintends to vigorously defend its application and believes the protests arewithout merit.

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**EMPLOYEE AND LABOR RELATIONS**

As of December 31, 2006, we had 660 full and part-timeemployees. Our employees are not covered by any collective bargainingagreements. We believe that our relations with our employees are good.Provisions in a labor ordinance the Tribe was required to adopt, as part of the1999 compact agreement, permits opportunities for unions to attempt to organizeour labor force. In addition, a recent decision by the United States Court ofAppeals for the District of Columbia upheld a finding by the National LaborRelations Board that the National Labor Relations Act is applicable to tribalcasinos.

**REGULATION**

**General**

We are subject to special federal and tribal lawsapplicable to commercial relationships with tribes and the management andfinancing of casinos owned by an Indian tribe. In addition, we are regulated bycertain federal laws applicable to the gaming industry generally, with respectto the use of certain gaming equipment, and specifically applicable to theIndian gaming market. We are also regulated by the provisions of the Compact,which have been ratified under state law and are based in part on theCalifornia constitution and other state laws and policies. The followingdescription of the regulatory environment, in which Indian gaming takes placeand in which we operate our gaming facility, is only a summary and not acomplete recitation of all applicable law. Moreover, our regulatory environmentis more susceptible to changes in public policy considerations than others.Changes in these laws could have a material adverse impact on our operations.

**Applicability of Federal Law**

Federally recognized Indian tribes are independentgovernments, subordinate to the United States, with sovereign powers, except asthose powers may have been limited by Congress, by treaty, or, in certaininstances, by the public policy of the state in which the tribe’s lands arelocated. The power of Indian tribes to enact their own laws to regulate gamingderives from their sovereign right to govern and regulate their own affairs,particularly where it is consistent with federal law and the state’s publicpolicy. Indian tribes maintain their own governmental systems and often their ownjudicial systems. Indian tribes have the right to tax persons and businessesconducting business on Indian lands and also have the right to require licensesand to impose other forms of regulations and regulatory fees on persons andbusinesses operating on their lands.

**The Indian Gaming Regulatory Act of1988**

*RegulatoryAuthority.*     Since 1988, thesovereign right of tribes to operate and regulate gaming on their lands hasbeen subjected to the provisions of the Indian Gaming Regulatory Act of 1988 (“IGRA”).IGRA is administered by the National Indian Gaming Commission (“NIGC”), anindependent agency within the U.S. Department of Interior that exercisescertain regulatory responsibilities in connection with Indian gaming on behalfof the United States. The NIGC has authority to issue regulations governingtribal gaming activities, approve tribal ordinances for regulating Class II andClass III gaming (as described below), approve management agreements for gamingfacilities, conduct investigations and generally monitor tribal gaming. TheBureau of Indian Affairs, which is a bureau of the U.S. Department of theInterior, retains certain responsibilities under IGRA, such as the 

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approval of per capita distribution plans of gamingrevenues to individual tribal members and the approval of transfers of landsinto trust status for gaming. The Bureau of Indian Affairs also hasresponsibility to review and approve land leases and other agreements relatingto Indian lands. Criminal enforcement is a shared responsibility of the U.S.Department of Justice, and, depending on the terms of a tribal-state compactthat is in effect, the state in which the tribe is located, and the tribe.

The NIGC is empowered to inspect and audit all Indiangaming facilities, conduct background checks on certain persons associated withIndian gaming, hold hearings, issue subpoenas, take depositions, adoptregulations, assess fees and impose civil penalties for violations of IGRA.IGRA also provides for federal criminal penalties for illegal gaming on Indianland and for theft from Indian gaming facilities. The NIGC has adopted rulesimplementing certain provisions of IGRA. These rules govern, among otherthings, the submission and approval of tribal gaming ordinances or resolutionsand the maintenance of minimum internal control standards for the operation ofgambling games and equipment. IGRA and the NIGC regulations require an Indiantribe to have the sole proprietary interest in, and to maintain a high level ofresponsibility for, the conduct of any gaming on its lands. Tribes are requiredto issue gaming licenses under articulated standards, conduct or commissionfinancial audits of their gaming enterprises, perform or commission backgroundinvestigations for primary management officials and key employees, and maintainfacilities in a manner that adequately protects the environment and the publichealth and safety. These rules also set out review and reporting procedures fortribal licensing and background activities.

*Classesof Gaming.*     IGRA classifiesgaming that may be conducted on Indian lands into three categories: Class Igaming includes social games solely for prizes of minimal value or traditionalforms of Indian gaming engaged in by individuals as part of, or in connectionwith, tribal ceremonies or celebrations. Class II gaming includes bingo andpull tabs, lotto, punch boards, tip jars, instant bingo and other games similarto bingo if those games are played at the same location as bingo is played, andnon-banked card games (such as poker) if permitted within the state. Class IIIgaming includes all other forms of gaming, such as slot machines, table games,lotteries, sports betting and pari-mutuel wagering.

Class I gaming on Indian lands is within the exclusivejurisdiction of Indian tribes and is not subject to federal regulation underIGRA. Class II gaming is permitted on Indian lands if:

·                  thestate in which the Indian lands lie permits that gaming for any purpose by anyperson, organization or entity;

·                  thegaming is not otherwise specifically prohibited on Indian lands by federal law;

·                  thegaming is conducted in accordance with a tribal ordinance or resolution thathas been approved by the NIGC;

·                  anIndian tribe has sole proprietary interest and responsibility for the conductof gaming; and

·                  theprimary management officials and key employees are tribally licensed; andseveral other requirements are met.

Class III gaming is permitted on Indian lands if theconditions applicable to Class II gaming are met and, in addition, the gamingis conducted in conformity with the terms of a tribal-state compact (a writtenagreement between a tribe and the government of the state within whoseboundaries the tribe’s lands lie).

*Tribal-StateCompacts.*     IGRA requires Indiantribes to enter into tribal-state compacts in order to conduct Class IIIgaming. These tribal-state compacts may include provisions for the allocationof criminal and civil jurisdiction between the state and the Indian tribenecessary for the enforcement of these laws and regulations, taxation by theIndian tribe of the Class III gaming activity, remedies for breach, standardsfor the operation of the Class III gaming activity and maintenance of thegaming facility, including licensing, and certain other subjects that aredirectly related to the operation of gaming activities.

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Tribal-state compacts usually specify the types ofpermitted games, establish technical standards for gaming devices, entitle thestate to inspect casinos, require background investigations and licensing ofcasino employees, and require the tribe to pay a portion of the state’sexpenses for establishing and maintaining agencies that participate in theregulatory process provided in the compact. Some tribal-state compacts are forset terms, while others are for indefinite duration.

The Tribe entered into a Compact with the State ofCalifornia in September 1999, which became effective in May 2000, that permitsthe Tribe to engage in some forms of Class III gaming. The Compact will expireon December 31, 2020. For additional information see “Part I. Item 1.Business—Description of Material Agreements—The Compact.”

*TribalOrdinances.*     Under IGRA, exceptto the extent otherwise provided in a tribal-state compact as described below,and subject to certain oversight and enforcement authority by the NIGC, Indiantribal governments have primary regulatory authority over gaming on land withina tribe’s jurisdiction. Therefore, our gaming operations and persons engaged ingaming activities are subject to the provisions of the Tribe’s ordinances andregulations regarding gaming. The Tribe maintains a fully staffed tribal gamingagency (“TGA”), known as the Dry Creek Gaming Commission, to carry out theTribe’s regulatory responsibilities under IGRA, its ordinance, and the compact.

IGRA requires that the NIGC review tribal gamingordinances and authorizes the NIGC to approve these ordinances only if theymeet requirements relating to:

·                  the ownership,security, personnel background, recordkeeping and auditing of a tribe’s gaming enterprises;

·                  the use of therevenues from that gaming; and

·                  the protectionof the environment and the public health and safety.

**Licensing and RegistrationRequirements of the Compact and State Regulation**

*Compact.*     The Compact requires that anyperson who directly or indirectly extends financing to the Tribe’s gamingfacility or gaming operation must be licensed as a “financial source” by theTGA. However, as permitted by the Compact, the TGA has exempted federally andstate regulated banks and savings and loan associations, as well as persons whohold less than 10% of our $200.0 million of 9-3/4% Senior Notes, due 2011 (the “Notes”).For an applicant who is a non-exempt business entity, these licensingprovisions also apply to the entity’s officers, directors, principal managementemployees, owners (if an unincorporated entity), partners and greater than 10%shareholders. Under the Compact, a permanent license cannot be issued unlessthe TGA has conducted an investigation as to the suitability of the applicant.Any application for a gaming license may be denied, and any license issued maybe revoked, if the TGA determines the applicant to be unsuitable or otherwiseunqualified for a gaming license. Each license is subject to review forcompliance at least every two years.

Prior to receiving a license, an applicant must applyto the California Gambling Control Commission (“CGCC”) for a determination ofsuitability. If the TGA receives notice that the CGCC has determined that aperson is unsuitable, the Compact requires that the TGA revoke any license ithas issued to such person.

The Compact states that any agreement between theTribe and a “financial source” terminates upon revocation or non-renewal of thefinancial source’s license because of a determination of unsuitability by theCGCC. Upon such a termination, the Tribe’s only liability is for repayment ofall outstanding sums owed as of the termination date, exclusive of unpaidaccrued interest. Further, the Tribe is not permitted to enter into, orcontinue to make payments under, any financing agreement with anyone whoseapplication to the CGCC for a determination of suitability has been denied orhas expired without renewal.

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*Stateand Tribal Regulation.*     The CGCCand the TGA, pursuant to the authority created in a tribal-state joint powersboard known as the “Association,” have both adopted regulations that simplifythe licensing and registration process for certain large institutionalinvestors, both in the initial distribution of certain debt securities and thesecondary market.

Under these regulations, certain regulated financialinstitutions with at least $100.0 million invested in non-affiliatedsecurities may take advantage of an abbreviated licensing and certificationprocess. The regulations do not require any licensing or registration forpersons purchasing debt securities in the secondary market. However, unless aholder of debt securities is licensed or exempt from licensing, neither theholder nor the Trustee on the holder’s behalf will have any right to enforceany payment obligation relating to the debt securities. In addition, neitherthe Trustee nor the Tribe may make any payment of principal or interest on thedebt securities as a result of any enforcement action or default accelerationof debt security payments, except to a person who is licensed or exempt fromlicensing.

**Gaming Device Licenses**

Under the Compact and the other similar Class IIIcompacts entered into between the State of California and California tribes,each tribe is allowed to operate up to 2,000 Class III gaming devices (slotmachines), provided that licenses for at least 1,650 of those devices are heldby the tribe. There is also a limitation on the total number of Class IIIgaming device licenses that are available within the state. The Compact permitsthe Tribe to operate up to 350 gaming devices without licenses.

From March 2000 through December 2001, the Tribeobtained 1,250 gaming device licenses through a process conducted by a publicaccounting firm retained by a number of tribes under the Compact, thuspermitting the Tribe to operate up to a total of 1,600 gaming devices.Following the allocation, the California Attorney General opined that only theCGCC has the authority to issue gaming device licenses under the compacts andthe Governor of California ordered the CGCC to control and monitor the gamingdevice licensing process. In June 2002, the CGCC ratified all gaming devicelicense issued to the Tribe and the other tribes in the earlier process.

In accordance with the Compact and California law, theTribe is obligated to remit certain fees to the CGCC on a quarterly basis forinclusion in a Revenue Sharing Trust Fund (“RSTF”) maintained by the State ofCalifornia. The RSTF is for the benefit of tribes that have no or limitedgaming. The RSTF fees are fixed amounts per device, calculated on an annualbasis and paid quarterly. We pay these fees on behalf of the Tribe. RSTF feesfor the years ended December 31, 2006 and 2005 were $1.3 million for eachyear.

The U.S. Secretary of the Interior approved amendmentsto or approval of 10 gaming compacts between the State of California and someIndian tribes in California that were negotiated in June 2004. The new compactamendments allow the tribes who agreed to the amendment to have additional slotmachines, while imposing additional significant annual payments to the State ofCalifornia and requiring extensive mitigation and compensation to impactedlocal communities and provisions affecting customers and employees. The Tribedid not seek or enter into an amendment.

**Application for Liquor License**

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

 

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**DRY CREEK RANCHERIA BAND OF POMOINDIANS**

**Tribal Administration**

The Dry Creek Rancheria Band of Pomo Indians is afederally recognized, self-governing Indian tribe with 947 enrolled members.The reservation was established in 1915 under the authority of an ExecutiveOrder dated January 12, 1891. Pursuant to the Tribe’s Articles ofAssociation, the Tribe is governed by a Tribal Council composed of all votingmembers. Certain authority is delegated to elected tribal officers who comprisethe Board of Directors, consisting of a Chairperson, a Vice Chairperson, aSecretary/Treasurer and two members-at-large. The Secretary-Treasurer positionhas been vacant since December 12, 2006. The members of the Board of Directors of the Tribe are the same membersas our Board of Directors, but they do not serve in the same capacity.

**The Tribal Gaming Commission**

The Tribe enacted a tribal gaming ordinance in April1997, which was approved by the NIGC in September 1997. Among other matters,the gaming ordinance created and established the TGA as a governmentalsubdivision of the Tribe. The TGA consists of three commissioners andsupporting staff and is vested with the authority to regulate all gamingactivity conducted on the Tribe’s lands.

Each TGA Gaming Commissioner is appointed by theTribal Council to serve a four-year term. The tribal gaming ordinance and theCompact require that each Commissioner undergo a comprehensive background checkprior to his or her assuming office. Pursuant to the tribal gaming ordinance,the TGA is responsible for, among other matters, 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 andissuing gaming licenses in accordance with the tribal gaming ordinance and theCompact. Under law, our Casino cannot operate without TGA regulation.Therefore, the costs of such regulation, including the cost of operating theTGA have, since commencement of operations of the River Rock Casino, been paidby us and will continue to be paid by us.

**DESCRIPTION OF MATERIAL AGREEMENTS**

*The following is a summary of thematerial terms of our material agreements and material agreements of the Triberelating to our Casino. This summary does not restate these agreements in theirentirety. We urge you to read these agreements because they, and not thesesummaries, define our rights and obligations, and the rights and obligations ofthe Tribe, contained in the agreements. Copies of these agreements are includedas exhibits to this Form 10-K.*

**The Compact**

In September 1999, the State of California and theTribe entered into a Compact. Under its terms, the Compact was not effectiveuntil ratified by statute and a supporting state constitutional amendment waspassed by the California voters. On March 7, 2000, the California votersamended the state constitution and enacted the Indian Self-Reliance Amendment.The Amendment permits federally recognized Indian tribes to conduct Class IIIgaming in California, in accordance with compacts between such tribes and theState of California, subject to approval by the Secretary of the Interior. InMay 2000, the Secretary of the Interior approved the Compact, and that approvalbecame effective when it was published in the Federal Register on May 16,2000.

Under the Compact, the gaming activities that may beoffered by the Tribe include up to 2,000 Class III gaming devices, banked andpercentage card games, and any devices or games that are authorized by theCalifornia State 

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Lottery, provided that the Tribe does not offer suchgames through use of the Internet unless others in California are permitted todo so.

The Compact establishes limitations on Class IIIgaming that may restrict our gaming activities. Among those, which are ofimportance to our gaming facility, are those that require the Tribe to adoptand comply with California laws prohibiting cashing any check drawn against anypublic fund, free or reduced price alcoholic beverages, food or lodging as anincentive, the extension of credit for gaming activities, and persons under 18(or under 21 if alcohol may be consumed) to be present in any room where ClassIII gaming is offered, other than simply to pass through the room.

The Compact requires the State of California and theTribe to establish a method for licensing all key employees of a gaming entityand issuing work permits for other service employees. While the Tribe, as asovereign governmental entity, is not required to be licensed, the CaliforniaGambling Control Act applies to all others associated with Class III gaming atour gaming facility. To facilitate that licensing and comply with all otherprovisions of IGRA, in 1997 the Tribe adopted a tribal gaming ordinanceestablishing the TGA. The Chairman of the NIGC approved the Tribe’s gamingordinance in 1997.

Under the Compact, all persons connected with ourgaming facility are required to be licensed or to submit to a backgroundinvestigation under IGRA. All “Gaming Employees” and “Gaming Resource Suppliers”(as defined in the Compact) and certain other persons must be licensed by theTGA. Licenses granted by the TGA are subject to review and renewal every twoyears. Holders of licenses granted by the TGA must, except in limitedcircumstances, also be determined suitable by the CGCC to be employed by us.

The Compact requires the Tribe to adopt and enforceregulations to ensure the physical safety of casino patrons, to prevent illegalactivity, to maintain the regularity and integrity of gaming operations, and torequire an annual audit conducted by an independent certified publicaccountant.

The Compact requires the Tribe to carry publicliability insurance with initial limits of at least $5.0 million forpersonal injury and property damage claims. The Tribe is required to waive itssovereign immunity to the extent of the $5.0 million liability insurancelimits.

The Compact also requires the Tribe to adopt andcomply with standards no less stringent than federal workplace and occupationalhealth and safety standards, and to adopt and comply with standards no lessstringent than federal and state laws prohibiting employment discrimination.However, our tribal gaming ordinance permits us to give preference to Indiansin employment matters.

The Compact also mandates that the Tribe must followcertain procedures to assess the off-reservation environmental impact of anyreservation construction expansion projects. The procedures require the Tribeto give notice of a covered project, to determine whether a project will haveany significant adverse environmental impact, to accept and respond tocomments, to consult with the county board of supervisors, and to hold a publicmeeting.

**The Notes and the Indenture**

On November 7, 2003, we issued and sold our Notes in aprivate placement to certain “qualified institutional buyers” pursuant toRegulation 144A of the Securities Act of 1933, as amended (the “Notes Offering”).On June 21, 2004, pursuant to a registration rights agreement entered into inconnection with the issuance of the Notes, we consummated an offer to exchangeall of the Notes for $200.0 million in aggregate principal amount of 9-3/4%senior notes due 2011 (the “Outstanding Notes”) registered with the Securitiesand Exchange Commission. The terms of the Outstanding Notes are substantiallyidentical to the terms of the Notes, except that the transfer restrictions andregistration rights applicable to the Notes do not apply to the OutstandingNotes. We did not receive any additional proceeds from the exchange offer. TheOutstanding Notes and the Notes were issued under an Indenture, dated as ofNovember 7, 2003 (the “Indenture”), among us, the Tribe and U.S. Bank NationalAssociation, as trustee. The terms of the Outstanding Notes include thosestated in the Indenture, as well as those made part of the Indenture byreference to the Trust Indenture Act of 1939, as amended.

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The net proceeds from the Notes Offering were used torepay a majority of our outstanding indebtedness, to fund the completion ofthree parking structures and related infrastructure improvements, to fund thesettlement of litigation involving the Tribe, to fund the acquisition of realproperty adjacent to the Tribe’s reservation, to build an additional accessroad to the Tribe’s reservation through such property, and to repay outstandingindebtedness of the Tribe.

The Outstanding Notes bear interest at a fixed rate of9-3/4% per year, and mature on November 1, 2011. The Outstanding Notes aresecured by a first priority pledge of our revenues and substantially all of ourexisting and future tangible and intangible personal property. The OutstandingNotes are senior debt.  As furtherdescribed in the Indenture, the Outstanding Notes are subject to optional andmandatory redemption, and in some cases, holders of the Outstanding Notes maybe required to surrender them for redemption by us (or to otherwise dispose ofthe Outstanding Notes) if certain gaming regulations are not satisfied.

The Indenture includes affirmative and negativecovenants that limit our ability to borrow money, create liens, sell assets,engage in transactions with affiliates, engage in other businesses, open othergaming facilities, engage in certain mergers and consolidations, make certaininvestments, make certain accelerated payments on our indebtedness that issubordinated to the Outstanding Notes, and make payments to the Tribe.

**Cash Collateral and DisbursementAgreement**

Pursuant to the Cash Collateral and DisbursementAgreement among U.S. Bank National Association and Wells Fargo Bank, N.A. asdisbursement agents, U.S. Bank National Association, as the trustee for theholders of the Outstanding Notes, Merritt & Harris, our independentconstruction consultant, the Tribe and us, a portion of the net proceeds of theNotes Offering was placed into a construction disbursement account, aconstruction escrow account, the Dugan Property improvements account, and anoperating account, all to be disbursed by the disbursement agents pursuant tothe Cash Collateral and Disbursement Agreement.

*Construction Disbursement Account.*     Approximately$61.1 million of the net proceeds of the Notes Offering was deposited intoa construction disbursement account and was used to fund the design andconstruction of our expansion project. All funds in the constructiondisbursement account are pledged to the trustee for the benefit of itself, andthe holders of the Outstanding Notes, until disbursed by U.S. Bank NationalAssociation in accordance with the Cash Collateral and Disbursement Agreement.Approximately $3.5 million from the proceeds from the Notes Offering wasto be used to reimburse the Tribe for payments made to Swinerton Builders priorto the sale of the Notes. We have agreed to reimburse those costs to the Tribeand as of December 31, 2006, we have reimbursed the entire amount to the Tribe.The construction disbursement account had $2.6 million remaining as ofDecember 31, 2006.

*Construction Escrow Account.*     $10.0 millionof the net proceeds of the Notes Offering was deposited into a constructionescrow account to fund qualifying construction cost overruns.  All funds in the construction escrow accountare pledged to the trustee for the benefit of itself and the holders of theOutstanding Notes until disbursed by U.S. Bank National Association inaccordance with the Cash Collateral and Disbursement Agreement.  Balances remaining in the construction escrowaccount after substantial completion of the expansion project may be disbursedfrom the construction escrow account to repay our subordinated indebtedness, asprovided in the Intercreditor Agreement. We used $10.0 million in the account to pay off the Subordinated Note onMarch 13, 2005.  The construction escrowaccount has $0.1 million remaining as of December 31, 2006.

