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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D. C. 20549**

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**FORM 10-K**

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**(Mark One)**

 

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

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**for the fiscal year ended December 31,2007**

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**OR**

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**TRANSITION REPORT****PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

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**for the transition period from         to**

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**CommissionFile Number: 333-115186**

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

(Exact name of registrant as specified in itscharter)

 

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

 

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

(Address, including zip code, and telephonenumber, including area code, of registrant’s principal executive offices)

 

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

 

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

 

Securitiesregistered pursuant to Section 12(g) of the Act: 

Title of Class**NONE**

 

Indicateby check mark if registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes  o   No  x

 

Indicateby check mark if registrant is not required to file reports pursuant to Rule 13or Section 15(d) of the Act. Yes  x   No  o

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  x   No  o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act) Yes  o   No   x

 

Theaggregate market value of common stock held by non-affiliates of the registrantwas $0 on the last business day of the registrant’s most recently completedsecond fiscal quarter (June 30, 2007).

 

Theregistrant has no outstanding common equity.

 

**Documents Incorporated By Reference**

 

None.

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

 

**INDEX TO FORM 10-K**

 
| ** ** | ** **                                                                                                          | **Page Number** |
|------------|---------------------------------------------------------------------------------------------------------------------|----------------------|
|       |                                                                                                                |                 |
|       | PART I                                                                                                         |                 |
| Item 1.    | Business                                                                                                            | 5                    |
| Item 1A.   | Risk Factors                                                                                                        | 19                   |
| Item 2.    | Properties                                                                                                          | 25                   |
| Item 3.    | Legal Proceedings                                                                                                   | 25                   |
| Item 4.    | Submission  of Matters to a Vote of Security Holders                                                                | 25                   |
|       | PART II                                                                                                        |                 |
| Item 5.    | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 26                   |
| Item 6.    | Selected  Financial Data                                                                                            | 26                   |
| Item 7.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 28                   |
| Item 7A.   | Quantitative  and Qualitative Disclosure About Market Risk                                                          | 38                   |
| Item 8.    | Financial  Statements and Supplementary Data                                                                        | 38                   |
| Item 9.    | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 38                   |
| Item 9A.   | Controls and  Procedures                                                                                            | 38                   |
| Item 9B.   | Other Information                                                                                                   | 40                   |
|       | PART III                                                                                                       |                 |
| Item 10.   | Directors  and Executive Officers of the Registrant                                                                 | 41                   |
| Item 11.   | Executive  Compensation                                                                                             | 43                   |
| Item 12.   | Security  Ownership of Certain Beneficial Owners and Management                                                     | 46                   |
| Item 13.   | Certain  Relationships and Related Transactions                                                                     | 46                   |
| Item 14.   | Principal  Accountant Fees and Services                                                                             | 48                   |
|       | PART IV                                                                                                        |                 |
| Item 15.   | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                                               | 48                   |

 

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**CAUTIONARYSTATEMENT**

 

*Except for the historicalfinancial information contained herein, the matters discussed in this report onForm 10-K (as well as documents incorporated herein by reference) may beconsidered forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Such forward-looking statements are basedupon current expectations that involve risks and uncertainties and includedeclarations regarding the intent, belief or current expectations of us and ourmanagement and may be signified by the words “believes,” “anticipates,” “plan,”“expects,” “intends” and similar expressions. Our actual results and the timingof certain events may differ significantly from the results discussed in theforward-looking statements. Factors that might cause such a discrepancyinclude, but are not limited to, those discussed in “Risk Factors” andelsewhere in this report. All forward-looking statements in this document arebased on information available to us as of the date hereof, and we assume noobligation to update any such forward-looking statements, whether as a resultof new information, future events, or otherwise. All discussion in this reportshould be read in conjunction with our financial statements and theaccompanying notes contained in this report.*

 

*References in this Form 10-Kto the “Authority” and the “Tribe” are to the River Rock EntertainmentAuthority and the Dry Creek Rancheria Band of Pomo Indians, respectively. Theterms “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 Creek Rancheria Band of PomoIndians of California (the “Tribe”). The Tribe is a federally recognized Indiantribe with 947 enrolled members, with an approximately 75-acre reservation inSonoma County, California (“Sonoma County” or the “County”). We were formed in2003 as an unincorporated governmental instrumentality of the Tribe, to own andoperate 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”) as amended, permitsfederally recognized Indian tribes to conduct casino gaming operations oncertain 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, includingslot machines and house-banked card games.

 

Our address is 3250 Highway 128 East, Geyserville, California 95441 andour telephone number is (707) 857-2777.