*Dugan Property Improvements Account.*     $5.0 million of the netproceeds of the Notes Offering was deposited into the Dugan Property improvementsaccount and will be used to build an additional access road to the Tribe’sreservation through the Dugan Property and related improvements to the DuganProperty. All such funds will be held in the Dugan Property improvementsaccount and pledged to the trustee for the benefit of itself and the holders ofthe Outstanding Notes until disbursed by U.S. Bank National Association inaccordance with the Cash Collateral and Disbursement Agreement. Subject tocertain exceptions, U.S. Bank National Association, as the disbursement agent,will disburse funds from the Dugan Property improvements account only uponcertification by us that we have adequate funds to complete the road project,and upon the satisfaction of the other disbursement conditions set 

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forth in the Cash Collateral and DisbursementAgreement. If there are funds in the Dugan Property improvements account afterthe road project is completed, such balance may be transferred to the operatingaccount. The Dugan Property improvements account had $4.5 millionremaining as of December 31, 2006.

*Operating Account.*     Wedeposit all of our cash and cash equivalents in excess of $3.0 millioninto the operating account on a daily basis. All such funds are held in the operating account and pledged to thetrustee for the benefit of itself and the holders of the Outstanding Notesuntil disbursed in accordance with the terms of the Cash Collateral andDisbursement Agreement. Funds may generally be disbursed by Wells Fargo Bank,N.A. from the operating account for all purposes permitted by the Indenture.

*Investments; Pledge of Accounts.*     Eachdisbursement agent is required to invest any money held by it in the collateralaccounts established pursuant to the Cash Collateral and DisbursementAgreement, in cash equivalents and such government securities, as may bedirected in writing by us from time to time. Any income or gain realized as aresult of such investment is required to be held as part of the applicableaccount and reinvested as provided in the Cash Collateral and DisbursementAgreement. All funds, securities and other assets in the collateral accountsestablished pursuant to the Cash Collateral and Disbursement Agreement arepledged to the trustee for the benefit of the holders of the Outstanding Notes.

**Construction Contracts**

In April 2004, we entered into a guaranteed maximumprice contract which includes work performed and cost related thereto fromOctober 2003 with Swinerton Builders as general contractor for the parkingstructures portion of our expansion project, and as the design-builder of theelectrical and mechanical systems of the expansion project. The guaranteedmaximum price of the parking structures contract is approximately$37.1 million. While the guaranteed maximum price contains a contractorcontingency for certain cost overruns, the contractor will remain liable forall additional costs not resulting from scope changes requested by us orcircumstances not within the contractor’s control. We have granted thecontractor a limited waiver of our sovereign immunity from unconsented suits.Since this contract includes work performed and costs related thereto sinceOctober 2003, we and the Tribe have made payments to Swinerton Builderspursuant to this contract of approximately $36.8 million through December 31,2006.

**Lease for Casino**

In May 2002, the Tribe entered into a lease withSprung Instant Structures, Inc. for two dome-shaped structures that house ourgaming facility. The lease agreement was assigned to us and was renewed throughAugust 17, 2007. Monthly payments are $36,230. At the end of the leaseterm, at our option, 100% of the first four lease payments or, if all suchpayments have been timely made, 40% of the last twenty four lease payments willbe credited towards the $1.5 million purchase price, which would result ina purchase price of $1.1 million, assuming all twenty four lease paymentsare timely made. The option may be exercised by payment of the full purchaseprice, less the applicable credit, on or before the expiration of the leaseagreement

**Development and Loan Agreement**

The Tribe entered into a Development and LoanAgreement with Dry Creek Casino, LLC (“DCC”) in August 2001, which hasbeen amended from time to time (as amended to date, the “Development Agreement”).The Development Agreement required DCC to use its best efforts to arrange forthe Tribe to receive loan proceeds in the amount of $23.0 million forconstruction of the casino, to advance specified amounts to the Tribe to fundtribal government relocation, housing and regulatory costs, and to fundadditional advances to the Tribe to assist in the development of the casino andcover other costs of construction not related to the loan. The outstanding debtrelated to the Development Agreement was fully paid off on March 13, 2005.

In addition to its repayment obligations, inconsideration for DCC providing credit enhancement and other services under theDevelopment Agreement, we are obligated to pay to DCC 20% of the casino’s netincome before distributions to the Tribe plus depreciation and amortizationplus an amount equal to annual interest on 

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$25.0 million principal amount of the OutstandingNotes less revenues from sales of alcoholic beverages (the “Credit EnhancementFee”). The Credit Enhancement Fee is required to be paid for a period of fiveyears commencing on June 1, 2003. The Credit Enhancement Fee for the yearsended December 31, 2006, 2005, and 2004 was $8.1 million, $7.7 million, and$5.1 million, respectively.

The Development Agreement was amended in connectionwith the issuance of the Notes to make us a party thereto and to providedistributions to the Tribe and payments to DCC subject to the followingpriority: (1) operating expenses (as defined in the Development Agreement); (2)Permitted Payments (as defined in the Indenture); (3) monthly CreditEnhancement Fee; and (4) Service Payments (as defined in the Indenture).

We have the right to terminate the DevelopmentAgreement by exercising a buy-out option on or after June 1, 2006. Ifexercised, we are obligated to pay an amount determined by multiplying theaverage monthly Credit Enhancement Fee earned during the 12-month periodimmediately preceding the month the buy-out option is exercised, by the numberof months remaining in the five year term. The buy-out fee must be paid inequal monthly installments of principal plus interest at the rate of 12% perannum, on the 15th day of each month over a period equal to the remaining termof the Development Agreement.

On January 31, 2007, we exercised the buy-out option and signed amutual agreement on March 2, 2007 to fix the amounts due DCC in respect of suchexercise to the sum of $11,350,000, less the amount paid after we exercised thebuy-out option of $737,491.  As a resultof the $11,350,000 settlement amount not being for future services rendered,nor being a tangible asset and having no future benefit to us it has beendeemed necessary to expense the full amount in the first quarter of 2007.

**Intercreditor Agreement**

Pursuant to the Intercreditor Agreement among DCC,U.S. Bank National Association, as trustee for the holders of the Notes, theTribe and us, the Credit Enhancement Fees payable pursuant to the DevelopmentAgreement are subordinated to our senior debt, including the Outstanding Notes.If all or any part of our assets, or the proceeds from the sale of our assets,are subject to any distribution, division or application to our creditors, thenany payment shall be paid or delivered directly to the trustee for the Notesfor application to senior debt. If any payment, distribution or security isreceived by DCC with respect to the Credit Enhancement Fee in violation of theIntercreditor Agreement, DCC must deliver the same to the trustee for thebenefit of the holders of our senior debt, including the Outstanding Notes.

We pay Credit Enhancement Fees only if we certify tothe trustee as to our reasonable belief that we have adequate liquidity to meetour ordinary and reasonably foreseeable extraordinary expenses. In addition, wewill accrue any such payments during any period in which we are in default onthe Outstanding Notes until such time as current interest payments on theOutstanding Notes have been paid in full.

**Item 1A.  Risk Factors**

*The following is a description ofwhat we consider our key challenges and risks:*

**Risks Related to Our Business**

***We have a substantial amount ofindebtedness that could adversely affect our financial condition and prevent usfrom fulfilling our obligations under the Outstanding Notes.***

As of December 31, 2006, we had approximately$198.5 million of indebtedness outstanding, which includes$198.4 million of debt on the Outstanding Notes. Our substantialindebtedness could have important consequences and significant effects on ourbusiness and future operations. For example, it could:

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·                  increaseour vulnerability to general adverse economic and industry conditions or adownturn in our business;

·                  limitour ability to fund future working capital, capital expenditures and othergeneral operating requirements;

·                  requireus to dedicate a substantial portion of our cash flow from operations to repayour outstanding indebtedness, thereby reducing the availability of our cashflow to fund working capital, capital expenditures, development and other generaloperating requirements;

·                  placeus at a competitive disadvantage compared to our competitors that have lessdebt or greater resources; and

·                  limitour ability to borrow additional funds.

The occurrence of any one of these events orconditions could have a material adverse effect on our business, financialcondition, results of operations, prospects, ability to service or otherwisesatisfy our obligations under the Outstanding Notes. In addition, the Indenturepermits us to incur debt in addition to the Outstanding Notes in certaincircumstances. If we were to incur additional debt, the related risks couldintensify.

***We will require a significant amount ofcash to service our indebtedness and fund our gaming operations. Our ability togenerate cash depends on many factors beyond our control.***

Our ability to make payments on and refinance ourdebt, including the Outstanding Notes, and to fund our gaming operations, willdepend on our ability to generate cash flow from our gaming operations. Ourability to generate sufficient cash flow to satisfy our debt obligations willdepend on our future operating performance that is subject to many economic,competitive, regulatory and business factors that are beyond our control. If weare not able to generate sufficient cash flow to service our debt obligations,we may need to refinance or restructure our debt, sell assets, reduce or delaycapital investments or seek to raise additional capital. These measures may notbe available to us or, if available, they may not be sufficient to enable us tosatisfy our obligations under the Outstanding Notes and may restrict ourability to pay operating expenses. If our cash flow is insufficient and we areunable to implement one or more of these alternatives, we may not be able toservice our debt obligations or fund our gaming operations.

***Since we depend on operations in a singlelocation, certain events that we cannot control may adversely affect thebusiness performance of our gaming facility.***

We rely primarily on guests living within 100 miles ofour Casino. We rely exclusively on cash flow from our Casino to service ourobligations, including our obligations under the Outstanding Notes. Therefore,we are subject to greater risks than more geographically diversified gaming operations,including:

·                  adecline in the economies of the local areas where our guests are located or adecline in the number of gaming guests from these areas for any reason;

·                  adownturn in regional or local economic conditions;

·                  anincrease in competition in the local areas where our guests reside;

·                  inaccessibilitydue to road construction or closures of primary access routes; and

·                  naturaland other disasters and climate conditions in the surrounding area.

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The occurrence of any of the events or conditionsdescribed above could cause a material disruption in our business and cause usto be unable to generate sufficient cash flow to make payments on theOutstanding Notes.

***We have experienced landslides and may notbe insured against damage resulting from landslides.***

Although we maintain insurance customary in ourindustry, including earthquake insurance, our insurance coverage may not beadequate to cover all the risks to which our business and assets may be subjectto. Although we have experienced two landslides since our operations began, ourlandslide-related insurance is limited to events incident to earthquakes.Although neither landslide disrupted our operations or our expansion project,including the excavation, retaining wall and parking structures, the insuranceis intended for future landslides.  Alandslide could occur in the future that could materially disrupt ouroperations and materially affect our financial condition.

**Highway and bridge construction projects haveimpacted the length of travel to our Casino by certain customers.**

One of the main routes to the Casino, from theGeyserville exit off Highway 101, was closed on December 31, 2005, due todamage to the Geyserville Bridge in Geyserville, California, as a result of theflooding of the Russian River. Damage to the Geyserville Bridge was sosignificant that a new bridge needed to be built by Caltrans, the CaliforniaState Agency responsible for roads and bridges.  Construction of the newbridge was completed in August 2006.

In addition, in March 2006, Caltrans beganconstruction on a 2-mile stretch of Highway 101 in the downtown section ofSanta Rosa, California, approximately 20 miles south of our Casino.  Theproject is intended to widen Highway 101 resulting in an additional third lane ineach direction.  The project requires the closure of one lane of Highway101 in both directions from 11 p.m. to 5 a.m. Mondays through Thursdays andfrom 12:00 a.m. to 5 a.m. on Fridays.  All lanes will be open duringdaylight hours and weekends. The project will also involve the closure ofcertain freeway entrance and exit ramps and some local streets in SantaRosa.  The lane widening project is expected to be completed by the end of2008. There has not been a major impact from this project on our operations.

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

The gaming industry is very competitive. We face orwill face competition from existing and proposed Indian gaming facilities inthe surrounding area, and elsewhere in California, and with casino gaming inNevada, including gaming facilities that could be located closer to the SanFrancisco Bay area. We also compete with card rooms located in the surroundingarea, and other forms of gaming that are legal in California, including on andoff-track wagering and the California State Lottery, as well as with non-gamingleisure activities, and the availability of such alternative gaming andnon-gaming activities which may increase in the future. Many of our competitorshave substantially greater resources and name recognition than our Casino. Inaddition, we may also face competition in our market from new facilities thatmay be built by other Indian tribes in the future.

***Although we have applied to obtain alicense to sell alcohol, we do not have one to date.***

Unlike most of our competitors, we do not currentlyhold a license to sell alcohol on our gaming facility premises. To obtain aliquor license, the Tribe’s liquor license application must be approved by theDepartment of Alcohol Beverage Control (“ABC”). The ABC recommended the denialof our alcohol license application based upon a finding by the California StateFire Marshal, that although the Casino was in compliance with applicablebuilding codes, if alcohol were served in the Casino, it would fall out ofcompliance. We believe that we are in compliance with all applicable safetycodes required to obtain an alcohol license for the Casino.

In September 2004,the Department of Alcoholic Beverage Control (“ABC”) denied the Tribe’sapplication for a liquor license based on a building code interpretation by astate officer who was later determined to lack jurisdiction to make a codedetermination, and did so without consulting the Tribe’s building code officialhaving jurisdiction. The Tribe appealed and, in May 2005, an Administrative LawJudge ruled for the Tribe and recommended that the ABC reverse itself andapprove the license, which ABC did as of October, 2005, pending a hearing onthe protests. The ABC has received approximately 65 protests to issuance of thelicense from various citizens and local government officials. The ABC hadscheduled a hearing on those protests in May 2007, which was recently continuedby stipulaton of the parties to August 2007 because the Tribe and variousprotestants are engaged in settlement discussions with respect to certainprotest issues. The Tribe intends to vigorously defend its application andbelieves the protests are without merit.

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We may not be successful in obtaining either atemporary or a final license, and even if we are successful in obtaining aliquor license, we cannot predict the timing thereof. Failure to obtain aliquor license could be a competitive disadvantage and, therefore, couldmaterially and adversely affect our ability to attract guests to our gamingfacility.

***Restrictive covenants in the Indenture maylimit our ability to expand our operations and to pursue our businessstrategies.***

The Indenture includes covenants that limit ourability to borrow money, make investments, create liens, sell assets, engage intransactions with affiliates, engage in other businesses, open other gamingfacilities and engage in mergers or consolidations. These restrictive covenantsmay limit our ability to expand our operations and to pursue our businessstrategies. If we are unable to capitalize on business opportunities, we may beunable to make payments on the Outstanding Notes. Additionally, a violation ofany of these restrictive covenants would constitute a default under theIndenture.

***Risks related to environmental matterscould have an adverse effect on us.***

We are subject to various federal laws and tribalordinances and regulations, and the Compact which governs activities oroperations that may have adverse environmental effects, such as discharges toair and water, as well as handling and disposal of hazardous material or solidor hazardous waste. Environmental laws enacted in the future may creatematerial obligations or liabilities which may have a material adverse effect onus. In addition, certain provisions of the Compact regarding environmentalmatters may be the subject of renegotiation with the State of California andcould limit any future physical expansion of our gaming facility. If so, suchlimitations may have a material adverse effect on our operations.

Pursuant to and in accordance with the Compact, theTribe adopted an ordinance providing for the preparation and circulation by theTribe of an environmental study concerning potential off-reservationenvironmental impacts of any renovation, modification, construction ordevelopment project relating to or associated with the gaming facility. Amongother things, the Compact requires that in fashioning the ordinance, the Tribemust make a good faith effort to incorporate the policies and purposes of theNational Environmental Policy Act and the California Environmental Quality Actconsistent with the Tribe’s governmental interests. The Compact’s environmentalprovisions are identical to such provisions in compacts for all otherCalifornia tribes that entered into compacts in or around 1999. The Tribebelieves it has complied, and intends to continue to comply, with allapplicable requirements in its environmental ordinance, but the County ofSonoma has taken issue with the Tribe’s position and claims that the Compact’senvironmental requirements are not being fulfilled. The State could claim theTribe is in breach of the Compact and seek to have the Compact terminated.

***Our business and assets could become liablefor claims asserted against the Tribe if the Tribe waives its sovereignimmunity with respect to our business or assets or if tribal law intended tolimit such liability is ineffective.***

We are an unincorporated instrumentality of the Tribe,formed pursuant to a  law of the Tribe.This tribal law also provides that our obligations and other liabilities arenot those of the Tribe and that the obligations and liabilities of the Tribeare not ours. This law is untested and generally has no direct counterpart inother areas of the law. If this law should prove to be ineffective at limitingour liability, our business and assets could become subject to claims assertedagainst the Tribe or its assets. Similarly, we would be liable for such claimsif the Tribe waived its sovereign immunity (with respect to which we have nocontrol) to an extent that allowed enforcement of such claims against ourbusiness or assets.

 

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**Risks Relating to the Indian GamingIndustry**

***Our gaming operations are extensivelyregulated by federal laws and the Compact, and non-compliance with these lawsor the Compact by us or the Tribe, as well as changes in the laws or futureinterpretations of the laws or the Compact, could have a material adverseeffect on our gaming operations.***

Gaming on the Tribe’s reservation is regulatedextensively by federal, state and tribal regulatory bodies, including the NIGC,the CGCC, the California Department of Justice and the TGA. The Compact imposesongoing compliance obligations on us. Our failure to observe any of theseobligations could result in a breach of the Compact and the loss of our rightto conduct gaming.

Changes in applicable laws or regulations, or futureinterpretation of these laws or regulations could limit or materially affectthe types of gaming that we may offer and, consequently, our revenue. Congresshas regulatory authority over Indian affairs and can establish and change theterms upon which Indian tribes may conduct gaming. Currently, the operation ofall gaming on Indian lands is subject to IGRA. For the past several years,legislation has been introduced in Congress designed to amend IGRA, includingproposed legislation limiting the scope of gaming that can be offered and theconditions under which gaming may be offered. While none of the substantiveproposed amendments to IGRA have proceeded very far in the legislative process,we cannot predict the ramifications of future congressional legislative acts.It is possible that future legislation may result in a material adverse effecton our operations.

***Tribal-state compacts are renegotiable andthe outcome of any renegotiation may negatively impact our competitive positionor otherwise adversely affect our financial condition, results of operations orcash flows.***

In March 2003, the State of California requestedrenegotiations with the Tribe and other tribes with respect to matters relatedto the number of slot machines permitted at tribal casinos under tribal-stategaming compacts, the way in which slot machine licenses are allocated withinthe state under those compacts, and the fees charged for slot machine licenses.We did not renegotiate the terms of our compact, although some other tribes inCalifornia have done so. Those renegotiations, plus the addition of newcompacts the State may be entering into with tribes in our market area thatwere not previously engaged in gaming, may have negative effects on ourcompetitive position, and our results of operations could be materially andadversely affected. Even if our negotiations with the State of California wereto result in an increase in the number of slot machines we could operate, theState has indicated that any increase could result in higher license fees beingimposed, which, in light of possible other competition, could result in lowerrevenues. In addition, the State’s willingness to renegotiate over slot machinelimits has been tied to its imposition of further regulations on Indian gaming,particularly on the subject of greater County involvement, provisions favoringnegotiating opportunities for organized labor, and other non-economic issues.The effect of the State’s injection of those issues into the renegotiationprocess, and the resistance of some tribes to renegotiate because of thoseissues, could have a negative impact on the public’s view of Indian gaming, theeffect of which we cannot predict. Finally, any amendment to our compact or anyother compact in the State requires the approval of the tribe, the Governor,the California legislature and the U.S. Secretary of the Interior. Somerenegotiated (and new) compacts have been approved through that process, butthe public debate that has surrounded those renegotiations and the approvalprocess could have a negative impact on Indian gaming generally within theState and on a national level, the likelihood or extent of which cannot bepredicted.

***A change in our current non-taxable statuscould have a material adverse effect on our cash flow and ability to fulfillour obligations under the Outstanding Notes.***

Based on current interpretations of U.S. tax laws, weare not now, and it is anticipated that we will not be, a taxable entity forU.S. federal income tax purposes. If these interpretations are reversed ormodified, or if the federal tax law changes in this regard, our cash flow,results of operations, financial conditions and our ability to fulfill ourobligations under the Outstanding Notes would be adversely affected.

Efforts have been made in Congress over the pastseveral years to tax the income of tribal business enterprises. These haveincluded a House of Representatives bill that would have taxed gaming incomeearned by Indian tribes 

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as business income subject to corporate tax rates.Although such legislation was not enacted, similar legislation could be passedin the future. Future legislation in this area could materially adverselyaffect our ability to fulfill our obligations under the Outstanding Notes.

**BENEFIT OBLIGATIONS**

On April 1, 2006, we became fully self-insured for ourmedical benefits plan coverage from $250 to $2,000 of medical benefit cost percovered person per year. Employees are responsible for the first $250 ofmedical benefit costs and 20% of the medical benefit costs from $250 to $2,000,while we are responsible for 80% of the medical benefit costs. Coverage above$2,000 is provided by a fully insured, high deductible medical benefits plan.We pay 100% of the medical benefits plan coverage cost for employees, and 50%of the coverage cost for dependents and domestic partners based on calculatedpremiums. Maximum coverage under the fully self-insured medical benefits planis limited to $1,400 per covered person per year. All employees working anaverage of 60 hours per pay period are eligible for the dental benefits plan.Administration of the plan is provided by a third party under an administrativeservices agreement.

On April 1, 2006, we became fully self-insured for ourdental benefits plan. We pay 100% of the dental benefits plan coverage cost foremployees and 50% of the coverage cost for dependents and domestic partnersbased on calculated premiums. Maximum coverage under the dental plan is limitedto $2,000 per covered person per year. All employees working an average of 60hours per pay period are eligible for the dental benefits plan. Administrationof the plan is provided by a third party under an administrative servicesagreement.

The Claims payable, Claims IBNR (incurred but notreported), and Insurance premiums payable for the above self-insured benefitsplans are recorded in Accounts payable trade on the financial statements.

|                                          | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Claims Payable                           |       | $                           | 16,406     |                        | $          | — |   |
| Claims IBNR  (Incurred but not reported) |       | 41,122                      |       | —                      |       |
| Insurance  premiums payable              |       | —                      |       | —                      |       |
| Total Benefit  Obiligations              |       | $                           | 57,528     |                        | $          | — |   |

 

**Item 2.Properties.**

Our Casino is located on the Tribe’s 75-acrereservation near Geyserville, located in the heart of the Alexander Valley inSonoma County, California. We do not own the land on which our gaming businessis located. The use of tribal land is provided to us free of rent. The UnitedStates government holds all the real property underlying our facility in trustfor the benefit of the Tribe.

We made a distribution to the Tribe from the netproceeds of the Notes Offering to enable the Tribe to acquire and develop anapproximately 18-acre parcel of land adjacent to the reservation (the “DuganProperty”). Title to the parcel will initially be held by the Tribe, althoughthe Tribe is seeking to have the parcel taken into trust for the Tribe’sbenefit. The Tribe has granted us access to any benefits the property may havefor our Casino, including road access and water rights. As of December 31,2006, we had $4.5 million remaining in an improvements account which wasfunded from proceeds from the Notes Offering to be used primarily to build anadditional access road to the Tribe’s reservation through the Dugan Property.The Dugan Property may be subject to certain zoning, use, environmental andother restrictions, permits and processes under county and state law, includingbut not limited to certain agreements that have been made relative to the DuganProperty regarding agricultural use limitations and related property taxbenefits. We have completed the initial planning on the road from the DuganProperty to the Tribe’s reservation.

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**Item 3.Legal Proceedings.**

*SonomaCounty Fire Marshal Inspection Case*

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

On April 5, 2007, the Ninth Circuit Court of Appealsaffirmed the district court in an unpublished opinion, ruling for the Tribe onall issues. The County Fire Chief has not petitioned for rehearing or certiorarias of this writing.

*CaliforniaDepartment of Alcoholic Beverage Control*

In September 2004, the Department of Alcoholic BeverageControl (“ABC”) denied the Tribe’s application for a liquor license based on abuilding code interpretation by a state officer who was later determined tolack jurisdiction to make a code determination, and did so without consultingthe Tribe’s building code official having jurisdiction. The Tribe appealed and,in May 2005, an Administrative Law Judge ruled for the Tribe and recommendedthat the ABC reverse itself and approve the license, which ABC did as ofOctober, 2005, pending a hearing on the protests. The ABC has receivedapproximately 65 protests to issuance of the license from various citizens andlocal government officials. The ABC had scheduled a hearing on those protestsin May 2007, which was recently continued by stipulation of the parties to August2007 because the Tribe and various protestants are engaged in settlementdiscussions with respect to certain protest issues. The Tribe intends tovigorously defend its application and believes the protests are without merit.

We are involved in other litigation and disputes fromtime to time in the ordinary course of business with vendors and patrons. Webelieve that the aggregate liability, if any, arising from such litigation ordisputes will not have a material adverse effect on our results of operations,financial condition or cash flows.

**Item 4.Submission of Matters to a Vote of Security Holders.**

None.

**PART II**

**Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.**

We have not issued or sold any equity securities.

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**Item 6.Selected Financial Data**.

River Rock Casino has historically operated as aseparate wholly owned operating property of the Tribe. We were formed as anunincorporated instrumentality of the Tribe to own and operate the River RockCasino. Upon the issuance of our Notes, the Tribe reorganized so that itsgaming business became owned and operated by us. This reorganization wasaccounted for as a reorganization of entities under common control. Inaccordance with Statement of Financial Accounting Standards 141, “BusinessCombinations,” the assets and liabilities of the casino operating property arepresented by us on a historical cost basis.

The following table presents summary historicalstatements of revenues and expenses, balance sheet and other data for theperiods presented and should be read in conjunction with Item 7 — “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andour financial statements and the related notes thereto.  The three years ended December 31, 2006,2005, and 2004 are all included elsewhere in this Form 10-K. The historicalfinancial data for the years ended December 31, 2006, 2005, and 2004 have beenderived from our audited historical financial statements included elsewhere inthis report. The following table sets forth our statement of operations for theyears ended December 31, 2006, 2005, 2004, 2003 and 2002.

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| ** **                                                 | ** ** | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** | **Year Ended  December 31,  2002 (d)** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------|------------|
| **Statement of Revenue and Expenses:** | ** ** | **(Dollars in Thousands)**         | ** ** |
| Revenues                                                   |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Casino                                                     |       | $                                            | 136,294    |                                         | $          | 132,831                                      |       | $                                            | 101,605    |                                                  | $          | 65,446 |   | $ | 4,615 |   |
| Food, beverage  & retail                               |       | 6,244                                        |       | 6,920                                        |       | 4,959                                        |       | 2,848                                        |       | —                                                |       |
| Other                                                      |       | 623                                          |       | 663                                          |       | 575                                          |       | 380                                          |       | 21                                                    |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Gross revenues                                             |       | 143,161                                      |       | 140,414                                      |       | 107,139                                      |       | 68,674                                       |       | 4,636                                                 |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Promotional  allowance                                     |       | (12,542                                      | )          | (6,856                                       | )          | (2,632                                       | )          | (1,348                                       | )          | —                                                |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Net revenues                                               |       | 130,619                                      |       | 133,558                                      |       | 104,507                                      |       | 67,325                                       |       | 4,636                                                 |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Operating  Expenses                                        |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Casino                                                     |       | 20,454                                       |       | 19,187                                       |       | 16,909                                       |       | 10,961                                       |       | 657                                                   |       |
| Food, beverage  & retail                               |       | 5,997                                        |       | 6,311                                        |       | 4,516                                        |       | 3,089                                        |       | 63                                                    |       |
| Selling, general  and administrative                       |       | 39,903                                       |       | 46,174                                       |       | 39,009                                       |       | 28,044                                       |       | 3,147                                                 |       |
| Depreciation                                               |       | 11,503                                       |       | 11,012                                       |       | 6,390                                        |       | 4,391                                        |       | 219                                                   |       |
| Preopening costs                                           |       | —                                       |       | —                                       |       | —                                       |       | 2,249                                        |       | 1,899                                                 |       |
| Credit  enhancement fee                                    |       | 8,079                                        |       | 7,669                                        |       | 5,112                                        |       | 1,435                                        |       | —                                                |       |
| Gaming  commission and surveillance expense (a)            |       | 3,154                                        |       | 2,773                                        |       | 1,780                                        |       | 1,335                                        |       | 422                                                   |       |
| Compact revenue  sharing trust fund                        |       | 1,335                                        |       | 1,335                                        |       | 1,335                                        |       | —                                       |       | 1,335                                                 |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Total Operating expenses                                   |       | 90,425                                       |       | 94,461                                       |       | 75,050                                       |       | 51,504                                       |       | 7,742                                                 |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Income (loss)  from operations                             |       | 40,194                                       |       | 39,097                                       |       | 29,458                                       |       | 15,821                                       |       | (3,106                                                | )          |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Interest  expense, net                                     |       | (20,884                                      | )          | (21,047                                      | )          | (17,446                                      | )          | (7,064                                       | )          | (69                                                   | )          |
| Interest income                                            |       | 1,046                                        |       | 332                                          |       | 499                                          |       | 108                                          |       | —                                                |       |
| Loss on sale of  assets                                    |       | (126                                         | )          | (104                                         | )          | (63                                          | )          | —                                       |       | —                                                |       |
| Other expense                                              |       | (1                                           | )          | (2                                           | )          | (1                                           | )          | (1                                           | )          | —                                                |       |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Other expense-net                                          |       | (19,965                                      | )          | (20,821                                      | )          | (17,011                                      | )          | (6,956                                       | )          | (69                                                   | )          |
|                                                       |       |                                         |       |                                         |       |                                         |       |                                         |       |                                                  |       |
| Income (loss) before distribution  to the Tribe (b)        |       | $                                            | 20,229     |                                         | $          | 18,276                                       |       | $                                            | 12,447     |                                                  | $          | 8,865 |   | $ | (3,175 | ) |

 

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| ** **                                                  | ** ** | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003 (a)** | ** ** | **Year Ended  December 31,  2002 (b)** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| **Other Financial Data:**                         | ** ** | **(Dollars in Thousands)**         | ** ** |
| Net cash  provided by (used in) operating activities        |       | $                                            | 60,550     |                                         | $          | 55,749                                       |       | $                                                     | 38,128     |                                                  | $          | 26,545 |   | $ | 190 |   |
| Net cash  provided by (used in) capital and related         |       | $                                            | (32,557    | )                                            | $          | (45,870                                      | )          | $                                                     | (29,292    | )                                                     | $          | 44,256 |   | $ | 1,643 |   |
| financing  activities                                       |       |                                         |       |                                         |       |                                         |       |                                                  |       |                                                  |       |
| Net cash  provided by (used in) investing activites         |       | $                                            | 1,046      |                                         | $          | 332                                          |       | $                                                     | 499        |                                                  | $          | 108 |   | $ | — |   |
| Net cash  provided by (used in) non-capital financing activ |       | $                                            | (14,140    | )                                            | $          | (11,180                                      | )          | $                                                     | (7,613     | )                                                     | $          | (54,883 | ) | $ | (960 | ) |
| EBITDA (c)                                                  |       | $                                            | 52,615     |                                         | $          | 50,335                                       |       | $                                                     | 36,283     |                                                  | $          | 20,321 |   | $ | (2,887 | ) |
| Capital  expenditures                                       |       | $                                            | 4,475      |                                         | $          | 17,456                                       |       | $                                                     | 57,741     |                                                  | $          | 35,511 |   | $ | 24,358 |   |
| Ratio of  earnings to fixed charges                         |       | 1.92X                                        |       | 1.83X                                        |       | 1.37X                                        |       | 1.87X                                                 |       | $                                                     | —     |   |
| Total Assets                                                |       | $                                            | 174,869    |                                         | $          | 167,678                                      |       | $                                                     | 174,813    |                                                  | $          | 170,180 |   | $ | 39,946 |   |
| Long term  liabilities                                      |       | $                                            | 198,500    |                                         | $          | 198,243                                      |       | $                                                     | 197,823    |                                                  | $          | 197,410 |   | $ | 31,919 |   |
| Distributions to Tribe                                      |       | $                                            | 15,521     |                                         | $          | 11,180                                       |       | $                                                     | 7,613      |                                                  | $          | 54,883 |   | $ | 960 |   |

 

The following tablereconciles EBITDA and net cash provided by operating activities for the periodsindicated: 
| ** **                                               | ** ** | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003 (a)** | ** ** | **Year Ended  December 31,  2002 (b)** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                               | ** ** | **(Dollars in Thousands)**         | ** ** |
| Net cash  provided by operating activities               |       | $                                            | 60,550     |                                         | $          | 55,749                                       |       | $                                                     | 38,128     |                                                  | $          | 26,545 |   | $ | 190 |   |
| Increase  (decrease) in accounts receivable              |       | 110                                          |       | 39                                           |       | (53                                          | )          | 96                                                    |       | 10                                                    |       |
| Increase  (decrease) in inventories                      |       | 1                                            |       | (224                                         | )          | 233                                          |       | 145                                                   |       | 5                                                     |       |
| Increase  (decrease) in prepaid and other current assets |       | (32                                          | )          | 654                                          |       | (109                                         | )          | 853                                                   |       | 29                                                    |       |
| (Increase) decrease  in accounts payable trade credit    |       | (322                                         | )          | 1,220                                        |       | 2,787                                        |       | (4,378                                                | )          | (1,807                                                | )          |
| (Increase)  decrease in accrued liabilities              |       | (533                                         | )          | 338                                          |       | (27                                          | )          | (800                                                  | )          | (1,314                                                | )          |
| Loss on sale of  fixed assets                            |       | (126                                         | )          | (104                                         | )          | (63                                          | )          | —                                                |       | —                                                |       |
| Interest income  received                                |       | 1,046                                        |       | 332                                          |       | 499                                          |       | 109                                                   |       | —                                                |       |
| Credit  enhancement fee                                  |       | (8,079                                       | )          | (7,669                                       | )          | (5,112                                       | )          | (2,249                                                | )          | —                                                |       |
|                                                     |       |                                         |       |                                         |       |                                         |       |                                                  |       |                                                  |       |
| **EBITDA**                                               |       | $                                            | 52,615     |                                         | $          | 50,335                                       |       | $                                                     | 36,283     |                                                  | $          | 20,321 |   | $ | (2,887 | ) |

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(a)           Pursuant to the regulation, the tribal gaming agency (“TGA”)charged us a flat monthly fee of $235,000 through May of 2006.  In June 2006, our Board approved a feeincrease to $344,000 to cover all operating expenses incurred by the TGA andsurveillance, which are directly related and necessary to the regulation of ourCasino. Following the end of each calendar quarter, the TGA must reconcile themonthly regulatory fee and actual operating expenses and make necessaryadjustments.  As of July 1, 2005, the TGAand surveillance expenses are being recorded in Gaming Commission andsurveillance expenses on the Statement of Revenues, Expenses and Changes inFund Balance.  TGA and surveillanceexpenses for the twelve months ended December 31, 2006, 2005, and 2004. were$3,154,384, $2,773,369, and $1,780,194., respectively.  Surveillance expense not included in theabove amounts for 2004 was $858,625.

(b)           Our financialstatements are prepared in accordance with Governmental Accounting StandardsBoard (“GASB”) pronouncements. There are differences between financialstatements prepared in accordance with GASB pronouncements and those preparedin accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The Statements of Revenues, Expenses and Changes in Fund(deficit) Equity are a combined statement under GASB pronouncements. FASBpronouncements allow a statement of income or operations and a separatestatement of owners’ or shareholders’ (deficit) equity, which is wheredistributions to owners would be presented under FASB pronouncements. Theamount shown above as income (loss) 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. River Rock Entertainment Authority is a separate fund of theTribe, a governmental entity, and, as such, there is no owners’ or shareholders’(deficit) equity as traditionally represented under FASB pronouncements. Themost comparable measure of owners’ (deficit) equity is presented on the RiverRock Entertainment Authority balance sheet as fund (deficit) equity.

(c)           “EBITDA” is income(loss) before distributions to Tribe plus interest, taxes, depreciation andamortization. EBITDA does not represent and should not be considered analternative to net income or cash flow from operations, as determined byGenerally Accepted Accounting Principals. Moreover, our methodologies and practices in determining EBITDA may notbe comparable to those used by other companies. EBITDA is included in this Form10-K because it is a basis upon which we assess our liquidity and becausecertain covenants in the Indenture are tied to similar measures. EBITDA is alsoincluded in this Form 10-K because we believe that it presents usefulinformation regarding our ability to service and incur indebtedness. EBITDAdoes not take into account our debt service requirements and, accordingly, isnot necessarily indicative of amounts that may be available for debt service.

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(d)           River Rock Casinocommenced full-scale operations on April 1, 2003 and increased its number ofgaming devices to reach 1,600 on June 18, 2003.

**Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with theaccompanying financial statements and related notes beginning on page 51 ofthis Annual Report on Form 10-K, Item 6 — “Selected Financial Data” and Part I.Item 1. “Business.”

**Overview**

*General*

We have historically operated as a separatewholly-owned operating property of the Tribe. We were formed as anunincorporated governmental instrumentality of the Tribe to own and operate theRiver Rock Casino. Upon the issuance of our Notes, the Tribe reorganized sothat its gaming business became owned and operated by us. This reorganizationwas accounted for as a reorganization of entities under common control. Inaccordance with Statement of Financial Accounting Standards 141, “BusinessCombinations,” the assets and liabilities of the Casino are presented by us ona historical cost basis.

We offer Class III slot and video poker gamingmachines, house banked table games (including Blackjack, Three card poker,Mini-baccarat and Pai Gow poker), Poker, featuring Texas Hold’ em, comprehensivefood and non-alcoholic beverage offerings, and goods for sale in our gift shop.

Our business has increased since we commencedoperations on September 14, 2002, primarily due to increases in the number ofgaming positions as we opened additional portions of our facility. On April 1,2003, we opened our food and beverage facilities and on June 18, 2003, we hadreached full operation with 1,600 slot machines.

On November 7, 2003, we issued the Notes. A portion ofthe net proceeds from the sale of the Notes was used to fund three new parkingstructures, and related infrastructure improvements, to repay various debts andaccrued expenses of the Tribe, as well as to increase our cash on hand. Thebalance of the net proceeds was used to fund a land purchase by the Tribe andsettle litigation of the Tribe. The Notes are secured by a first prioritypledge of our revenues and substantially all of our existing and futuretangible and intangible personal property.

At the beginning of 2003, we started our infrastructureprojects, including the excavation of a hillside and the construction ofretaining walls. In April 2003, we began the design process for the three newparking structures. The parking structures portion of the expansion project wascompleted in two phases and our existing gaming facility remained open duringconstruction. On October 29, 2004, we obtained a temporary certificate ofoccupancy to open the entire first parking structure for self and valetparking. On December 1, 2004, we received a certificate of substantialcompletion on the first parking structure. The second phase, which included oursecond and third parking structures with approximately 445 and approximately470 spaces, respectively, opened on December 29, 2004. As of December 31, 2006,we have parking spaces available to accommodate a total of approximately 1,584customer parked vehicles.

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**Critical Accounting Policies andEstimates**

We have identified certain critical accountingpolicies and estimates that affect our more significant judgments and estimatesused in the preparation of our financial statements. The preparation of ourfinancial statements, in conformity with accounting principles generallyaccepted in the United States of America, requires that we make estimates andjudgments that affect the reported amounts of assets and liabilities, revenuesand expenses, and related disclosures of contingent assets and liabilities. Onan on-going basis, we evaluate those estimates, including those related toasset impairment, accruals for our promotional slot club, compensation andrelated benefits, revenue recognition, allowance for doubtful accounts,contingencies and litigation. These estimates are based on the information thatis currently available to us and on various other assumptions that we believeto be reasonable under the circumstances. Actual results could vary from thoseestimates under different assumptions or conditions. We believe that thefollowing critical accounting policies affect significant judgments andestimates used in the preparation of our financial statements:

·                  Casino Revenues —In accordance with industry practice, casino revenue is recognized as the netwin from gaming activities, which is the difference between gaming wins andlosses. Casino revenues are net of accruals for anticipated payouts ofprogressive slot jackpots.

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

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

 

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

·                  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, andprovide for an exposure if it is judged to be probable and estimable. If theactual loss from a contingency differs from management’s estimate, operating resultscould be materially impacted. As of December 31, 2006, we have determined thatno 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.

Accounting Standards — There are differences betweenfinancial statements prepared in accordance with Governmental AccountingStandards Board (“GASB”) pronouncements and those prepared in accordance withFinancial Accounting Standards Board (“FASB”) pronouncements. The statement ofrevenues, expenses and fund 

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

**Results of Operations**

**Quarterly Results of Operations**

The following table sets forth unaudited quarterlyoperations data for each full quarter. In our opinion, this data reflects alladjustments, consisting only of normal recurring adjustments, necessary for afair presentation of the data. The results of operations for any quarter arenot necessarily indicative of the results of operations for a full year or anyfuture period. Certain amounts from prior quarters have been reclassified to beconsistent with our current presentation, i.e. surveillance costs are nowincluded in Gaming commission expense. We expect our quarterly operating results to vary significantly infuture periods.