 

**Our River Rock Casino**

 

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

 

·                  35,500 square feet of gaming space containing1,570 slot and video poker gaming machines, 22 table games featuring Blackjack,Three Card Poker, Mini Baccarat and Pai Gow Poker, and 6 tables featuring TexasHold’em Poker. We offer state-of-the-art gaming devices including video poker,video keno, progressive slots and guest favorites, such as Fort Knox, Red Hot 7’s,Hot Shot, Jackpot Party, Quick Hits and other various themes;

 

·                  bothsmoking and non-smoking gaming rooms in order to satisfy customer preferences;

 

·                  the Players Club, a player tracking systemwhich offers our guests incentives for additional play; 

 

·                  the Quail Run Restaurant, offering 24-hourmenu dining, with lunch, dinner and Sunday brunch buffets, and 152 indoor seatsand 96 outdoor seats, overlooking the Alexander Valley wine region and theRussian River;

 

·                 twosnack bars, a lounge, the Oak Bar, which offers “bar top” video poker games inan elegant setting, a gift shop and a historic and contemporary Pomo basketryand art display;  

 

·                 threeparking structures and an adjacent parking lot allows us to accommodateapproximately 1,584 customer vehicles;

 

·      anArts and Crafts California Bungalow-style design and furnishings, incorporatingNative American elements, that feature a cultural arts collection oftraditional and contemporary Pomo art, including historical basketry for whichthe Tribe is known. The interior of our gaming facility utilizes an extensiveamount of wooden casework and natural rock to emphasize the architectural stylefound throughout California wine country. In keeping with this motif, ourgaming facility’s counters are constructed of natural stone and wood, and oakwainscoting grace the food and beverage facilities; and 

 

·                 a location in the heart of the beautifulAlexander Valley with spectacular views of the surrounding countryside. Guestsentering our gaming facility are treated to a large, open-beamed Porte cocherethat faces out towards sweeping vistas of Alexander Valley vineyards. Ourgaming and entertainment facility was designed to capitalize on the scenicvistas with the food and beverage facilities strategically placed to featurethe expansive views.

 

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In addition, to enhance the comfort of our guests, we have installed astate-of-the-art ventilation system that greatly reduces cigarette smoke andimpurities, circulates air from the ground level and provides 100% fresh-airreturn. Our gaming facility also incorporates other environmentally sensitiveengineering features, including irrigation using surplus wastewater andnon-intrusive lighting in the parking lot. Furthermore, our state-of-the-artback-up and redundant generators are designed to provide electricity in theevent of a power failure.

 

We maintain a digital surveillance system that tracks the entire casinofloor to secure our facility and operations. We employ a 59 officer securityforce.

 

**Competitive** Strengths

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We believe the following strengths have and will continue to contributeto our success:

 

*Attractive Location with Convenient Access.   *Our gamingfacility is conveniently located off of Highway 101, a four-lane highway thatserves as a major thoroughfare between Los Angeles and Oregon.  Highway101 travels directly through the nearby cities of San Francisco, San Rafael,Petaluma and Santa Rosa.  CurrentlyCALTRANS estimates of Average Annual Daily Traffic (AADT) on Highway 101 to bearound 43,400 north and south bound vehicles. In addition, the nearby airport in Santa Rosa provides easy access forpatrons traveling to wine country.

 

*Strong Market Demographics.   *Our gamingfacility is easily accessible by all the approximately 6.9 millionresidents of the San Francisco Bay area market which include the majormetropolitan cities of San Francisco, Oakland and the smaller cities of SanRafael, Berkeley, Santa Rosa, and Petaluma. We also benefit from the7 million annual visitors to Sonoma County and 5 million annualvisitors to Napa County which is known for their world-renowned wineries andrelated tourist attractions.

 

*Limited Competitive Environment and High Barriers toEntry.*   Class IIIcasino gaming may not be conducted in California other than on certain landsheld for the benefit of federally recognized Indian tribes and pursuant tonegotiated compacts with California and approved by the U.S. Secretary of theInterior. We believe these restrictions significantly limit potential futurecompetition. We are not subject to any betting limits on Indian gamingactivities.

 

*High Quality Products and Amenities.*   Our gaming facility offersstate-of-the-art gaming devices and table games in an upscale, relaxed gamingenvironment. Our gaming devices feature comprehensive, integrated cashlesstechnology permitting faster wagering and payouts. In addition, our restaurantoffers premium food and beverages and was designed to capitalize on thespectacular views of the Alexander Valley. Our gaming and food and beveragefacilities emphasize a high level of customer service, created and maintainedthrough comprehensive employee training.

 

*Emphasis on Gaming Devices.*   Our gaming facilityemphasizes slot and video poker gaming devices, which we believe, based onindustry studies, represents the most consistently profitable and lowest risksegment of the gaming business. We offer a wide variety of games not only toattract guests but also to encourage them to play for longer periods of time.

 

*Significant Cash Flow from Operations.*   We currently generatesignificant cash flow from operations. In addition, because these aregovernmental operations, they are not subject to any local, state or federalincome taxes.

 

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*Experienced Senior Management Team and Staff.   *Our management team is led by seasonedexecutives who have significant industry experience, leadership and expertisein operations, marketing, finance and development.  Members of this team have previously workedat premier local and destination casinos for commercial and tribally ownedcasinos.  We believe our management teamand our experienced staff provides superior employee and customer care productquality, and an in-depth understanding of the target market and how to maintainreturn business which enhances our competitive position.

 

**Business and Marketing Strategies**

 

Our business strategy is to grow our business to not only capture agreater share of our growing market, but also expand our target patron base toa broader demographic with the following competitive business strategies:

 

*Marketing & Promotions:*   Our advertising methodsinclude radio with a strong emphasis, email blasts, billboards, TV, newspaper,magazines, bus billboards, signature shuttles, infomercials, rack cards anddirect mail.  The direct mail programthat will be enhanced this year will be tiered by player based on playerstatus.  This direct mail method willinclude coupons and information regarding up and coming promotions which willbe tailored to target our high end players. Over the years, we have analyzedpromotions and player demand and have continued with the successful promotionswhich have led to increased revenues. Promotions that have proven successful and increased revenues are dreamcar, cash spins and trip giveaways.   Along with continued promotions, we will also be addingtournaments.  Marketing will be puttingmore emphasis on direct mail to the ethnic marketing, i.e. Latino and Asiansignature markets in the Bay area.  Withgiveaways and promotions throughout the year, we will be able to continue toprovide cutting edge entertainment.

 

*Capitalize on Our Prime Location and Appeal of Sonoma County*.   We market our Casino toour local customer base and to our broader regional market and internationalpatrons traveling to the area as part of the Sonoma Valley resortdestination.  The picturesque AlexanderValley region in the heart of Sonoma County is a world-renowned touristdestination. We intend to capitalize on its appeal, including its reputation asone of California’s premier wine producing regions, to further expand ourcustomer base. Sonoma County receives over 7 million tourists annually andover 5 million tourists visit Napa County annually.  Our marketing message emphasizes theconvenient access to our facility.

 

*Partners Program*.   Partnershipswith local businesses have created economic growth and strong communityrelations with local wineries, hotels, Chamber of Commerce and localbusinesses.  In return, promoting oneanother will help increase tourism and bring in new potential customers toSonoma County and our Casino.  Our visitor’soffice located in downtown Healdsburg provides tourists detailed and local areainformation on the casino and highlights those in the partners program withmaps, lodging and transportation options.

 

*Increase Time on Device and Win Per Unit*.   We utilize state of theart technology and sophisticated player tracking software system which providesa customized and tailored gaming environment that generates increased  time spent on a device and enhances thelikelihood of return business.  This database helps us to determine our premier players and target their favorite games,and also helps us create a relationship with those patrons.

 

*Continue to Develop our Appeal to the Asian Market*.   We plan to furthercultivate our Asian market customer base by expanding our bus program from SanFrancisco’s Chinatown with our targeted gaming promotions, host programs andagreements with Asian travel providers.

 

*Expand Marketing and Promotion Programs*.   We will monitor theeffectiveness of our advertising and brand awareness efforts through anextensive research analysis program and evaluate it against measurableobjectives such as first name recall for our gaming facility and satisfiedresident response rates. From our database, we are able to track our repeatbusiness. Our database also provides us with information on new playersign-ups,, which for the fiscal year of 2007, has grown by 53,000. We have alsopromoted more frequent and longer visits and increased wagering at off-peakdemand periods through promotions such as our “Hot Nights, Cool Cash” and “PickYour Dream Car” programs. These promotions offer customers cash rewards onweekday nights and has resulted in increased net revenue whenever offered.

 

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*Supplement Demand with Our Bus Program*.   We intend to supplementour overall demand with 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 guestshave appreciated the convenience offered by this program and we haveexperienced an increase in the use of our bus program.  We operated anaverage of approximately 33 buses a day in 2007. Our bus program brings guestsfrom San Francisco, San Mateo, Contra Costa, Alameda and Marin Counties. On our River Rock line runs, guests pay between $8 to $13 roundtrip to and fromour casino. Upon arrival, they receive an incentive package in the range of $15to $25 towards use on gaming in our casino. Our special charter bus guests alsoreceive $20 towards use on gaming in our casino.

 

**COMPETITION**

 

*Other Casinos In and Around Our Market*

 

Federal and California law currently permits Class III casinogaming 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, the Thunder Valley Casino, located 124miles east of the Tribe’s reservation, and Cache Creek Indian Casino and Bingo,located approximately 95 miles east of the Tribe’s reservation. Severalpotential competitors are attempting to develop and open casinos near ourfacility.