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| ** **                                                  | ** ** | **Quarters Ended**     | ** ** |
|-------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                  | ** ** | **December 31,  2006** | ** ** | **September 30,  2006** | ** ** | **June 30,  2006** | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** |
| **Statement of Revenues and Expenses:** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                    |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                                      |       | $                           | 35,717     |   | $ | 35,704 |   | $ | 32,352 |   | $ | 32,521 |   | $ | 33,604 |   | $ | 34,042 |   | $ | 34,158 |   | $ | 31,027 |   |
| Food,  beverage and retail                                  |       | 1,607                       |       | 1,656 |   | 1,505 |   | 1,476 |   | 1,823 |   | 1,946 |   | 1,697 |   | 1,454 |   |
| Other                                                       |       | 169                         |       | 156 |   | 145 |   | 153 |   | 155 |   | 159 |   | 168 |   | 181 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross  revenues                                             |       | 37,493                      |       | 37,516 |   | 34,002 |   | 34,150 |   | 35,582 |   | 36,147 |   | 36,023 |   | 32,662 |   |
| Promotional  allowances                                     |       | (3,121                      | )          | (3,954 | ) | (2,940 | ) | (2,526 | ) | (2,495 | ) | (2,147 | ) | (1,438 | ) | (777 | ) |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  revenues                                               |       | 34,372                      |       | 33,562 |   | 31,062 |   | 31,624 |   | 33,087 |   | 34,000 |   | 34,585 |   | 31,885 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                          |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                                      |       | 5,253                       |       | 5,192 |   | 4,970 |   | 5,039 |   | 4,943 |   | 4,923 |   | 4,587 |   | 4,734 |   |
| Food,  beverage and retail                                  |       | 1,442                       |       | 1,570 |   | 1,468 |   | 1,517 |   | 1,873 |   | 1,568 |   | 1,505 |   | 1,364 |   |
| Selling,  general and administrative                        |       | 9,372                       |       | 9,533 |   | 9,608 |   | 11,390 |   | 10,026 |   | 12,551 |   | 13,163 |   | 10,434 |   |
| Depreciation                                                |       | 2,887                       |       | 2,884 |   | 2,872 |   | 2,861 |   | 2,822 |   | 2,798 |   | 2,757 |   | 2,634 |   |
| Credit  enhancement fee                                     |       | 2,304                       |       | 2,313 |   | 1,859 |   | 1,602 |   | 2,007 |   | 1,862 |   | 1,857 |   | 1,943 |   |
| Gaming  commission expense                                  |       | 1,033                       |       | 673 |   | 726 |   | 723 |   | 1,258 |   | 623 |   | 356 |   | 537 |   |
| Compact  revenue sharing trust fund                         |       | 334                         |       | 333 |   | 334 |   | 334 |   | 334 |   | 334 |   | 334 |   | 333 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  operating expenses                                   |       | 22,625                      |       | 22,498 |   | 21,837 |   | 23,466 |   | 23,263 |   | 24,659 |   | 24,559 |   | 21,979 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  (loss) from operations                              |       | 11,748                      |       | 11,064 |   | 9,225 |   | 8,158 |   | 9,824 |   | 9,341 |   | 10,026 |   | 9,906 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other expense - Net                                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest  expense                                           |       | (5,219                      | )          | (5,219 | ) | (5,221 | ) | (5,225 | ) | (5,225 | ) | (5,230 | ) | (5,245 | ) | (5,347 | ) |
| Interest  income                                            |       | 342                         |       | 301 |   | 211 |   | 192 |   | 132 |   | 108 |   | 51 |   | 40 |   |
| Loss  on sale of assets                                     |       | —                      |       | (85 | ) | (37 | ) | (3 | ) | — |   | (70 | ) | — |   | (34 | ) |
| Other  expense                                              |       | —                      |       | (1 | ) |   |   |   |   | — |   | (1 | ) | — |   | — |   |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other  Expense, Net                                         |       | (4,877                      | )          | (5,004 | ) | (5,047 | ) | (5,036 | ) | (5,093 | ) | (5,193 | ) | (5,194 | ) | (5,341 | ) |
|                                                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  distribution to the Tribe                    |       | $                           | 6,871      |   | $ | 6,060 |   | $ | 4,178 |   | $ | 3,122 |   | $ | 4,731 |   | $ | 4,148 |   | $ | 4,832 |   | $ | 4,565 |   |

 

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**Results of Operations — Fiscal Years ended December 31, 2006and 2005**

*NetRevenues*. Net revenues for the fiscal year ended December 31,2006 (“FY 2006”), decreased by $3.0 million to $130.6 million, from $133.6million for the fiscal year ended December 31, 2005 (“FY 2005”). The decreaseis attributed to the lack of accessibility to our casino due to the damage andresulting closure of the Geyserville Bridge in Geyserville, California fromJanuary 1, 2006 through August 18, 2006 (the “Geyserville Bridge Closure”).Approximately 96.4% of our net revenues, net of respective promotionalallowances, were from gaming activities for FY 2006. We generated $111.4million, or 85.3% of our net revenues, net of respective promotional allowancesof $10.2 million, from gaming devices and $14.5 million, or 11.1% of our netrevenues, net of respective promotional allowances of $0.2 million, from tablegames for FY 2006, compared to $114.3 million from gaming devices, or 85.6% ofour net revenues, net of respective promotional allowances of $4.0 million, and$14.4 million, or 10.8% of our net revenues, net of respective promotionalallowances of $0.1 million, from table games for FY 2005. Our win per slotmachine per day decreased to $194 in FY 2006 from $196 in FY 2005.

For FY 2006, we generated $6.2 million in food,beverage and retail sales, compared to $6.9 million, for FY 2005.  The decrease is primarily due to theGeyserville Bridge Closure. The retail value of our food and beverage providedto customers without charge is included in gross revenues and then deducted aspromotional allowances. Such allowances were $2.3 million and $2.8 million forFY 2006 and FY 2005, respectively.

*Promotional Allowances*.Promotional allowances for the FY 2006 were $12.6 million, or 9.7% of netrevenues, compared to $6.9 million, or 5.1% of net revenues, for FY 2005. Theincrease in promotional allowances is attributable to the expanded use ofe-coupons.  E-coupons cannot be cashedout and requires the patron to use their Players Club card.  We implemented E-coupon technology when itbecame available in late 2005.

*Operatingexpenses*. Operating expenses for FY 2006 were $90.4 million,or 69.2% of net revenues, compared to $94.5 million, or 70.7% of net revenues,for FY 2005. The decrease in operating expenses is attributable to operationalefficiencies, largely due to a hiring freeze, and changing from cash incentivesbeing recorded as an operating expense in 2005, to E-coupons in 2006, which arereflected in promotional allowances.  Thereason for changing cash incentives to E-coupons in 2006, is due to E-coupontechnology becoming available in late 2005.

Casino expense includes costs associated with ourgaming operations and an allocation of food and beverage expense related to thecosts of complimentary activities. Casino expense for FY 2006 increased to$20.5 million, or 16.2% of Casino revenues, from $19.2 million, or 14.9% ofCasino revenues, for FY 2005, net of respective promotional allowances. Theincrease in Casino expense is attributable to an increase in labor costs ingaming operations and an increase in participation fees on slot machines.

Food, beverage and retail expense for FY 2006 was $6.0million, or 150.6% of food, beverage and retail revenue, increasing from $6.3 million,or 154.1% of food, beverage and retail revenue for FY 2005, net of respectiverpromotional allowances. We have increased our use of promotional food andbeverage as part of our marketing initiatives. Our food and beverage expenseratio is still significantly higher than industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

Selling, general and administrative expense for FY2006 decreased by $6.3 million to $39.9 million, or 30.5% of net revenues, from$46.2 million, or 34.6% of net revenues, for FY 2005, net of respectivepromotional allowances. The decrease in selling, general and administrativeexpense is attributable to reductions in payroll from a hiring freeze during anevaluation of vacant positions from attrition, reduction in advertising costsfrom restructuring the marketing department’s approach to focus more on directmarketing and the change in our advertising agency.  These efforts led to reduced costs intelevision, radio and newsprint media as compared to 2005.

Depreciation expense for FY 2006 was $11.5 millioncompared to $11.0 million for FY 2005. Depreciation expense was computed usingthe straight-line method over the useful lives of property, plant andequipment. The increase in depreciation expense is due to the addition ofdepreciable assets.

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We began paying the credit enhancement fee to DCC inJune 2003. The credit enhancement fee was $8.1 million, or 6.2% of net revenuesfor FY 2006 compared to $7.7 million or 5.7% of net revenues for FY 2005. Theincrease is directly attributable to our improved operating results.

Pursuant to the regulation,the tribal gaming agency (“TGA”) charged us a flat monthly fee of $235,000 fromJanuary 1, 2006 through May 31, 2006.  InJune 2006, our Board approved a fee increase to $344,000 to cover all operatingexpenses incurred by the TGA and surveillance, which are directly related andnecessary to the regulation of the Casino. Following the end of each calendarquarter, the TGA must reconcile the monthly regulatory fee and actual operatingexpenses and make necessary adjustments. As of July 1, 2005, TGA and surveillance expenses are being recorded inGaming Commission and surveillance expenses on the Statement of Revenues,Expenses and Changes in Fund Balance. TGA and surveillance expenses for FY 2006 and FY 2005 were $3.2 millionand $2.8 million, respectively.

Compact revenue sharing trust fund expense remainedthe same at $1.3 million for FY 2006 and 2005. Compact revenue sharing trustfund expense includes payments associated with operating 1,600 gaming devices.These fees became payable by the Tribe when we commenced operations inSeptember 2002, and are based on the number of our gaming device licenses.Compact revenue sharing trust fund expense includes payments to the RevenueSharing Trust Fund (“RSTF”) as required by our Compact with the State ofCalifornia. The Tribe is obligated to remit certain fees to the CaliforniaGambling Control Commission on a quarterly basis for inclusion in the RSTF. TheRSTF is for the benefit of tribes that have no or limited gaming. We pay thesefees on behalf of the Tribe.

*Incomefrom operations.* Income from operations for FY 2006 was $40.2million, or 30.8% of net revenues, compared to $39.1 million, or 29.3% of netrevenues for FY 2005.

*Otherexpense, net.* Other expense, net for FY 2006 decreased to$20.0 million, or 15.3% of net revenues, from $20.8 million, or 15.6% of netrevenues, for FY 2005.  Other expense,net included $1.0 million of interest income for FY 2006, compared to $0.3million of interest income for FY 2005. No interest costs were capitalized in 2006.

*Incomebefore distributions to the Tribe*. Income beforedistributions to the Tribe for FY 2006 increased by $1.9 million, to $20.2million, or 15.5% of net revenues, from $18.3 million, or 13.7% of netrevenues, for FY 2005.

**Results of Operations — Fiscal Years ended December 31, 2005and 2004**

*Net Revenues*. Net revenues forthe fiscal year ended December 31, 2005 (“FY 2005”) increased by $29.1 millionto $133.6 million, from $104.5 million, for the fiscal year ended December 31,2004 (“FY2004”). The increase is attributed to our increased parking capacitywhich generated more frequent and longer guest visits and our expanded busprogram. Approximately 96.5% of our net revenues, net of respective promotionalallowances, were from gaming activities for FY 2005. We generated $114.3million, or 85.6% of our net revenues from gaming devices, net of respective promotionalallowances of $4.0 million, and $14.4 million or 10.8% of our net revenues, netof respective promotional allowances of $0.1 million, from table games for FY2005, compared to $91.3 million from gaming devices, or 87.5% of our netrevenues, net of respective promotional allowances of $0 and $10.3 million, or9.8% of our net revenues, net of respective promotional allowances of $0, fromtable games for FY 2004. Our win per slot machine per day increased to $196 inFY 2005 from $156 in FY 2004, primarily due to the increased number of guestsfrom drive-ups, expansion of our bus program and increased promotionalactivities.

For FY 2005, we generated $4.1 million in food,beverage and retail revenues, net of promotional allowances of $2.8 million, ascompared to $2.4 million in food, beverage and retail revenues, net ofpromotional allowances of $2.6 million, for FY 2004. This increase is due toour increased restaurant promotions. The retail value of our food and beverageprovided to customers without charge is included in gross revenues and thendeducted as promotional allowances.

*Promotional Allowances*.Promotional allowances for the FY 2005 were $6.9 million, or 5.2% of netrevenues, compared to $2.6 million, or 2.5% of net revenues, for FY 2004. The increasein promotional allowances is attributable to the expanded use ofE-coupons.  E-coupons cannot be cashedout and requires the patron to use their Players Club card.  We implemented E-coupon technology when ifbecame available in late 2005.

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*Operating expenses*. Operatingexpenses for FY 2005 were $94.5 million, or 70.7% of net revenues, compared to$75.1 million, or 71.9% of net revenues, for FY 2004. The increase in operatingexpenses is attributable to the Casino’s increased operational activities forthe entire year of 2005. Operating expense as a percentage of net revenuesdecreased due to economies of scale relating to our Casino operations and theincrease in our gaming revenues.

Casino expense includes costs associated with ourgaming operations and the allocation of food and beverage expense related tothe costs of complimentary activities. Casino expense for FY 2005 increased to $19.2 million, or 14.5% ofCasino revenues, from $16.9 million, or 16.6% of Casino revenues, for FY 2004.The increase in Casino expense is attributable to increased operationalactivities as we increased the parking spaces and expanded our bus program.

Food, beverage and retail expense for FY 2005 was $6.3million, or 153.7 % of food, beverage and retail revenue, net of promotionalallowances, increasing from $4.5 million, or 187.5 % of food, beverage andretail revenue, net of promotional allowances for FY 2004. Our food andbeverage expense ratio is still significantly higher than what we expect it tobe in the future as we have used our food and beverage services as apromotional opportunity to draw customers to our gaming facility, and buildcustomer loyalty, rather than as a source of income.

Selling, general and administrative expense for FY2005 increased by $7.2 million to $46.2 million, or 34.6% of net revenues, from$39.0 million, or 37.3% of net revenues, for FY 2004. The increase in selling,general and administrative expense is attributable to increased marketingefforts and facility costs related to attaining increased parking capacity in2005. Selling, general and administrative expense as a percentage of netrevenues decreased in 2005, compared to 2004, as a result of increased laborefficiencies, leveraging certain fixed costs over increased revenues and due tothe substantial increase in our revenues driven by new customers able toutilize our expanded parking capacity in 2005.

Depreciation expense for FY 2005 was $11.0 millioncompared to $6.4 million for FY 2004. Depreciation expense was computed using thestraight-line method over the useful lives of property, plant and equipment.The increase in depreciation expense is due to the addition of depreciableassets. On December 1, 2004, we obtained a certificate of substantialcompletion on the first of our three parking structures and capitalized $22.6million in related construction costs. We started to depreciate the first ofour three parking structures in December 2004. The remaining structures weresubstantially complete on December 29, 2004. Depreciation on the remainingstructures began January 1, 2005.

We began paying the credit enhancement fee to DCC inJune 2003. The credit enhancement fee was $7.7 million, or 5.8% of netrevenues, for FY 2005, compared to $5.1 million or 4.9% of net revenues, for FY2004. The increase is attributable to our greater net income.

Gaming Commission and surveillance expense for FY 2005increased by $1.0 million to $2.8 million, from $1.8 million, for FY 2004. Thisis attributable to adding surveillance costs to Gaming Commission expenses in2005 and an increase in regulatory staffing. Surveillance costs for FY 2004 was$.9 million and are included in Selling, General and Administrative expense.The Gaming Commission and surveillance expense consists of our reimbursement ofthe tribal gaming agency’s (“TGA”), known as the Dry Creek Gaming Commission,costs in connection with the inspection of all gaming operations within theTribe’s reservation boundaries, enforcement of all provisions of the tribalgaming ordinance, investigation of all allegations of violations of the tribalgaming ordinance, conducting or arranging for background investigations of allapplicants for tribal gaming licenses, issuing gaming licenses in accordancewith the tribal gaming ordinance and the compact, the payment of the salariesof the gaming commissioners and other employees of the TGA, surveillance costsand the payment of auditor fees.

We paid for various expenses for the TGA andsurveillance in 2005 and 2004. Tribal Gaming Commission expenses were reportedas Gaming Commission expenses and surveillance costs were reported in Selling,General and Administrative Expenses on the Statement of Revenues, Expenses andChange in Fund Balance prior to July 1, 2005. Effective July 1, 2005, the TGAadopted a regulation on payments of regulatory fees from the Authority. Forfiscal year 2005, TGA and surveillance expenses are being recorded in GamingCommission and surveillance expenses on the Statement of Revenues, Expenses andChanges in Fund Balance. Gaming Commission and surveillance expenses for FY 

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2005 and FY 2004 were $2.8 million and $1.8 million,respectively. Surveillance costs not included in the above amounts for FY 2004was $.9 million..

Compact revenue sharing trust fund expense remainedthe same at $1.3 million for FY 2005 and FY 2004. Compact revenue sharing trustfund expense includes payments associated with operating 1,600 gaming devices.These fees became payable by the Tribe when we commenced operations inSeptember 2002, and are based on the number of our gaming device licenses.Compact revenue sharing trust fund expense includes payments to the RSTF asrequired by our Compact with the State of California. The Tribe is obligated toremit certain fees to the CGCC on a quarterly basis for inclusion in the RSTF.The RSTF is for the benefit of tribes that have no or limited gaming. We paythese fees on behalf of the Tribe.

*Income from operations*. Incomefrom operations for FY 2005 was $39.1 million, or 29.3% of net revenues,compared to $29.5 million, or 28.2% of net revenues, for FY 2004. Our increasedincome from operations is attributable to the Casino attaining increasedoperational activities from our expanded parking capacity in 2005.

*Other expense, net*. Otherexpense, net for FY 2005 increased to $20.8 million, or 15.6% of net revenues,from $17.0 million, or 16.3% of net revenues, for FY 2004. Other expense, netincluded $21.0 million of interest expense for FY 2005, compared to $17.4million of interest expense for FY 2004 (net of capitalized interest of $4.4million). No interest costs were capitalized in 2005.

*Income before distributions to the Tribe*.Income before distributions to the Tribe for FY 2005 increased by $5.8 millionto $18.3 million, or 13.7% of net revenues, from $12.4 million, or 11.9% of netrevenues, for FY 2004.

**Liquidity and Capital Resources**

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

Construction of our Casino and infrastructureimprovements commenced on April 1, 2002. The first portion of our gamingfacility was completed in September 2002. As of December 31, 2006, we had spentapproximately $156.4 million on the planning, development and construction ofour gaming facility, infrastructure and furniture, fixtures and equipment,excluding the expansion project. We financed the development with borrowingsand development advances.

We originally expected completion of our expansionproject to cost approximately $64.6 million, which we planned to fund with$61.4 million from the net proceeds of the Notes Offering, and $3.2 millionfrom an advance from the Tribe. From the proceeds from the Notes Offering, we hadalso placed an additional $10.0 million in a construction escrow account to beavailable to fund additional construction contingencies. The original expansionbudget included $35.4 million for the three parking structures,$24.1 million for infrastructure improvements and a $5.1 millionconstruction contingency.

As of December 31, 2006, we spent $0.8 million on thedevelopment of an approximately 18-acre parcel of land adjacent to the Tribe’sreservation (“Dugan Property”) which is expected to include an additionalaccess road to our Casino. We have $4.5 million remaining in a restrictedaccount funded from the proceeds of our Notes Offering for the development ofthe Dugan Property.

Our capital expenditures for FY 2006 and 2005 were$4.5 million and $17.5 million, respectively. This decrease in 2006 isprimarily attributable to the completion of our parking expansion project andinfrastructure improvements.

As of December 31, 2006, we had cash and cashequivalents net of restricted cash of $32.5 million, as compared to $17.6million, as of December 31, 2005. As of December 31, 2006, we had restrictedcash of $7.2 million, as compared to $7.4 million, as of December 31, 2005. Ourprincipal source of liquidity for uses other than our expansion project duringFY 2005 consisted of cash flow from operating activities. Net cash provided byoperating activities for FY 2006 was $60.6 million, an increase of $4.9 millionfrom $55.7 million, for FY 2005. The increase in our net cash provided by 

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operations is a result of increased operations in FY2006. Net cash provided by operating activities for FY 2005 increased by $17.6million, from $38.1 million, for the year ended December 31, 2004. The increasein our net cash provided by operations is a result of increased operations inFY 2005.

Restricted cash consists of net proceeds from theNotes Offering and investment earnings thereon set aside in constructionfinancing accounts, for construction costs for the three parking structures,infrastructure improvements and construction contingencies. It also includesfunds that are reserved for additional construction contingencies and the fundsfor the development of the Dugan Property. Our restricted cash is held inescrow accounts that can only be used for authorized construction disbursementsuntil the related projects are completed.

Net cash used for capital and related financingactivities for FY 2006 was $32.6 million, compared to $45.9 million net cashused in capital and related financing activities, for FY 2005. Cash flow usedin capital and related financing activities was primarily for repayment of thesubordinated loans from DCC, purchase of property and equipment and interestpaid on the Notes.

Net cash used in non-capital financing activities forFY 2006 was $14.1 million, an increase of $2.9 million from $11.2 million, forFY 2005.  Net cash used in non-capitalfinancing activities consisted of distributions to the Tribe, was $15.5million, including one-time permitted payments of $1.9 million forreimbursement of construction costs related to improvements to the main accessroad to the Tribe’s reservation an our Casino that were incurred before ourformation, and $1.4 million for reimbursement of municipal services, wascontributed back to us by the Tribe, shortly after such distribution was made.On April 1, 2005, our monthly payments to the Tribe were allowed to increasefrom $0.5 million to $1.0 million under the Indenture.  Net cash used for capital and relatedfinancing activities for FY 2005 was $45.9 million, compared to $29.3 millionnet cash provided by financing activities, for the year ended December 31,2004.

We believe that existing cash balances, cash fromoperations, as well as permitted disbursements from our restricted cash escrowaccounts will provide adequate funds for our working capital needs, plannedcapital expenditures and debt service requirements for the foreseeable future.However, our ability to fund our operations, make planned capital expenditures,make scheduled debt payments and refinance our indebtedness depends on ourfuture operating performance and cash flow, which, in turn, are subject toprevailing economic conditions and to financial, business and other factors,some of which are beyond our control. Additionally, the Indenture limits ourability to incur additional indebtedness. See Item 1 — “Business — MaterialAgreements — The Notes and the Related Indenture.”

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**Contractual Obligations as of December 31, 2006**

     Thefollowing table summarizes our contractual obligations and commitments as ofDecember 31, 2006:

|                                 | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
|---------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|------------|
| Long-term debt  obligations (a) |       | $         | 200,546,577 |            | $          | 531,271            |       | $                  | 15,306     |   | $ | 200,000,000 |   |
| Operating lease  obligations    |       | 270,031   |        | 265,290         |       | 4,741              |       | —             |       |
| Capital lease  obligations      |       | 226,149   |        | 111,141         |       | 115,008            |       | —             |       |
| Total obligations (b)           |       | $         | 201,042,757 |            | $          | 907,702            |       | $                  | 135,055    |   | $ | 200,000,000 |   |

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(a)             Excludedfrom long-term debt obligations above are interest payments of $19.5 million in1 year; $39.0 million in 2-3 years; $35.7 million in 4-5 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.

**Regulation and Taxes**

We are subject toextensive regulation by the tribal gaming agency, the California GamblingControl Commission and the National Indian Gaming Commission. Changes in applicablelaws or regulations could have a significant impact on our operations.

In September 2004, theDepartment of Alcoholic Beverage Control (“ABC”) denied the Tribe’s applicationfor a liquor license based on a building code interpretation by a state officerwho was later determined to lack jurisdiction to make a code determination, anddid so without consulting the Tribe’s building code official having jurisdiction.The Tribe appealed and, in May 2005, an Administrative Law Judge ruled for theTribe and recommended that the ABC reverse itself and approve the license,which ABC did as of October, 2005, pending a hearing on the protests. The ABChas received approximately 65 protests to issuance of the license from variouscitizens and local government officials. The ABC had scheduled a hearing onthose protests in May 2007, which was recently continued by stipulation of theparties to August 2007 because the Tribe and various protestants are engaged insettlement discussions with respect to certain protest issues. The Tribeintends to vigorously defend its application and believes the protests arewithout merit.

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

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**Impact of Inflation**

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

**Seasonality**

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

**Item 7A. Quantitative and QualitativeDisclosure About Market Risk.**

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

Through December 31,2006, we had not invested in derivative or foreign currency-based financialinstruments. Additionally, we primarily have fixed rate debt. As such, we donot believe we have material exposure to market risk.

**Item 8. Financial Statements andSupplementary Data.**

Our financial statementsand notes thereto, referred to in Item 15(A) (1) of this Form 10-K, are filedas part of this report and appear in this Form 10-K beginning on page 51.

**Item 9. Changes in and Disagreementswith Accountants on Accounting and Financial Disclosure.**

None.

**Item 9A. Controls and Procedures.**

**Evaluation of Disclosure Controls and Procedures**

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

Our Chief ExecutiveOfficer and our Assistant Financial Controller (Principal Financial Officer)have reviewed and evaluated the effectiveness of our disclosure controls andprocedures (as defined in Exchange Act Rules 240.13a -15(e) and 15d — 15(e)) asof December 31, 2006. Based on that evaluation they have concluded that ourdisclosure controls and procedures as of the end of the period covered by thisreport are effective in reaching that level of reasonable assurance.

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**Changes to Internal Controls Over FinancialReporting**

A change in financialpersonnel (the Chief Financial Officer position) during the quarter endedSeptember 30, 2006, led to the discovery of errors in the application of GAAPin prior periods.  These errors relatedto the previous improper classification of complementary services and non-cashrevenue sources as both revenues and offsetting operational expenses, which didnot follow GAAP, the Industry Audit Guide for Casinos, or casino industrypractices.  The classification errorsresulted in overstated revenues and overstated expenses, as previouslyreported, and required restatement of prior quarter and annual financialstatements.

**Item 9B. Other Information.**

None.

**PART III**

**Item 10. Directors and ExecutiveOfficers of the Registrant.**

We were formed in 2003 asan unincorporated instrumentality of the Tribe. We are governed by afive-member Board of Directors consisting of the same five members as those ofthe Tribe’s Board of Directors. The Tribe’s Board of Directors is electedbiennially by the Tribal Council (the approximately 528 voting members of theTribe), and includes a Chairperson, a Vice Chairperson, a Secretary-Treasurerand two members-at-large. The Secretary-Treasurer position has been vacantsince December 12, 2006. Our last election took place on October 7,2006.  The members of our Board of Directors will serve for so long asthey serve on the Tribe’s Board of Directors.

**Our Board of Directors**

The table below setsforth information about the current members of our Board of Directors:
| **Name**                      | ** ** | **Age** | ** ** | **Position(s) Held** |
|-------------------------------|------------|---------|------------|----------------------|
|                          |       |    |       |                 |
| Betty Arterberry              |       | 60      |       | Chairperson          |
| Margie Rojes                  |       | 60      |       | Vice Chairperson     |
| Harvey Hopkins                |       | 58      |       | Member               |
| Augusto “Gus”  Pina |       | 63      |       | Member               |
| Gabriel Nevarez               |       | 43      |       | Member               |

*BettyArterberry*has servedas Chairperson of our Board of Directors since July 18, 2006. Prior to that,Ms. Arterberry served as Vice Chairperson since our inception. On July 18,2006, Ms. Arterberry assumed the title of Chairperson of the Authority whilealso serving as the Vice Chairperson of the Tribe’s Board of Directors. Priorthereto, Ms. Arterberry previously served as the Tribe’sSecretary-Treasurer for three consecutive two-year terms. Ms. Arterberryis currently employed at Sonoma County Indian Health Project as ChiefAdministrative Officer where she has worked since 1977. Ms. Arterberry isa member of the National Congress of American Indians and the CaliforniaNations Indian Gaming Association and serves on various other national, stateand tribal associations. In addition, Ms. Arterberry serves as Chairpersonof the Personnel Committee and is a member of the Legislative Committee for theTribe.

*MargieRojes*has served as Vice Chairperson of our Board ofDirectors since December 12, 2006.  Priorto that, Ms. Rojes served as our Secretary-Treasurer of our Board of Directorssince our inception. Ms. Rojes has also served as the Secretary-Treasurerof the Tribe’s Board of Directors since September 9, 2001. Ms. Rojesserved as member of the Board of Directors for the Tribe for the last fourterms since 1994. Ms. Rojes retired from the Windsor Elementary SchoolDistrict after 20 years of service. Ms. Rojes is a member of the NationalCongress of American Indians and the 

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California Nations Indian Gaming Association and isthe tribal delegate for Indian Child and Family Preservation Program. She alsoserves as a member of the Finance and Legislative Committees for the Tribe.

*HarveyHopkins* was elected as Chairman of Dry Creek Rancheria onNovember 20, 2004 and continues to serve as the Tribe’s Chairman.  Mr. Hopkins served as River RockEntertainment Authority’s Chairperson from November 20, 2004 to July 14, 2006.Mr. Hopkins has been a licensed excavating contractor for 29 years.  Hegrew up in Santa Rosa, California, and has been a lifelong member of the DryCreek Rancheria.  Mr. Hopkins began a professional career in constructionin 1970.  Soon after, he became a licensed excavating contractor.  Heand his wife have also been in the trucking business for the last 16 years andcurrently own American Indian Management Inc. Trucking Company. Additionally, Mr. Hopkins worked for American Civil Constructors West Coast forthe past 15 years.

*Augusto“Gus” Pina* has served as a member of our Board of Directorssince November 20, 2004. Mr. Pina recently retired as vice president of theSanta Rosa office of Bank of the West. Prior to joining Bank of the West in1992, Mr. Pina served in various managerial positions at Crocker Bank and Bankof America. Mr. Pina was honorably discharged from the US Navy in 1964. Exceptduring his service to the US Navy, Mr. Pina has lived in Sonoma County hisentire life. He has been a member of Rotary International, Cotati PlanningCommissioner, Cotati Chamber President, former board member of KRCB channel 22and a former member of the Petaluma Boys & Girls Club.

*GabeNevarez* has served as a member of our Board of Directorssince October 7, 2006. Mr. Nevarez had served on the Tribe’s Board of Directorsas a member-at-large from 1998 through 2004. He had previously served on theAuthority’s Board of Directors as a member-at-large from its inception throughNovember 2004. Mr. Nevarez has been employed in retail sales in Santa Rosa, CAsince 1986. Mr. Nevarez has previously served as a member of the Enrollment,Personnel, Housing and Legislative Committees of the Tribe.

**Executive Officers**

The table below setsforth information about certain key executive officers as of December 31, 2006.

| Name                 | ** ** | **Age** | ** ** | **Position(s) Held**                     |
|----------------------|------------|---------|------------|------------------------------------------|
| Shawn S. Smyth       |       | 58      |       | Chief Executive Officer; General Manager |
| Noman Runyan         |       | 53      |       | Chief Operations Officer                 |
| David B. Wolfe       |       | 50      |       | Chief Financial Officer                  |
| Anthony Jay  Averitt |       | 50      |       | Marketing Manager                        |
| Willam Carnahan      |       | 62      |       | Slot Manager                             |

 

Set forth below is abrief description of the business experience of our key executive officers. Thefollowing descriptions for our officers include employment by River Rock Casinoas our predecessor.

**ShawnS. Smyth** has been our ChiefExecutive Officer and General Manager since April 13, 2006.  Mr. Smyth hasmore than 25 years experience in the gaming industry, and has been responsiblefor developing, enhancing and expanding operations at several Native Americanproperties. Most recently, he was the General Manager of Paradise Casinos inYuma, Arizona, where he oversaw a Tribal property containing two adjacent casinos.Prior to that, he was Chief Executive Officer of the Seven Feathers Hotel andCasino Resort in Canyonville, Oregon, where he was responsible for dailyoperations, strategic planning and master plan development. His previousexperience also includes 15 years as the Chief Executive Officer of CarsonValley Inn Properties in Minden, Nevada.

*NormanRunyan*has been our Chief Operations Officer sinceOctober 2002.  Mr. Runyan was our acting Chief Executive Officer andGeneral Manager from November 8, 2005 through April 13,2006, following the resignation of our former Chief ExecutiveOfficer, in November 2005.  Mr. Runyan has been involved innumerous projects over the past 20 years working on the development andoperation of hospitality and gaming related enterprises. Mr. Runyanserved as Chief Operations Officer of Casino Arizona in Scottsdale, Arizonafrom 1998 to 2002, where he assisted in the design, development, opening andoversight of construction and operations of their casino facility. From 1995 

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through 1998,Mr. Runyan served as Director of Operations and assisted in thedevelopment of the Apache Gold Casino and Resort.

**DavidWolfe** was our Chief FinancialOfficer from July 18, 2006 to April 9, 2007. Mr. Wolfe has more than25 years experience in finance and accounting.  Mr. Wolfe was the ChiefFinancial Officer of Desert Diamond Casino in Tucson, Arizona from 2002 to2005, where he oversaw six departments.  Prior to that, he was theFinance Director of Isleta Casino and Resort in Albuquerque, New Mexico from2001 to 2002, and the Controller at Sandia Casino in Albuquerque, New Mexicofrom 1999 to 2001.

*AnthonyJay Averitt*has been our Marketing Manager since August2002.  Mr. Averitt has more than 12 yearsof gaming experience and is responsible for the establishment and developmentof our gaming facility’s marketing department, and all our marketing policiesand procedures. Prior to his employment at our gaming facility,Mr. Averitt was the Marketing Director for Casino Arizona, in Scottsdale,Arizona from 1998 through 2002.  Mr.Averitt helped develop three casinos for the Salt River Pima — Maricopa Indiancommunity, and formulated and managed the marketing, advertising & guestservice departments.

*WilliamCarnahan* has been our Slot Manager since September 2002. Withover 30 years of slot experience, Mr. Carnahan has helped design slotfloor layouts and been in charge of slot installation. Prior to his employmentat our gaming facility, Mr. Carnahan served as Director of Slot Operationsfor Casino of the Sun and Casino Del Sol in Tucson, Arizona, where he wasresponsible for the daily operation of both casino floors. Mr. Carnahanhelped design the slot floor layout and machine selection of Casino Del Sol andwas responsible for the installation of machines, slot system and progressivesystem for phase one of the development of Casino Del Sol. Mr. Carnahanwas employed at Cliff Castle Casino in Camp Verde, Arizona as slot repairsupervisor from 1995 to 1996, and slot manager from 1996 to 2000.

As of April 12, 2007, Mr.Jacob Coughlin, our Assistant Financial Controller, became our PrincipalFinancial Officer. Following the resignation of Mr. David Wolfe, our ChiefFinancial Officer. The following is a brief description of the businessexperience of Mr. Coughlin.

**JacobA. Coughlin** has been our AssistantFinancial Controller since April 2006.  Mr. Coughlinhas more than 7 years of experience in finance and accounting. Before being promoted to Assistant Financial Controller, Mr. Coughlin was ourFinancial Analyst from 2004 to 2006, where he oversaw the preparation andreview of all our financial reporting and SEC filings.  Prior to that, he was an Accountant atAdvance: Solar, Hydro, Wind Power Company in Calpella, California from 2003 to2004, and Tax Manager at Robertson, Cahill & Associated CPAs in Lakeport,California from 2002 to 2003.

**Code of Ethics**

We have adopted a code ofethics that applies to all of our executive officers, including our principalexecutive officer and principal financial officer. Our code of ethics isavailable on our website at *www.riverrockcasino.com*under “Contact Us/Investor Relations/Corporate Governance.”

**Item 11.Executive Compensation.**

**CompensationDiscussion and Analysis**

**Philosophy**

Our compensation policiesare designed to attract and retain key employees, motivating them to achieveand rewarding them for superior performance.  We choose to pay competitivelevels of base compensation and discretionary bonuses in order to attract andretain the necessary executive talent, reward annual performance and provideincentive for their balanced focus on long-term strategic goals as well asshort-term performance. Since we believe the performance of every employee isimportant to our success, we are mindful of the effect of executivecompensation on all of our employees.

We believe that thecompensation of our officers should reflect their success as individuals and asa management team, in attaining key operating objectives, such as growth ofrevenues and operating earnings. We believe that the performance of theofficers in managing our casino, considered in light of general economic andspecific company, industry and competitive conditions, should be the basis fordetermining their overall compensation. In setting our 

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officers’ compensation, we intend to be competitivewith other gaming companies. Our discretionary cash bonuses are an importantelement of our ability to recruit and retain talented employees and rewardachievement since we do not pay any equity-based compensation.

**Overviewof Compensation and Process**

In lieu of a compensationcommittee, our Board of Directors acts as a whole to make determinationsregarding compensation of our executive officers. Elements of compensation forour executives include: salary, incentive bonus, and benefits such as health,disability and life insurance, and perquisites. Base salaries for ournon-contracted executives and discretionary bonuses for all executives are setfor our officers annually by Board of Directors.

As part of its annualreview of officer compensation, our Board of Directors takes into account eachofficer’s total compensation from prior years, as well as information containedin compensation surveys. After reviewing the above factors, our Board ofDirectors makes the ultimate compensation determinations.  Compensation determinations relating toincentive bonuses to our Chief Executive Officer, Chief Operating Officer andChief Financial Officer as well as base compensation are determined solely byour Board of Directors.

The following are certainfactors that our Board of Directors will also take into account in determiningthe various components of our executive officers’ total compensation package:

·                  Performanceagainst corporate and individual objectives for the previous year;

·                  Difficultyof achieving desired results in the coming year;

·                  Valueof their unique skills and capabilities to support our long-term performance;

·                  Performanceof their management responsibilities;

·                  Responsibilityand authority of each position relative to other positions within theAuthority; and

·                  Contributions asa member of the senior management team.

These elements fit intoour overall compensation objectives by helping to secure the future potentialof our operations, providing proper compliance and regulatory guidance, andhelping to create a cohesive team.

**Overviewof Director Compensation and Procedures**

Wereview the level of compensation of our directors on an annual basis. Todetermine how appropriate the current level of compensation for our directorsis, we have historically obtained data from a number of different sources suchas salary surveys and industry standards.

**RetentionAgreements**

We do not have individualretention agreements with any employee except for severance arrangements withour Chief Executive Officer and Chief Operating Officer contained in theirrespective employment contracts that are discussed in the Item 11 under “EmploymentAgreements”.

**CompensationCommittee Interlocks and Insider Participation**

No member of the Board ofDirectors has served as one of our officers or employees at any time. None ofour executive officers serve as a member of the board of directors of any othercompany.

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**Board of Directors**Report**

Our Board of Directorshas reviewed the Compensation Discussion and Analysis and discussed thatAnalysis with management. Based on its review and discussions with management,the Board of Directors has approved the Compensation Discussion and Analysis beincluded in our Annual Report on Form 10-K for 2006. This report is provided byour full Board of Directors:

Betty Aterberry,Chairperson

Margie Rojes, ViceChairperson

Harvey Hopkins, Member

Gus Pina, member

Gabe Nevarez,Member

**Executive Officers**

The following tableprovides summary information concerning compensation of our Chief ExecutiveOfficer, Chief Financial Officer and our three most highly compensatedexecutive officers for each of our fiscal years ended December 31, 2006, 2005and 2004: 
|                                                | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | **Other**           | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|-------------------|------------|------------|------------|------------|------------|---------------------|------------|------------|------------|
| **Name and Principal Position** | ** ** | **Year (a)** | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Compensation(b)** | ** ** | **Total**  | ** ** |
| ** **                                     | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **          | ** ** | ** ** | ** ** |
| Shawn S. Smyth                                 |       | 2006              |       | $          | 182,692    |       | $          | —              |       | $          | 10,393     |   | $ | 193,085 |   |
| Chief Executive Officer (c)                    |       | 2005              |       | —     |       | —     |       | —              |       | —     |       |
|                                                |       | 2004              |       | —     |       | —     |       | —              |       | —     |       |
| Norman Runyan,                                 |       | 2006              |       | $          | 263,317    |       | $          | 62,500              |       | $          | 13,467     |   | $ | 339,284 |   |
| Chief Operations  Officer                      |       | 2005              |       | 240,973    |       | 58,320     |       | 7,386               |       | 306,679    |       |
|                                           |       | 2004              |       | 219,921    |       | 54,000     |       | 7,013               |       | 280,934    |       |
| David B. Wolfe                                 |       | 2006              |       | $          | 66,807     |       | $          | 11,250              |       | $          | 1,975      |   | $ | 80,032 |   |
| Chief Financial Officer (d)                    |       | 2005              |       | —     |       | —     |       | —              |       | —     |       |
|                                                |       | 2004              |       | —     |       | —     |       | —              |       | —     |       |
| Yuan Fang Mao                                  |       | 2006              |       | $          | 100,203    |       | $          | -                   |       | $          | 1,238      |   | $ | 101,441 |   |
| Chief Financial  Officer (e)                   |       | 2005              |       | 176,936    |       | 39,230     |       | 4,416               |       | 220,582    |       |
|                                           |       | 2004              |       | 147,089    |       | 21,996     |       | 3,711               |       | 172,796    |       |
| Anthony Jay Averitt,                           |       | 2006              |       | $          | 181,651    |       | $          | 19,063              |       | $          | 13,075     |   | $ | 213,789 |   |
| Marketing Manager                              |       | 2005              |       | 160,267    |       | 23,751     |       | 8,675               |       | 192,693    |       |
|                                                |       | 2004              |       | 154,295    |       | 22,728     |       | 8,212               |       | 185,235    |       |
| William Carnahan,                              |       | 2006              |       | $          | 161,998    |       | $          | 21,704              |       | $          | 7,512      |   | $ | 191,214 |   |
| Slot Manager                                   |       | 2005              |       | 136,875    |       | 20,304     |       | 10,703              |       | 167,882    |       |
|                                           |       | 2004              |       | 131,537    |       | 19,500     |       | 7,700               |       | 158,737    |       |

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(a)             Dollar amounts forbonuses are not guaranteed and represent the maximum amount that the principalofficer may receive.

(b)            No “Other Compensation”was paid to any of the named principal officers during 2006, 2005 or 2004except for sell-back of paid time off.

(c)             Shawn S. Smyth beganserving as our Chief Executive Officer in April 2006.

(d)            David B. Wolfe beganserving as our Chief Financial Officer in July 2006.

(e)             Yuan Fang Mao, ourprior Chief Financial Officer, was terminated on April 12, 2006.

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**Employment Agreements**

We entered into anemployment agreement with Mr. Shawn Smyth on April 13, 2006 to serve as ourChief Executive Officer of the Authority. This two year employment agreementcommenced as of April 13, 2006, and provides Mr. Smyth an annual salary of$250,000 and a discretionary bonus, as determined by the Tribal Board, of notmore than 25% of his annual salary based on various criteria.  If Mr. Smyth’s employment is terminated forother reasons set forth in the employment agreement including death ordisability, Mr. Smyth will be entitled to his salary for three months.  Either party may terminate the agreement witha 90 day written notice.

We renewed an employmentagreement with Mr. Norman Runyan on November 8, 2005 to continue to serve asour Chief Operations Officer. This three year employment agreement commenced onOctober 14, 2005, and provides Mr. Runyan an annual salary of $250,000 and adiscretionary bonus, as determined by the Tribal Board, of not less than 7% andnot more than 25% of his annual salary based on various criteria.  If Mr. Runyan’s employment is terminated forother reasons set forth in the employment agreement including death ordisability, Mr. Runyan will be entitled to his salary for three months.  Either party may terminate the agreement witha 90 day written notice.

We have no otheremployment agreements with our principal executive officers.  Compensation for our principal executiveofficers other than those subject to employment agreements is set based on thefollowing criteria:

·                  Performanceagainst corporate and individual objectives for the previous year;

·                  Difficultyof achieving desired results in the coming year;

·                  Valueof their unique skills and capabilities to support our long-term performance;

·                  Performanceof their management responsibilities;

·                  Responsibilityand authority of each position relative to other positions within theAuthority; and

·                  Contributions asa member of the senior management team.

**Compensation of Our Board**

We are governed by afive-member Board of Directors consisting of the same five members as those ofthe Tribe’s Board of Directors. The Tribe compensates members of each Board ofDirectors for the services they render. In 2005, we reimbursed the Tribe for50% of the total compensation of the Board members reflecting an estimate ofthe total time allocable to Authority Board matters. In 2006, we reimbursed theTribe for 50% of the total compensation of the Board members. The members ofthe Board of Directors received the following amounts for their service asmembers of the Tribe’s Board of Directors and as members of the Authority’sBoard of Directors for the fiscal year 2006:

| Name             | ** ** | **Title**         | ** ** | **Fees Earned** | ** ** | **All Other Comp** | ** ** | **Total** | ** ** |
|------------------|------------|-------------------|------------|----------------------|------------|------------------------------|------------|-----------|------------|
|             |       |              |       |                 |       |                         |       |      |       |
| Betty Arterberry |       | Chairperson       |       | $                    | 70,000     |                         | $          | —    |       | $ | 70,000 |   |
| Margie Rojes     |       | Vice  Chairperson |       | 60,000               |       | —                       |       | 60,000    |       |
| Harvey Hopkins   |       | Board  Member     |       | 100,000              |       | —                       |       | 100,000   |       |
| Gus Pina         |       | Board  Member     |       | 40,000               |       | —                       |       | 40,000    |       |
| Gabe Nevarez     |       | Board Member      |       | 40,000               |       | —                       |       | 40,000    |       |
|                  |            |                   |            |                      |            |                              |            |           |            |  |  |  |

 

**Item 12. Security Ownership ofCertain Beneficial Owners and Management.**

We have no outstandingequity securities.

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**Item 13.****Certain Relationships and Related Transactions.**

Distributions to theTribe were $15.5 million, $11.2 million, and $7.6 million for the years endedDecember 31, 2006, 2005 and 2004, respectively. Under the Indenture, wecurrently are permitted to make payments of up to $1,020,000 per month to theTribe, as well as certain other payments, which are also included within thedefinition of “Permitted Payments.”  Wewere permitted by our Indenture and increased the Permitted Payments to theTribe by $40,000, commencing April 1, 2006. In 2004, we distributed to the Tribe as a Permitted Payment, $783,116 inan effort to purchase a parcel of land for our use.  In August and September of 2006, wereimbursed the Tribe an aggregate of $2.0 million for construction costs incurredbefore our formation.  In December 2006,we reimbursed the Tribe $1.4 million for municipal services relating toimprovements to the main access road to the Tribe’s reservation and ourCasino.  The $1.4 million was latercontributed back to us by the Tribe.

In May 2002, the Tribeentered into an agreement with Swinerton Builders for the construction relatedto the Casino for a guaranteed maximum price of $27.0 million. The scopeof that contract has subsequently been amended by change order to include stabilizationof the Dry Creek Rancheria hillside located above the completed River RockCasino project, construction of new roadways and improvements to existingroadways on the Rancheria, which provide access to the Casino, other tribalimprovements on the Rancheria and construction of infrastructure improvementson the Rancheria. The guaranteed maximum price of the contract has been amendedto be approximately $39.4 million. Pursuant to the contract, we have madepayments on behalf of the Tribe to Swinerton Builders of approximately$30.5 million through December 31, 2006.

Prior to the NotesOffering, the Tribe incurred $3.5 million of construction costs, primarilyconsisting of payments to Swinerton. We agreed to reimburse those costs to theTribe. In 2006, we reimbursed the remaining balance of $2.0 million to theTribe.

The Tribe has, orcurrently intends to, enter into contracts with various design, engineering andtesting consultants to perform geotechnical engineering, geological services,civil engineering, traffic planning and engineering services, wastewaterdisposal evaluation and geotechnical investigation services, land surveying andcivil engineering design services, landscape architectural design services,construction testing and inspecting services that will benefit the Casino. Weintend to make payments under these contracts on behalf of the Tribe. ThroughDecember 31, 2006, we have made payments of approximately $6.1 millionpursuant to such design, engineering and testing contracts.

The Tribe enacted atribal gaming ordinance in April 1997, which, among other matters, created andestablished the TGA as a governmental subdivision of the Tribe. The TGA isresponsible for the regulation of all gaming activities conducted by the Tribeor us on tribal lands. We pay for various expenses of the TGA (gamingcommission expense), surveillance, plant operations, human resources, and as ofMay 8, 2006, purchasing and warehouse. All of these departments are operated bythe Tribe. These expenses include but are not limited to payroll and relatedexpenses, legal and other operational expenses.   These expenses were $6.2 million for FY 2006and $4.7 million for FY 2005.

The Tribe is obligated toremit certain fees to the CGCC on a quarterly basis for inclusion in the RSTF.The RSTF is for the benefit of tribes in California that have no or limitedgaming. We pay these fees on behalf of the Tribe. Compact revenue sharing trustfund expense remained the same at $1.3 million for FY 2006 and FY 2005. Compactrevenue sharing trust fund expense includes payments associated with operating1,600 gaming devices. These fees became payable by the Tribe when we commencedoperations in September 2002, and are based on the number of our gaming devicelicenses. Compact revenue sharing trust fund expense includes payments to theRSTF as required by our Compact with the State of California.

We have pledged a cashgift, on behalf of the Tribe, to the Geyserville Unified School District in theamount of $1.2 million, to be provided in equal parts during each of the2003 through 2007 school years. The cash donation to the school district is agift and not part of any revenue sharing agreement with state or localgovernment.  Through December 31, 2006,we have paid $1.1 million of this gift.

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**Item 14. Principal Accounting Feesand Services.**

The following table setsforth the aggregate fees billed for professional services rendered by Deloitte& Touche LLP, for the audit of our annual financial statements for FY 2006and FY 2005 and the aggregate fees billed for audit-related services and allother services rendered by Deloitte & Touche LLP for FY 2006 and FY 2005. 

|                    | ** ** | **Fiscal Year** | ** ** | **Fiscal Year** | ** ** |
|--------------------|------------|----------------------|------------|----------------------|------------|
| ** **         | ** ** | **2006**             | ** ** | **2005**             | ** ** |
| Audit Fees         |       | $                    | 243,000    |                 | $          | 190,000 |   |
| Audit-Related Fees |       | —               |       | —               |       |
| All Other Fees     |       | $                    | 24,500     |                 | $          | 21,500 |   |

 

The category of “AuditFees” includes fees for our annual audit, quarterly reviews and servicesrendered in connection with statutory and regulatory filings, or engagementsfor those fiscal years.

The category of “Audit-RelatedFees” includes aggregate fees billed in each of the last two fiscal years, forassurance and related services by the principal accountant, that are reasonablyrelated to the performance of the audit or review of the Authority’s financialstatements.

The category of “AllOther Fees” includes aggregate fees billed in each of the last two fiscal yearswhich are not covered by the above categories.

All above audit serviceswere pre-approved by the TGA, which, under the Compact, has responsibility forensuring that the audit is performed. The TGA concluded that the provision ofsuch services by Deloitte & Touche LLP was compatible with the maintenanceof that firm’s independence in the conduct of auditing functions. The TGA’soutside auditor independence policy provides for pre-approval of all servicesperformed by the outside auditors.

 

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**PART IV**

**Item 15. Exhibits, FinancialStatement Schedules.**

**A. Financial Statements**

(a) *Documents filed as part of this report.*

1. The following financial statements of the Authorityand the Report of Deloitte & Touche LLP, independent registered public accountingfirm, appear on pages 51 through 64 of this Form 10-K and are incorporated byreference in Part II, Item 8:

Report of Independent Registered Public AccountingFirm

Balance Sheets of the River Rock EntertainmentAuthority as of December 31, 2006 and 2005

Statements of Revenues, Expenses and Changes in FundDeficit for the Years Ended December 31, 2006, 2005 and 2004

Statements of Cash Flows for the Years Ended December31, 2006, 2005 and 2004

Notes to Financial Statements for the Years EndedDecember 31, 2006, 2005 and 2004

2. List of financial statement schedules. Allschedules are omitted because they are not applicable or the requiredinformation is shown in the financial statements or notes thereto.

3. List of exhibits required by Item 601 of RegulationS-K. See part (c) below.

(b) *Reports on Form8-K.*The following current reports were filed on Form 8-K for theyear ended December 31, 2006:

Current Report on Form 8-K filed on April 12, 2006.

Current Report on Form 8-K filed on April 19, 2006.

Current Report on Form 8-K filed on July 19, 2006

Current Report on Form 8-K filed on October 12, 2006

Current Report on Form 8-K filed on October 19, 2006

Current Report on Form 8-K filed on November 21, 2006

Current Report on Form 8-K filed on December 12, 2006

46

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**B. Exhibits.**

Theexhibits to this Form 10-K are listed on the exhibit index, which appearselsewhere herein and is incorporated herein by reference.

**EXHIBIT INDEX**
| Exhibit No. | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         |       | Dry Creek Rancheria Band of Pomo Indians Ordinance  No. 03-10-25-003 setting forth the River Rock Entertainment Authority Act of  2003 (filed as Exhibit 3.1 to the Authority’s Registration Statement on Form  S-4 (the “Form S-4”), filed with the SEC on May 5, 2004 (SEC File No.  333-115186), and incorporated by reference herein)                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.2         |       | Dry Creek Rancheria Band of Pomo Indians Tribal  Council Resolution No. 03-10-25-002 (the River Rock Entertainment Authority  and Bond Resolution Act) approving, among other things, creation of the River  Rock Entertainment Authority (filed as Exhibit 3.2 to the Authority’s  Registration Statement on Form S-4, filed with the SEC on May 5, 2004 (SEC  File No. 333-115186), and incorporated by reference herein)             |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.3         |       | Dry Creek Rancheria Band of Pomo Indians Ordinance  No. 97-08-04, as amended October 25, 2003, authorizing and regulating gaming  on the Dry Creek Band of Pomo Indians Rancheria (filed as Exhibit 3.3 to the  Form S-4, and incorporated by reference herein)                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1         |       | Indenture, dated as of November 7, 2003, by and  among the Authority, the Tribe and U.S. Bank National Association, as trustee  (the “Trustee”), together with the Exhibits attached thereto (filed as  Exhibit 4.1 to the Form S-4, and incorporated by reference herein)                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2         |       | Form of Global 9 3⁄4% Senior Note due 2011 (contained  in the Indenture filed as Exhibit 4.1 herewith) (filed as Exhibit 4.2 to the  Form S-4, and incorporated by reference herein)                                                                                                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3         |       | Intercreditor Agreement, dated as of November 7,  2003, by and among the Trustee, Dry Creek Casino, LLC, the Authority and the  Tribe (filed as Exhibit 4.4 to the Form S-4, and incorporated by reference  herein)                                                                                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1        |       | Tribal-State Compact between the Dry Creek Rancheria  Band of Pomo Indians and the State of California, effective May 2000 (filed as  Exhibit 10.1 to the Form S-4, and incorporated by reference herein)                                                                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.2        |       | Cash Collateral and Disbursement Agreement, dated as  of November 7, 2003 (the “Cash Collateral Agreement”), by and among the  Trustee, U.S. Bank National Association, as USB disbursement agent, Wells  Fargo Bank, N.A., as disbursement agent, Merritt & Harris, Inc., as  independent construction consultant, the Authority and the Tribe (filed as  Exhibit 10.2 to the Form S-4, and incorporated by reference herein) |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.3        |       | Amendment No. 1 to Cash Collateral Agreement, dated  as of November 17, 2003, by and among the Trustee, U.S. Bank National  Association, as USB disbursement agent, Wells Fargo Bank, N.A., as  disbursement agent, Merritt & Harris, Inc., as independent construction  consultant, the Authority and the Tribe (filed as Exhibit 10.3 to the Form  S-4, and incorporated by reference herein)                                          |

 

47

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|        |   |                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4   |   | U.S. Bank National Association Control Agreement,  dated as of November 7, 2003, by and among the Trustee, U.S. Bank National  Association, as disbursement agent, securities intermediary and depository  bank, the Authority and the Tribe (filed as Exhibit 10.4 to the Form S-4, and  incorporated by reference herein) |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.5   |   | Wells Fargo Bank, N.A. Control Agreement, dated as  of November 7, 2003, by and among the Trustee, Wells Fargo Bank, N.A., as  depository bank, the Authority and the Tribe (filed as Exhibit 10.5 to the  Form S-4, and incorporated by reference herein)                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | Wells Fargo Bank, N.A. side letter dated December 1,  2003, from Wells Fargo Bank, N.A. to the Trustee (filed as Exhibit 10.6 to  the Form S-4, and incorporated by reference herein)                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | Pledge and Security Agreement, dated as of November  7, 2003, by and among the Authority, the Tribe and the Trustee (filed as  Exhibit 10.7 the Form S-4, and incorporated by reference herein)                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | Development and Loan Agreement, dated as of August  26, 2001, by and between the Tribe and Dry Creek Casino, LLC (filed as  Exhibit 10.8 to the Form S-4, and incorporated by reference herein)                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | First Amendment to the Development and Loan  Agreement, dated as of April 29, 2002, by and between the Tribe and Dry Creek  Casino, LLC (filed as Exhibit 10.9 to the Form S-4, and incorporated by  reference herein)                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.10  |   | Second Amendment to Development and Loan Agreement,  dated as of February 19, 2003, by and between the Tribe and Dry Creek Casino,  LLC (filed as Exhibit 10.10 to the Form S-4, and incorporated by reference  herein)                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.11  |   | Third Amendment to Development and Loan Agreement,  dated as of May 29, 2003, by and between the Tribe and Dry Creek Casino, LLC  (filed as Exhibit 10.11 to the Form S-4, and incorporated by reference  herein)                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.12  |   | Fourth Amendment to Development and Loan Agreement, dated  as of October 9, 2003, by and between the Tribe and Dry Creek Casino, LLC  (filed as Exhibit 10.12 to the Form S-4, and incorporated by reference  herein)                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.13  |   | Fifth Amendment to Development and Loan Agreement,  dated as of October 9, 2003 by and between the Tribe and Dry Creek Casino,  LLC (filed as Exhibit 10.13 to the Form S-4, and incorporated by reference  herein)                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.14  |   | Sixth Amendment to Development and Loan Agreement,  dated as of November 7, 2003, by and between the Authority and Dry Creek  Casino, LLC (filed as Exhibit 10.14 to the Form S-4, and incorporated by  reference herein)                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.15  |   | Employment Agreement, dated as of April 17, 2006, by  and between the Tribe and Shawn S. Smyth (filed as Exhibit 10.1 to the Form  8-K filed with the SEC on April 19, 2006, and incorporated by reference  herein)                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                        |
| 10.16  |   | Employment Agreement, dated as of October 14, 2005,  by and between the Tribe and Norman Runyan (filed as Exhibit 10.1 to the Form  8-K filed with the SEC on November 14, 2005, and incorporated by reference  herein)                                                                                                     |

 

48

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|        |   |                                                                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17  |   | Agreement, dated as of April 1, 2004, by and between  the Authority and Swinerton Builders (filed as Exhibit 10.19 to the Form S-4,  and incorporated by reference herein)                                                         |
|   |   |                                                                                                                                                                                                                               |
| 10.18  |   | Lease Agreement, dated as of May 30, 2002, by and  between the Tribe and Sprung Instant Structures, Inc. (filed as Exhibit 10.20  to the Form S-4, and incorporated by reference herein)                                           |
|   |   |                                                                                                                                                                                                                               |
| 10.19  |   | Amendment No. 1 to Lease Agreement, dated as of  February 26, 2004, by and between the Tribe and Sprung Instant Structures,  Inc. (filed as Exhibit 10.21 to the Form S-4, and incorporated by reference  herein)                  |
|   |   |                                                                                                                                                                                                                               |
| 10.20  |   | Amendment No. 2 to Lease Agreement, dated as of  August 29, 2005, by and between the Tribe and Sprung Instant Structures, Inc.  (filed herewith as Exhibit 10.20)                                                                  |
|   |   |                                                                                                                                                                                                                               |
| 12.1   |   | Statement of Calculation of Ratio of Earnings to  Fixed Charges (filed herewith as Exhibit 12.1)                                                                                                                                   |
|   |   |                                                                                                                                                                                                                               |
| 14.1   |   | Code of Ethics (filed as Exhibit 14.1 to the Form  10-K filed with the SEC on March 30, 2006, and incorporated herein by  reference)                                                                                               |
|   |   |                                                                                                                                                                                                                               |
| 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)                                                        |
|   |   |                                                                                                                                                                                                                               |
| 32.1*  |   | Certification by Shawn S.Smyth, Chief Executive  Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 (furnished herewith)                                           |
|   |   |                                                                                                                                                                                                                               |
| 32.2*  |   | Certification 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) |
|   |   |                                                                                                                                                                                                                               |

 

----

*These certifications arebeing furnished solely to accompany this annual report pursuant to 18 U.S.C.Section 1350, and are not being filed for purposes of Section 18 of theSecurities Exchange Act of 1934 and are not to be incorporated by referenceinto any filing of River Rock Entertainment Authority whether made before orafter the date hereof, regardless of any general incorporation language in suchfiling.

**Supplemental Information to be Furnished With Reports FiledPursuant to Section 15(d) of the Act by Registrants Which Have Not RegisteredSecurities Pursuant to Section 12 of the Act**

The registranthas not sent an annual report or proxy statement to security holders. Theregistrant will not be sending an annual report or proxy statement to itssecurity holders subsequent to the filing of this Form 10-K.

49

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Boardof Directors of River Rock Entertainment Authority

We have audited the accompanying balance sheets of theRiver Rock Entertainment Authority (the “Authority”), a governmentalinstrumentality of the Dry Creek Rancheria Band of Pomo Indians (the “Tribe”),as of December 31, 2006 and 2005, and the related statements of revenues,expenses and changes in fund deficit and of cash flows for each of the threeyears in the period ended December 31, 2006. These financial statements are the responsibility of the Authority’smanagement. Our responsibility is to express an opinion on the financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Authority is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances butnot for the purpose of expressing an opinion on the effectiveness of theAuthority’s internal control over financial reporting. Accordingly, we expressno such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements presentfairly, in all material respects, the financial position of the River RockEntertainment Authority as of December 31, 2006 and 2005, and the revenues andexpenditures and changes in fund deficit and the cash flows for each of thethree years in the period ended December 31, 2006 in conformity with accountingprinciples generally accepted in the United States of America.

River Rock Entertainment Authority is anunincorporated instrumentality of the Tribe and is not a separate legal entity.These financial statements reflect the financial position of the River RockEntertainment Authority, its revenues and expenditures and changes in netassets and its cash flows and do not purport to represent the financialposition and activity of the Tribe as a whole.

SanFrancisco, CAApril 16, 2007

 

50

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**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality of the Dry CreekRancheria Band of Pomo Indians)**
| **BALANCE SHEETS**                            | ** ** | ** **                      | ** **  | ** **                      | ** ** |
|----------------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| **DECEMBER 31, 2006 AND 2005** | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| ** **                                         | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| ** **                                         | ** ** | **December 31, 2006** | ** **  | **December 31, 2005** | ** ** |
| **ASSETS**                                         |       |                            |        |                            |       |
| ** **                                         |       |                            |        |                            |       |
| CURRENT ASSETS:                                    |       |                            |        |                            |       |
| Cash and cash  equivalents                         |       | $                               | 32,549,001  |                            | $          | 17,649,658 |   |
| Restricted  cash-current                           |       | 467,997                         |        | 666,517                         |       |
| Accounts  receivable                               |       | 203,555                         |        | 93,252                          |       |
| Inventories                                        |       | 160,601                         |        | 159,434                         |       |
| Prepaid expenses  and other current assets         |       | 1,396,289                       |        | 1,427,906                       |       |
| Total current assets                               |       | 34,777,443                      |        | 19,996,767                      |       |
| RESTRICTED CASH - net  of current                  |       | 6,780,256                       |        | 6,706,964                       |       |
|                                               |       |                            |        |                            |       |
| PROPERTY AND EQUIPMENT:                            |       |                            |        |                            |       |
| Buildings and  building improvements               |       | 129,245,481                     |        | 128,858,771                     |       |
| Furniture,  fixtures and equipment                 |       | 27,110,280                      |        | 26,015,944                      |       |
|                                               |       |                            |        |                            |       |
| Accumulated  depreciation                          |       | (32,696,126                     | )           | (21,801,767                     | )          |
| Construction in  progress                          |       | 4,385,195                       |        | 1,819,271                       |       |
| Property and  equipment-net                        |       | 128,044,830                     |        | 134,892,219                     |       |
| DEPOSITS AND OTHER  ASSETS                         |       | 5,266,658                       |        | 6,081,955                       |       |
|                                               |       |                            |        |                            |       |
| TOTAL ASSETS                                       |       | $                               | 174,869,187 |                            | $          | 167,677,905 |   |
|                                               |       |                            |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                   |       |                            |        |                            |       |
|                                               |       |                            |        |                            |       |
| CURRENT LIABILITIES:                               |       |                            |        |                            |       |
| Accounts  payable:                                 |       |                            |        |                            |       |
| Trade                                              |       | $                               | 2,500,226   |                            | $          | 2,178,031 |   |
| Construction                                       |       | 467,997                         |        | 1,114,618                       |       |
| Accrued  liabilities                               |       | 7,094,168                       |        | 6,463,556                       |       |
| Current  maturities of long-term debt              |       | 642,413                         |        | 103,545                         |       |
| Total current  liabilities                         |       | 10,704,804                      |        | 9,859,750                       |       |
| LONG-TERM DEBT - net of  current maturities        |       | 198,500,275                     |        | 198,243,209                     |       |
| Total long-term  liabilities                       |       | 198,500,275                     |        | 198,243,209                     |       |
|                                               |       |                            |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES                     |       |                            |        |                            |       |
| FUND DEFICIT:                                      |       |                            |        |                            |       |
| Invested in capital  assets-net of related debt    |       | (71,097,858                     | )           | (63,454,535                     | )          |
| Restricted for capital  projects                   |       | 7,248,253                       |        | 7,373,481                       |       |
| Unrestricted                                       |       | 29,513,713                      |        | 15,656,000                      |       |
|                                               |       |                            |        |                            |       |
| Total fund deficit                                 |       | (34,335,892                     | )           | (40,425,054                     | )          |
|                                               |       |                            |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT                 |       | $                               | 174,869,187 |                            | $          | 167,677,905 |   |

 

The accompanying notes are anintegral part of these financial statements.

51

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| **STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT** | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| **YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**                      | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| ** **                                                                                               | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| ** **                                                                                               | ** ** | **2006**    | ** **  | **2005**    | ** ** | **2004**    | ** ** |
| REVENUES:                                                                                                |       |        |        |        |       |        |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Casino                                                                                                   |       | $           | 136,294,029 |        | $          | 132,831,172 |       | $ | 101,605,337 |   |
| Food, beverage & retail                                                                              |       | 6,244,262   |        | 6,920,246   |       | 4,958,894   |       |
| Other                                                                                                    |       | 622,605     |        | 662,894     |       | 575,527     |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Gross revenues                                                                                           |       | 143,160,896 |        | 140,414,312 |       | 107,139,758 |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Promotional allowances                                                                                   |       | (12,541,699 | )           | (6,855,551  | )          | (2,632,103  | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| Net revenues                                                                                             |       | 130,619,197 |        | 133,558,761 |       | 104,507,655 |       |
|                                                                                                     |       |        |        |        |       |        |       |
| OPERATING  EXPENSES:                                                                                     |       |        |        |        |       |        |       |
| Casino                                                                                                   |       | 20,454,077  |        | 19,187,233  |       | 16,908,717  |       |
| Food, beverage & retail                                                                              |       | 5,996,913   |        | 6,311,028   |       | 4,515,916   |       |
| Selling, general and administrative                                                                      |       | 39,903,231  |        | 46,174,080  |       | 39,008,030  |       |
| Depreciation                                                                                             |       | 11,502,565  |        | 11,012,094  |       | 6,390,396   |       |
| Credit enhancement fee                                                                                   |       | 8,078,806   |        | 7,669,147   |       | 5,111,747   |       |
| Gaming commission and surveillance expense                                                               |       | 3,154,384   |        | 2,773,369   |       | 1,780,194   |       |
| Compact revenue sharing trust fund                                                                       |       | 1,335,000   |        | 1,335,000   |       | 1,335,000   |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Total Operating expenses                                                                                 |       | 90,424,976  |        | 94,461,951  |       | 75,050,000  |       |
|                                                                                                     |       |        |        |        |       |        |       |
| INCOME FROM  OPERATIONS                                                                                  |       | 40,194,221  |        | 39,096,810  |       | 29,457,655  |       |
|                                                                                                     |       |        |        |        |       |        |       |
| OTHER  EXPENSE-Net:                                                                                      |       |        |        |        |       |        |       |
| Interest expense                                                                                         |       | (20,883,967 | )           | (21,046,944 | )          | (17,446,237 | )          |
| Interest income                                                                                          |       | 1,045,942   |        | 332,122     |       | 498,905     |       |
| Loss on sale of assets                                                                                   |       | (126,394    | )           | (104,117    | )          | (62,577     | )          |
| Other expense                                                                                            |       | (640        | )           | (1,683      | )          | (1,098      | )          |
| Other expense-net                                                                                        |       | (19,965,059 | )           | (20,820,622 | )          | (17,011,007 | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| INCOME BEFORE  DISTRIBUTIONS TO TRIBE                                                                    |       | 20,229,162  |        | 18,276,188  |       | 12,446,648  |       |
|                                                                                                     |       |        |        |        |       |        |       |
| TRIBAL  CONTRIBUTIONS (DISTRIBUTIONS):                                                                   |       |        |        |        |       |        |       |
| Contributions  from the Tribe                                                                            |       | 1,381,137   |        | —      |       | —      |       |
| Distributions to  the Tribe                                                                              |       | (15,521,137 | )           | (11,180,000 | )          | (7,613,116  | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| NET INCOME  (LOSS) AFTER TRIBAL DISTRIBUTIONS                                                            |       | 6,089,162   |        | 7,096,188   |       | 4,833,532   |       |
|                                                                                                     |       |        |        |        |       |        |       |
| FUND  DEFICIT-Beginning of period                                                                        |       | (40,425,054 | )           | (47,521,242 | )          | (52,354,774 | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| FUND DEFICIT-End of  period                                                                              |       | $           | (34,335,892 | )           | $          | (40,425,054 | )          | $ | (47,521,242 | ) |

 

The accompanying notes are an integral part of thesefinancial statements.

52

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| **STATEMENTS OF CASH FLOWS**                                         | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| **YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004** | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| ** **                                                                          | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| ** **                                                                          | ** ** | **2006**    | ** **  | **2005**    | ** ** | **2004**    | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                              |       |        |        |        |       |        |       |
| Cash received  from gaming winnings and concessions                                 |       | $           | 130,439,469 |        | $          | 133,203,873 |       | $ | 103,992,700 |   |
| Cash paid for  salaries and benefits                                                |       | (27,675,936 | )           | (30,268,234 | )          | (26,769,492 | )          |
| Cash paid to  suppliers                                                             |       | (40,878,038 | )           | (45,851,753 | )          | (37,760,621 | )          |
| Cash paid for  compact revenue sharing trust fund                                   |       | (1,335,000  | )           | (1,335,000  | )          | (1,335,000  | )          |
|                                                                                |       |        |        |        |       |        |       |
| Net cash  provided by operating activities                                          |       | 60,550,495  |        | 55,748,886  |       | 38,127,587  |       |
|                                                                                |       |        |        |        |       |        |       |
| CASH FLOWS FROM CAPITAL  AND RELATED FINANCING ACTIVITIES:                          |       |        |        |        |       |        |       |
| Payments of  long-term debt                                                         |       | (522,311    | )           | (10,478,627 | )          | (192,757    | )          |
| Purchases of  property and equipment                                                |       | (4,474,546  | )           | (17,456,371 | )          | (57,740,761 | )          |
| Change in  restricted cash                                                          |       | 125,228     |        | 8,828,240   |       | 53,864,759  |       |
| Interest paid                                                                       |       | (19,525,022 | )           | (19,763,000 | )          | (20,365,153 | )          |
| Credit  enhancement fee                                                             |       | (7,981,395  | )           | (7,372,759  | )          | (4,633,756  | )          |
| Proceeds from sale of  fixed assets                                                 |       | 27,350      |        | 9,500       |       | 122,580     |       |
| Other                                                                               |       | (206,398    | )           | 362,841     |       | (347,106    | )          |
|                                                                                |       |        |        |        |       |        |       |
| Net cash used in  capital and related financing activities                          |       | (32,557,094 | )           | (45,870,176 | )          | (29,292,194 | )          |
|                                                                                |       |        |        |        |       |        |       |
| CASH FLOW FROM  INVESTING ACTIVITIES:                                               |       |        |        |        |       |        |       |
| Interest Income                                                                     |       | 1,045,942   |        | 332,122     |       | 498,905     |       |
|                                                                                |       |        |        |        |       |        |       |
| CASH FLOW FROM  NON-CAPITAL FINANCING ACTIVITIES:                                   |       |        |        |        |       |        |       |
| Distributions to  Tribe                                                             |       | (15,521,137 | )           | (11,180,000 | )          | (7,613,116  | )          |
| Contributions  from Tribe                                                           |       | 1,381,137   |        | —      |       | —      |       |
| Net cash used in  non-capital financing activites                                   |       | (14,140,000 | )           | (11,180,000 | )          | (7,613,116  | )          |
|                                                                                |       |        |        |        |       |        |       |
| CHANGE IN CASH AND CASH  EQUIVALENTS                                                |       | 14,899,343  |        | (969,168    | )          | 1,721,182   |       |
|                                                                                |       |        |        |        |       |        |       |
| CASH AND CASH  EQUIVALENTS, Beginning of the period                                 |       | 17,649,658  |        | 18,618,826  |       | 16,897,644  |       |
|                                                                                |       |        |        |        |       |        |       |
| CASH AND CASH EQUIVALENTS, End of the period                                        |       | $           | 32,549,001  |        | $          | 17,649,658  |       | $ | 18,618,826 |   |

 

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| **STATEMENTS OF CASH FLOWS (CONTINUED)**                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                             | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|                                                                                                   |       |       |       |       |       |       |       |
| RECONCILIATION OF  INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING  ACTIVITIES: |       |       |       |       |       |       |       |
| Income before  Distributions to Tribe                                                                  |       | $          | 20,229,162 |       | $          | 18,276,188 |       | $ | 12,446,648 |   |
|                                                                                                   |       |       |       |       |       |       |       |
| Adjustments to  reconcile operating income to net cash provided by operating activities:               |       |       |       |       |       |       |       |
| Depreciation                                                                                           |       | 11,502,565 |       | 11,012,094 |       | 6,390,396  |       |
| Interest  Expense, net                                                                                 |       | 20,883,967 |       | 21,046,944 |       | 17,447,237 |       |
| Interest Income                                                                                        |       | (1,045,942 | )          | (332,122   | )          | (498,905   | )          |
| Credit  enhancement fee                                                                                |       | 8,078,806  |       | 7,669,147  |       | 5,111,747  |       |
| Loss on sale of  assets                                                                                |       | 126,394    |       | 104,117    |       | 62,577     |       |
| Changes in  operating assets and liabilities:                                                          |       |       |       |       |       |       |       |
| Accounts  receivable                                                                                   |       | (110,303   | )          | (39,456    | )          | 52,952     |       |
| Inventories                                                                                            |       | (1,167     | )          | 223,977    |       | (234,010   | )          |
| Prepaid expenses  and other current assets                                                             |       | 31,617     |       | (654,075   | )          | 109,102    |       |
| Accounts payable                                                                                       |       | 322,195    |       | (1,220,143 | )          | (2,787,179 | )          |
| Accrued  liabilities                                                                                   |       | 533,201    |       | (337,785   | )          | 27,022     |       |
| Total  adjustments                                                                                     |       | 40,321,333 |       | 37,472,698 |       | 25,680,939 |       |
|                                                                                                   |       |       |       |       |       |       |       |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                                                             |       | $          | 60,550,495 |       | $          | 55,748,886 |       | $ | 38,127,587 |   |
|                                                                                                   |       |       |       |       |       |       |       |
| SUPPLEMENTARY SCHEDULE  OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES:                           |       |       |       |       |       |       |       |
| Acquisition of property  and equipment through third party financing                                   |       | $          | 980,995    |       | $          | 224,267    |       | $ | 690,566 |   |
| Acquisition of property  and equipment through Accounts Payable Construction                           |       | $          | 467,997    |       | $          | 1,114,618  |       | $ | 4,091,862 |   |
| Capitalized interest included in purchases of property and equipment  paid with notes                  |       | $          | —     |       | $          | —     |       | $ | 4,442,608 |   |

 

The accompanying notes are anintegral part of these financial statements.

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**RIVER ROCK ENTERTAINMENTAUTHORITY (A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)**

1.             DESCRIPTIONOF BUSINESS

RiverRock Entertainment Authority (the “Authority”) is a governmentalinstrumentality of the Dry Creek Rancheria Band of Pomo Indians (the “Tribe”),a federally recognized Indian tribe. River Rock Casino (the “Casino”) is agovernmental development project of the Authority. The Casino offers Class IIIgaming (as defined by the Indian Gaming Regulatory Act) on tribal land locatedin Geyserville, California. The legal authority for slot machines and tablegames is provided by the Tribe’s gaming compact with the State of California(the “Compact”), which was entered into in September 1999 and became effectiveupon approval by the Secretary of Interior on May 5, 2000.  The Compact expires on December 31, 2020.

TheTribe opened a portion of the Casino on September 14, 2002. Followingcompletion of construction the Casino was fully opened on April 1, 2003.

TheAuthority was formed as an unincorporated instrumentality of the Tribe onNovember 5, 2003 pursuant to a reorganization whereby the Tribe’s gamingbusiness became owned and operated by the Authority. This reorganization wasaccounted for as a reorganization of entities under common control.Accordingly, after the reorganization, the assets and liabilities of the Casinooperating property were presented by the Authority on a historical-cost basis.

TheAuthority operates as a separate, wholly owned operating unit of the Tribe andis not a separate legal entity. These financial statements reflect thefinancial position and activity of only the Authority and do not purport torepresent the financial position and activity of the Tribe.

Incomebefore distributions to the Tribe was $20,229,162 and $18,276,188 for thetwelve months ended December 31, 2006 and 2005, respectively.   A fund deficit of $34,335,893 exists as ofDecember 31, 2006. The Authority’s current assets exceeded its currentliabilities by $24,072,639 as of December 31, 2006. On November 7, 2003, theAuthority issued $200.0 million in its 93⁄4% Senior Notes, due 2011 (the “Notes”),and used a portion of the proceeds to reduce its current payables, accruals anddebt. The Authority’s ability to fund future debt service payments is dependentupon the success of the Casino. Management believes that the Casino willattract sufficient patronage levels to continue to provide sufficient cashflows and to repay its indebtedness.

2.             SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

AccountingStandards—The Authority prepares its financial statements in accordance withaccounting principles generally accepted in the United States of America (“generallyaccepted accounting principles”). The financial statements presented areprepared on the accrual basis of accounting from the accounts and financialtransactions of the Authority. Generally accepted accounting principles requirethe Authority to apply all applicable pronouncements of the GovernmentalAccounting Standards Board (“GASB”). The Authority is also required to followFinancial Accounting Standards Board (“FASB”) Statements and Interpretations,Accounting Principles Board Opinions and Accounting Research Bulletins issuedon or before November 30, 1989, unless those pronouncements conflict with orcontradict GASB pronouncements.  TheAuthority is given the option whether to apply all FASB Statements andInterpretations issued after November 30, 1989, except for those that conflictwith or contradict GASB pronouncements. Accordingly, the Authority has electedto implement non conflicting FASB Statements and Interpretations issued afterNovember 30, 1989.

Thereare differences between financial statements prepared in accordance with GASBpronouncements and those prepared in accordance with FASB pronouncements. Thestatements of revenues, expenses and changes in fund deficit is a combinedstatement under GASB pronouncements, FASB pronouncements allow a statement ofincome or operations and a separate statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements.  The amountshown as income before distributions to Tribe would not be different if theAuthority followed all FASB pronouncements to determine net income and would bethe most

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comparable amount to netincome computed under FASB pronouncements. The Authority is a separate fund ofthe Tribe, a governmental entity, and as such there is no owners’ orshareholders’ (deficit) equity as traditionally represented under FASBpronouncements.  The most comparablemeasure of owners’ (deficit) equity is presented on the Authority’s balancesheet as fund (deficit) equity.

New Accounting Pronouncements— In May 2005, theFASB issued SFAS No. 154, *Accounting Changes andError Corrections*, requiring retrospective application toprior-period financial statements of changes in accounting principle, unless itis impracticable to determine either the period-specific effects or thecumulative effect of the change. SFAS No. 154 also redefines “restatement”as the revising of previously issued financial statements to reflect correctionof errors made. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. The adoption of SFAS No. 154 did not have a material impact on thefinancial statements.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*. SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value in accordance withgenerally accepted accounting principles, and expands disclosures about fairvalue measurements. The provisions of SFAS No. 157 are effective for thefiscal year beginning January 1, 2008. The future impact of the adoptionof SFAS No. 157 by the Authority has not yet been evaluated.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities - including an amendment of FASB Statement No. 115*.SFAS No. 159 permits an entity to measure certain financial assets andfinancial liabilities at fair value and offers an irrevocable option to carrythe vast majority of financial assets and liabilities at fair value, withchanges in fair value recorded in earnings. The provisions of SFAS No. 159are effective for the fiscal year beginning January 1, 2008. The futureimpact of the adoption of SFAS No. 159 by the Authority has not yet beenevaluated.

Use of Estimates—The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from these estimates.

Cash and Cash Equivalents—The Authority considers allhighly liquid investments with a maturity of three months or less at date ofpurchase as 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 Deposit Insurance Corporation (“FDIC”)has insured $100,000 of the cash on deposit with the banks. The Authoritybelieves that there is little risk of loss regarding the uninsured amounts ofcash and cash equivalents on deposit with the banks.

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

Restricted Cash—Restricted cash consists of estimatedconstruction expenses for three parking structures, related infrastructureimprovements and construction contingencies. It also includes funds that arereserved for additional construction contingencies and the funds necessary to developan approximately 18 acre parcel of land adjacent to the Tribe’s reservation.These funds are held in escrow accounts which are restricted for authorizedconstruction disbursements. These escrow accounts are invested in CDs, whichgenerate interest on a monthly basis. The FDIC has insured $100,000 of thisbalance. The Authority believes that there is little risk of loss regarding theuninsured amounts of restricted cash held in the escrow account. Restrictedcash was $7,248,253 and $7,373,481 at December 31, 2006 and December 31, 2005,respectively.  As of December 31, 2006,restricted cash includes amounts available for construction of $2,718,858 andland development funds of $4,529,395.

Property and Equipment—Property and equipment arestated at cost. Depreciation and amortization are computed using thestraight-line method over the estimated useful lives of the assets as follows:
| Buildings and improvements | 21 years |   |
|----------------------------|----------|--------|

 

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| Furniture, fixtures and  equipment | 5 years |   |
|------------------------------------|---------|--------|

 

The Authority evaluates its property and equipment forimpairment in accordance with the FASB’s Statement of Financial AccountingStandards (“SFAS”) No. 144, Accounting for the Impairment or Disposal ofLong-Lived Assets. When events or circumstances indicate that an asset shouldbe reviewed for impairment, the Authority compares the undiscounted cash flowsderived from the asset or asset group to the net carrying value. If impairmentis indicated, the impairment loss is measured by the amount in which thecarrying value of the asset or asset group exceeds its fair value. Fair valueis measured by comparable sales, solicited offers or discounted cash flowmodels.

Capitalized Interest—The interest cost associated withmajor development and construction projects is capitalized and included in thecost of the asset. Capitalization of interest ceases when the project issubstantially complete or development activity is suspended.  There was no capitalized interest for the twelvemonths ended December 31, 2006 and 2005.

Deposits and Other Assets—As of December 31, 2006 andDecember 31, 2005, deposits and other assets include $4,940,532 and $5,962,226in unamortized bond discount, legal fees and other issuance costs related to theissuance of the Notes, $0 and $78,618 of equipment deposits, $213,218 and$4,200 of performance deposits and $112,908 and $36,911 of rentaldeposits.  Deferred loan costs areamortized using the effective interest method to interest expense over the termof the related financial arrangement.

Accrued Liabilities—Accrued liabilities consist ofaccrued interest, accrued payroll, accrued credit enhancement fee and otheraccrued liabilities.

 AccruedProgressive Slot Jackpots—Accrued progressive slot jackpots consist ofestimates for prizes relating to various games that have accumulated jackpots.The Authority has recorded the cost of these anticipated payouts as a reductionof Casino revenues, and the cost is included as a component of accruedliabilities.

Accrued Slot Players Club—In accordance with EmergingIssues Task Force Issue No. 00-22, Accounting for “Points” andCertain Other Time-Based or Volume-Based Sales Incentive Offers and Offers forFree Products or Services to be Delivered in the Future, the Authority hasrecorded a liability related to prizes and cash incentives earned by themembers of our Players Club and have adjusted the liability for the estimatedfuture breakage. The Authority has recorded the cost of the estimatedredemption of the liability related to prizes as an operating expense and theestimated redemption of the liability related to cash as promotional allowancein the accompanying statements of revenues, expenses and changes in funddeficit.

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

Food, Beverage and Retail—The Authority recognizes asfood, beverage and retail revenues the proceeds from its food, beverage andgift shop sales. The Authority continues to distribute beverages freely in thegaming area for playing guests.

Other Revenues—Other revenues are comprised ofcommissions on ATM and vending machine transactions.

Promotional Allowances—The retail value of food andbeverages provided to playing customers without charge is included in grossrevenues and then deducted as promotional allowances.  Such amounts that are included in Food,beverage and retail revenues for the twelve months ended December 31, 2006,2005, and 2004 are $2,160,035, $2,825,772, and $2,632,103, respectively.  The distribution of electronic coupons(e-coupons) to customers is included in Casino revenues and is also deducted aspromotional allowances.  The totale-coupons for the twelve months ended December 31, 2006, 2005, and 2004  are $8,788,573, $2,568,393, $0,respectively.  The redemption of cashincentives earned by the Players Club members is also recorded as promotionalallowances.  The total cash incentivesfor the twelve months ended December 31, 2006, 2005, and 2004 are $1,593,091,$1,461,386, and $0, respectively.

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Food and Beverage Costs—Food and beverage costs includecosts associated with food and beverage, excluding amounts classified as casinoexpenses.  The estimated costs ofproviding complimentary services are reclassified from food and beverage toCasino expenses.  The costs of suchservices were $3,845,342, $3,642,229, and $3,878,262 for the twelve monthsended December 31, 2006, 2005, and 2004 .

Advertising Costs—Advertising costs are expensed thefirst time advertising takes place. Advertising costs included in selling,general and administrative expenses were $5,210,739, $8,032,085, and $4,972,275for the twelve months ended December 31, 2006, 2005 and 2004, respectively.

Gaming Commission and Surveillance Expenses—TheAuthority pays for various expenses for the Tribal Gaming Commission andsurveillance.  Tribal Gaming Commissionexpenses are reported as Gaming Commission and surveillance expense on theStatement of Revenues, Expenses and Changes in Fund Deficit. Gaming Commissionand surveillance expenses for the twelve months ended December 31, 2006, 2005 and2004 are $3,154,384, $2,773,369, and $1,780,194, respectively.  Surveillance costs not included in the aboveamounts for 2004 were $858,625 and were recorded in Selling, General andAdministrative expenses in 2004 only.  In2005 and 2006 the Gaming Commission and Surveillance expenses have beencombined and reported as Gaming Commission expenses.

Income Taxes—As a governmental instrumentality of theDry Creek Rancheria Band of Pomo Indians, a federally recognized Indian tribe,the Authority is a nontaxable entity for purposes of federal and state incometaxes.

Distributions to Tribe—Distributions to Tribe are madeup of permitted payments.  They areincluded in the Statement of Revenues, Expenses and Changes in Fund Deficit asdistributions to Tribe allowed pursuant to the indenture for the Notes. Monthlypermitted payments increased by $20,000 from $1,000,000 to $1,020,000 in April2006.  Total distributions to the Tribewere $15,521,137, $11,180,000, and $7,613,116 for the twelve months endedDecember 31, 2006, 2005, and 2004, respectively.  In 2006, we reimbursed the Tribe an aggregateof $2.0 million for construction costs incurred before our formation.  In December 2006, we reimbursed the Tribe$1.4 million for municipal services relating to improvements to the main accessroad to the Tribe’s reservation and our Casino. The $1.4 million was later contributed back to us by the Tribe.

3.             CERTAIN RISKS AND UNCERTAINTIES

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

4.             RELATED PARTIES

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

Starting January 1, 2004, the Authority paid forvarious expenses for the following departments operated by the Tribe: TribalGaming Commission, surveillance, plant operations, human resources, purchasingand warehousing.  On January 1, 2005, theAuthority operated the Purchasing and Warehouse departments and continued topay expenses for the other departments operated by the Tribe.  These departmental expenses include but arenot limited to payroll and related expenses, legal and other operationalexpenses.  Under direction of the RiverRock Entertainment Authority Board and the Tribal Council, the Tribe assumedresponsibility of the Purchasing and Warehouse departments on May 8, 2006.  The expenses associated with the Purchasingand Warehouse departments incurred by the Tribe are included in these amountsand will be reimbursed to the Tribe by the Authority as with other Tribaldepartments.  Total amounts billed by theTribe for these departments, excluding Tribal Gaming Commission andsurveillance, were $3,188,736, $1,874,919, and $1,912,905 for the twelve monthsended December 31, 2006,2005, and 2004, respectively.  They are recorded as a component of Selling,General, and Administrative expenses.

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The Authority pays for various expenses for the TribalGaming Commission and surveillance. Effective July 1, 2005, the Tribal Gaming Commission adopted aregulation on payments of regulatory fees from the Authority.  The Tribal Gaming Commission and surveillanceexpenses are being recorded in Gaming Commission and surveillance expenses onthe Statement of Revenues, Expenses and Changes in Fund Deficit.  Gaming Commission and surveillance expenseswere $3,154,384, $2,773,369 and $1,780,194 for the twelve months ended December31, 2006, 2005, and 2004, respectively. Surveillance costs of $858,625 are not included in Gaming Commission andsurveillance expenses for 2004.  Theseexpenses were included in Selling, General and Administrative expenses.  In 2005 and 2006 the Gaming Commission andSurveillance expenses have been combined and reported as Gaming Commissionexpenses.

5.             DEVELOPMENT AND LOAN AGREEMENT

The Tribe entered into a Development and LoanAgreement with Dry Creek Casino, LLC (“DCC”) on August 26, 2001,which has been amended from time to time (as amended, the “DevelopmentAgreement”). In consideration of DCC’s providing credit enhancement and otherservices under the Development Agreement, the Tribe is obligated to pay DCC theCredit Enhancement Fee. The Credit Enhancement Fee is defined as 20% of theAuthority’s net income before distributions to the Tribe plus depreciation andamortization plus annual interest on $25.0 million principal amount of thenotes less revenues from sales of alcoholic beverages. The Credit EnhancementFee is required to be paid monthly for a period of five years commencing onJune 1, 2003. The Credit Enhancement Fee was $8,078,806, $7,669,147, and$5,111,747 for each of the twelve months ended December 31, 2006, 2005 and2004, respectively.

The Authority has the right to terminate theDevelopment Agreement by exercising a buy-out option (the “Buy-Out Option”). Ifexercised, the Authority is obligated to pay all amounts outstanding withrespect to financing, including outstanding development advances and accruedinterest plus an amount determined by multiplying the average monthly creditenhancement fee earned during the 12-month period immediately preceding themonth the buy-out option is exercised, by the number of months remaining in thefive-year term. The buy-out fee is required to be paid in equal monthlyinstallments of principal plus interest at the rate of 12% per annum, on the15th day of each month over a period equal to the remaining term of theDevelopment Agreement.

6.             CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalentsand restricted cash consisted of the following as of December 31, 2006 andDecember 31, 2005:
| ** **                                           | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Operating  accounts                                  |       | $                               | 5,573,333  |                            | $          | 5,241,644 |   |
| Money Market  Accounts                               |       | 31,967                          |       | 62,420                          |       |
| Short Term  Investments                              |       | 22,304,924                      |       | 8,988,622                       |       |
| Cash on hand                                         |       | 4,638,777                       |       | 3,356,972                       |       |
|                                                 |       |                            |       |                            |       |
| Cash and cash  equivalents                           |       | 32,549,001                      |       | 17,649,658                      |       |
| Restricted cash                                      |       | 7,248,253                       |       | 7,373,481                       |       |
|                                                 |       |                            |       |                            |       |
| Total cash and cash  equivalents and restricted cash |       | $                               | 39,797,254 |                            | $          | 25,023,139 |   |

 

The Authority’s cash in banks and cash equivalents(the “Investments”) are categorized by level of credit risk assumed by the Authority.Category 1 includes investments that are insured or registered or forwhich the investments are held by the Authority or its agent in the Authority’sname. Category 2 includes uninsured and unregistered investments for whichthe investments are held by the counterparty’s trust department or agent in theAuthority’s name. Category 3 includes uninsured and unregisteredinvestments for which the investments are held by the counterparty’s agent butnot in

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the Authority’s name. AtDecember 31, 2006, the Authority had $200,000 in Category 1 investments,$5,473,333 cash in banks, $31,967 in Money Market accounts and $22,304,924 inshort term investments which are Category 2 investments and $7,148,253restricted cash in bank over the FDIC insurance limits, which areCategory 3 investments.  Amounts inCategory 2 and Category 3 investments are invested in short term, highly liquidcash equivalents and investments.  As ofDecember 31, 2006 and 2005, these amounts are composed of money market accountsin the amount of $31,967 and $62,420, respectively and A1/P1 bonds in theamount of $22,304,924 and $8,988,622, respectively.

7.             PROPERTY AND EQUIPMENT

Property and equipment at January 1, 2006 and December31, 2006 consisted of the following:
| ** **                         | ** ** | **Balance,**        | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**          | ** ** |
|------------------------------------|------------|---------------------|-------------|---------------|------------|------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **January 1,** | ** **  | ** **    | ** ** | ** **       | ** ** | **December 31,** | ** ** |
| ** **                         | ** ** | **2006**            | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2006**              | ** ** |
|                               |       |                |        |          |       |             |       |                  |       |
| Buildings and improvements         |       | $              | 128,858,771 |          | $     | 386,710          |       | $                | —     |   | $  | 129,245,481 |   |
| Furniture,  fixtures and equipment |       | 26,015,944          |        | 1,856,286     |       | (761,950         | )          | 27,110,280            |       |
| Less accumulated  depreciation     |       | (21,801,767         | )           | (11,502,565   | )          | 608,206          |       | (32,696,126           | )          |
|                               |       |                |        |          |       |             |       |                  |       |
|                               |       | 133,072,948         |        | (9,259,569    | )          | (153,744         | )          | 123,659,635           |       |
| Construction in progress           |       | 1,819,271           |        | 2,565,924     |       | —           |       | 4,385,195             |       |
|                               |       |                |        |          |       |             |       |                  |       |
| Property and equipment—net    |       | $              | 134,892,219 |          | $     | (6,693,645       | )          | $                | (153,744   | ) | $  | 128,044,830 |   |

 

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.  AtDecember 31, 2006 and 2005, the Authority had $376,636 and $315,012 in capitallease assets with related accumulated depreciation of $117,378 and $40,251.

8.             ACCRUED LIABILITIES

Accrued liabilities consisted of the following as ofDecember 31, 2006 and December 31, 2005:

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|                                             | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**              | ** ** | **2005**              | ** ** |
|                                        |       |                  |       |                  |       |
| Accrued in-house  progressive slot jackpots |       | $                     | 779,408    |                  | $          | 495,588 |   |
| Accrued payroll  and related benefits       |       | 2,005,731             |       | 1,677,290             |       |
| Accrued interest                            |       | 3,250,000             |       | 3,250,000             |       |
| Accrued credit  enhancement fees            |       | 783,070               |       | 685,659               |       |
| Accrued other  expenses                     |       | 275,958               |       | 355,019               |       |
| Total accrued  liabilities                  |       | $                     | 7,094,168  |                  | $          | 6,463,556 |   |

 

9.             LONG-TERM DEBT

Long-term debt consisted of the following as ofDecember 31, 2006 and December 31, 2005:

|                                                                                                  | ** ** | **December 31,** | ** **  | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|-----------------------|------------|
| ** **                                                                                       | ** ** | **2006**              | ** **  | **2005**              | ** ** |
|                                                                                             |       |                  |        |                  |       |
| 9 3/4% Senior  Notes, net of unamortized issue discount of $1,630,039 and $1,967,289. Due  2011. |       | $                | 198,369,961 |                  | $     | 198,032,711 |   |
| Vehicles Notes                                                                                   |       | 25,439                |        | 51,937                |       |
| Capital leases  obligations                                                                      |       | 747,288               |        | 262,106               |       |
| Total Long Term  Debt                                                                            |       | 199,142,688           |        | 198,346,754           |       |
| Less: current  portion                                                                           |       | (642,413              | )           | (103,545              | )          |
|                                                                                             |       |                  |        |                  |       |
| Total long-term debt -  net of current maturities                                                |       | $                     | 198,500,275 |                  | $          | 198,243,209 |   |

 

Maturity schedule — Annual requirements to retirelong-term debt at December 31, 2006:

|        | ** ** | **Principal** | ** **  | **Interest** | ** ** | **Total**   | ** ** |
|--------|------------|---------------|-------------|--------------|------------|-------------|------------|
| 2007   |       | $             | 642,412     |         | $          | 19,512,047  |       | $ | 20,154,459 |   |
| 2008   |       | 96,754        |        | 19,504,732   |       | 19,601,486  |       |
| 2009   |       | 32,097        |        | 19,500,622   |       | 19,532,719  |       |
| 2010   |       | 1,463         |        | 19,500,000   |       | 19,501,463  |       |
| 2011   |       | 200,000,000   |        | 16,250,000   |       | 216,250,000 |       |
|   |       | $             | 200,772,726 |         | $          | 94,267,401  |       | $ | 295,040,127 |   |

 

On November 7, 2003, the Authority issued the Notes.The proceeds were utilized to fund an expansion project, which includes threeparking structures and related infrastructure improvement, repayment of variousdebt, and advances and fund payment of various accruals and payables, as wellas to increase cash on hand. The proceeds were also utilized to fund a landpurchase and settle litigation.  TheNotes were secured by a first priority pledge of the Authority’s revenue

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and substantially all ofthe existing and future tangible and intangible personal property. BeforeNovember 1, 2007, the Authority may redeem the Notes, in whole or in part, at aredemption price equal to 100% of their principal amount plus a make-wholepremium and accrued and unpaid interest. On or after November 1, 2007, theAuthority may redeem the Notes, in whole or in part, at a redemption price thatis at a premium to the principal amount of the Notes (expressed as percentagesof principal amount), plus accrued and unpaid interest.

Fair Value—The Authority’s long-term debt is recordedat an amortized historical cost basis. The fair value of long-term debtapproximates $213,500,000 at December 31, 2006.

10.           LEASES

The Authority leases a sprung structure, which isaccounted for as an operating lease. Such lease expense was $455,290, $482,355,and $511,476 for the twelve months ended December 31, 2006, 2005 and 2004. TheAuthority renewed the lease agreement on August 17, 2005 for $36,230 per monthfor twenty four (24) months ending August 17, 2007.

On October 1, 2003, the Tribe entered into an operatinglease agreement for office and warehouse space to replace existingfacilities.  Prior to the Tribe takingcontrol over the Purchasing and Warehouse departments, the Authority reimbursedthe Tribe lease fees allocated based on the square footage utilized.  Since May 2006, when the Tribe assumedresponsibility for the Purchasing and Warehouse departments, the Authority nolonger reimburses the Tribe lease fees as a separate transaction.  This reimbursement is made through thereimbursement of Tribal departments monthly allotment and quarterlyreconciliations.  The Authorityreimbursed the Tribe for such lease fees in the amount of $512,567, $439,133,and $252,463 for the twelve months ended December 31, 2006, 2005 and 2004,respectively.

On September 1, 2004, the Authority entered into afive year capital lease to purchase two licenses to operate three-card pokertables in the amount of $120,000.  Thecapital lease is at 7.25% interest with monthly lease fees of $2,390 and a $1buyout at the end of the lease term, expiring August 31, 2009.

On July 31, 2005, the Authority entered into a thirtysix month capital lease to purchase 13 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, expiring July 31, 2008.

On July 31, 2005, the Authority entered into a thirtysix month capital lease to purchase 6 King shufflers in the amount of$61,422.  The capital lease is at 7.09%interest with monthly lease fees of $1,899 and a $1 buyout at the end of thelease term, expiring July 31, 2008.

On July 31, 2005, the Authority entered into a thirtysix month capital lease to purchase 4 Ace shufflers in the amount of$45,283.  The capital lease is at 7.09%interest with monthly lease fees of $1,400 and a $1 buyout at the end of thelease term, expiring July 31, 2008.

On April 25, 2006, the Authority entered into a thirtysix month capital lease to purchase 5 DECK MATE poker shuffles in the amount of$61,833.  The capital lease is at 12.98

Lease expenses of $484,334, $995,202, and $1,333,664for the twelve months ended December 31, 2006, 2005 and 2004, respectively andare included in general and administrative expenses in the accompanyingstatement of revenues, expenses and changes in fund deficit.  Expected remaining payments under operatingleases are $265,290 and $4,741 for the years ending December 31, 2007 and 2008,respectively.

11.           LEGAL MATTERS

*SonomaCounty Fire Marshal Inspection Case*

OnOctober 7, 2002, the Sonoma County Fire Chief (the “County Fire Chief”) filedan *ex parte* application for aninspection warrant in the Superior Court of the State of California for theCounty of Sonoma, seeking to inspect the casino. The Tribe believes that thereis no basis for the County’s Fire Chief to assert jurisdiction over the Tribe’slands,

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which are governedby tribal and federal law and the Compact. On October 9, 2002, the Triberemoved the case to the United States District Court for the Northern Districtof California. The County Fire Chief moved to remand, which such motion wasdenied by the court and subsequently moved for summary judgment. The Tribemoved to dismiss under Federal Rules of Civil procedure 12(b)(6) and 12(b)(7).On December 9, 2004, the Court issued an order granting in part and denying inpart the Tribe’s 12(b)(6) motion and denying the County Fire Chief’s summaryjudgment motion. The order reaffirmed the Court’s prior ruling denying theremand of that Public Law 280 does not authorize the County Fire Chief toinspect the casino. On March 1, 2005, the Court issued an order granting inpart and denying in part the Tribe’s 12(b)(7) motion. On March 4, 2005, theTribe moved for summary judgment, and on April 29, 2005, the Court granted theTribe’s motion. The County Fire Chief filed a Notice of Appeal on May 26, 2005,at the Ninth Circuit Court of Appeals. 

OnApril 5, 2007, the Ninth Circuit Court of Appeals affirmed the district court inan unpublished opinion, ruling for the Tribe on all issues.  The County Fire Chief has not petitioned forrehearing or certiorari as of this writing.

*California Department of Alcoholic Beverage Control*

In September 2004,the Department of Alcoholic Beverage Control ("ABC") denied theTribe's application for a liquor license based on a building codeinterpretation by a state officer who was later determined to lack jurisdictionto make a code determination, and did so without consulting the Tribe'sbuilding code official having jurisdiction. The Tribe appealed and, in May 2005, an Administrative Law Judge ruledfor the Tribe and recommended that the ABC reverse itself and approve thelicense, which ABC did as of October, 2005, pending a hearing on theprotests.  The ABC has receivedapproximately 65 protests to issuance of the license from various citizens andlocal government officials.  The ABC hadscheduled a hearing on those protests in May 2007, which was recently continuedby stipulation of the parties to August 2007 because the Tribe and variousprotestants are engaged in settlement discussions with respect to certainprotest issues.  The Tribe intends tovigorously defend its application and believes the protests are without merit.

We are involved inother litigation and disputes from time to time in the ordinary course ofbusiness with vendors and patrons. We believe that the aggregate liability, ifany, arising from such litigation or disputes will not have a material adverse effecton our results of operations, financial condition or cash flows.

12.           COMPACT REVENUE SHARING TRUST FUND

The Compact requires the Authority to pay a quarterlyfee to the State of California’s revenue sharing trust fund, based on thenumber of licensed gaming devices operated by the Tribe. Revenue sharing trustfund fees assessed were $1,335,000 annually for the years ended December 31,2006 and 2005, respectively.

13.           COMMITMENTS AND CONTINGENCIES

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

The Authority renewed an employment agreement with Mr.Norman Runyan on November 8, 2005 to continue to serve as the Chief OperationsOfficer of the Authority. This three year employment agreement commenced onOctober 14, 2005 and provides Mr. Runyan an annual salary of $250,000 and adiscretionary bonus, as determined by the Tribal Board, of not less than 7% andnot more than 25% of his annual salary based on various criteria.  If Mr. Runyan’s employment is terminated forother reasons set forth in the employment agreement including death ordisability, Mr. Runyan will be entitled to his salary for three months.  Either party may terminate the agreement witha 90 day written notice.

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The Authorityentered into an employment agreement with Mr. Shawn S. Smyth on April 13, 2006to serve as the Chief Executive Officer of the Authority.  The two year employment agreement commencedon April 13, 2006, and provides Mr. Smyth an annual salary of $250,000 and adiscretionary bonus, as determined by the Tribal Board, of not more than 25% ofhis annual salary based on various criteria. If Mr. Smyth’s employment is terminated for other reasons set forth inthe employment agreement including death or disability, Mr. Smyth will beentitled to his salary for three months. Either party may terminate the agreement with a 90 day written notice.

14. BENEFIT OBLIGATIONS

On April 1, 2006,the Authority became fully self-insured for its dental benefits plan.  The Authority pays 100% of the dentalbenefits plan coverage cost for employees and 50% of the coverage cost fordependants and domestic partners based on calculated premiums.  Maximum coverage under the dental plan islimited to $2,000 per covered person per year. All employees working an average of 60 hours per pay period are eligiblefor the dental benefits plan.  Administrationof the plan is provided by a third party under an administrative servicesagreement.

On April 1, 2006,the Authority became fully self-insured for its medical benefits plan coveragefrom $250 to $2,000 of medical benefit cost per covered person per year.  Employees are responsible for the first $250 ofmedical benefit costs and 20% of the medical benefit costs from $250 to $2,000,while the Authority is responsible for 80% of the medical benefit costs.  Coverage above $2,000 is provided by a fullyinsured, high deductible medical benefits plan. The Authority pays 100% of the medical benefits plan coverage cost foremployees and 50% coverage cost for dependants and domestic partners based oncalculated premiums.  Maximum coverageunder the fully self-insured medical benefits plan is limited to $1,400 percovered person per year.  All employeesworking an average of 60 hours per pay period are eligible for the dentalbenefits plan.  Administration of theplan is provided by a third party under an administrative services agreement.

The Claims payable,Claims IBNR (incurred but not reported), and Insurance premiums payable for theabove self-insured benefits plan are recorded in Other Accrued Liabilities onthe financial statements.

15. SUBSEQUENT EVENTS

On January 31,2007 the Authority exercised the buy-out option under the Development Agreementbetween the Authority and Dry Creek Casino, LLC (“DCC”) and on March 2, 2007signed a mutual agreement to fix the amounts due DCC in respect of suchexercise to the sum of $11,350,000 less the amount paid after the Authority exercisedthe buy-out option of $737,491. The net payment of $10,612,509 was made inMarch 2007 and expensed in full in the first quarter of 2007.

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, on April 17, 2007.
|        | RIVER ROCK ENTERTAINMENT AUTHORITY |
|--------|------------------------------------|
|   |                               |
|   | By:                                | /s/ Shawn S. Smyth |   |
|   |                               | Name: Shawn S. Smyth |
|   |                               | Title: Chief Executive Officer, General Manager |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed by the following persons onbehalf of River Rock Entertainment Authority and in the capacities and on thedates indicated.
| By:    | /s/ Betty Arterberry     |   |
|--------|--------------------------|--------|
|   | Name: Betty Arterberry   |
|   | Title: Chairperson       |
|   | Date: April 17, 2007     |
|   |                     |
| By:    | /s/ Margie Rojes         |   |
|   | Name: Margie Rojes       |
|   | Title: Vice Chairperson  |
|   | Date: April 17, 2007     |
|   |                     |
| By:    | /s/ Augusto (Gus) Pina   |   |
|   | Name: Augusto (Gus) Pina |
|   | Title: Member            |
|   | Date: April 17, 2007     |
|        |                          |        |  |  |

 

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| By:    | /s/ Gabe Nevarez                                                                    |   |
|--------|-------------------------------------------------------------------------------------|--------|
|   | Name: Gabe Nevarez                                                                  |
|   | Title: Member                                                                       |
|   | Date: April 17, 2007                                                                |
|   |                                                                                |
| By:    | /s/ Shawn S. Smyth                                                                  |   |
|   | Name: Shawn S. Smyth                                                                |
|   | Title: Chief Executive Officer (Principal Executive  Officer), General Manager      |
|   | Date: April 17, 2007                                                                |
|   |                                                                                |
| By:    | /s/ Jacob A. Coughlin                                                               |   |
|   | Name: Jacob A. Coughlin                                                             |
|   | Title: Assistant Financial Controller (Principal  Financial and Accounting Officer) |
|   | Date: April 17, 2007                                                                |
|        |                                                                                     |        |  |  |

 

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