 

The Hopland Sho-ka-wah Casino is located several miles east of Highway101 on Route 175.  The facility featuresa 40,000 square foot casino offering 550 slot machines, 6 table games and asmall 3 table poker room.  The facilitycontains a small café-type food and beverage area, a bar and a fine-diningsteak house.  Entertainment is providedoccasionally, which includes musical acts and boxing.  Hopland operates a small bus program; howeverit is limited by not having a hotel.

 

East of the Sho-ka-wah is the Konocti Casino in Lakeport.  Lakeport is located approximately 37 milesfrom Cloverdale with access off Highway 20. The casino houses 660 slot machines and 8 table games.  The facility also offers an 80-room hotel andmarina with small pool as well as a 74-space RV park.  The food and beverage program includes asmall restaurant, buffet and a new full-service restaurant serving liquor.

 

The Thunder Valley Casino opened in June 2003 and is located atHighway 65 and Interstate 80 just outside of Sacramento.  The Nevada-style property offers more than2,600 slot machines and more than 100 table games that include blackjack,baccarat, and a variety of poker games including Let It Ride and Pai Gow.  The facility features a salon, private diningrooms, bars and butler service.  Inaddition, it houses a 500 seat buffet, and various fast food options, includingFat Burger, Panda Express and Starbucks, and fine dining options such as Austin’sSteakhouse.  The facility also features anightclub and live entertainment is offered every two weeks.

 

The Cache Creek Casino is located approximately 50 miles west ofSacramento.  Cache Creek recentlyexpanded its facility to 2,600 slots. The casino also houses over 140 table games including blackjack, TexasHold’em, Pai Gow and Caribbean Stud.  Thefacility also includes a 200-room luxury hotel, 8 restaurant outlets, andentertainment pavilion with seating for 600, a spa and outdoor pool, an 18-holegolf course and 1,883 spot parking structure. The facility is in the process of expanding its restaurant offerings.

 

Thegreatest competition may come from the proposed Graton Rancheria.  In April 2003, the Federated Indians ofthe Graton Rancheria, also known as the Coast Miwoks, announced plans topurchase land in Sonoma County near Highway 37 and Lakeville Highway,approximately 20 miles south of our gaming facility and closer to SanFrancisco. The proposed location would lie directly between our Casino and themajority of the 7 million population base. The announced plans includes construction of a casino-hotel complex thatwill be managed by Station Casinos, Inc. based in Las Vegas, Nevada. The proposed facility will house approximately 2,000 slot machines, 120 cardtables and bingo, as well as a 300-room hotel, five restaurants and a theaterwith up to 2,000 seats.  As a result ofenvironmental opposition to the development of such location, the FederatedIndians of the Graton Rancheria announced plans to move the proposedcasino-hotel complex to a site near 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.

 

 

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The Lytton Band of Pomo Indians currently operates a 70,000 square-footcasino with 1,050 Class II electronic bingo machines on the 9-acre site ofa card room in San Pablo, near Oakland, California, on land that was placed intrust for the tribe through congressional legislation.  The Lytton Band signed a compact with GovernorArnold Schwarzenegger for operating Class III casino gaming on the SanPablo site, but the state legislature withheld its approval.  In May 2007, legislation was introducedin the United States Senate, which has the support of the Lytton Band, thatwould require the Lytton Band to forego any Class III machines at the SanPablo site and instead limit itself to operating its existing Class IImachines.  This legislation was passed bythe Senate in November 2007 and referred to the House Committee on NaturalResources, but no further action has been taken.

 

There are a number of otherIndian tribes, including the Scotts Valley Band of Pomo Indians and theGuidiville Band of Pomo Indians, who have announced preliminary plans todevelop gaming projects in the San Francisco Bay area.

 

Each of the proposed projects 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 would belocated into federal trust on behalf of the tribe, and certain environmentalapprovals.

* *

*New and Renegotiated Tribal Compacts*

 

In2004, the State of California entered into amended gaming  compacts with five California Indian tribes,including two in Northern California – the Rumsey Band of Wintun Indians andthe United Auburn Indian Community. These compacts permit these tribes tooperate an unlimited number of slot machines, in return for which the tribesagreed to make payments totaling $100 million per year for 18 years commencingin 2005 and thereafter an amount equal to the lesser of the original paymentamount or 10% of each tribe’s “net win” for the balance of the term of thecompacts (2030), to be used to pay debt service on approximately $1 billion ofbonds to be issued by the State of California. The tribes also agreed to payincreased annual license fees to the State in respect of each slot machineabove the then-current 2,000 permitted to be operated. We do not know whateffect the compacts will have on the competition in Indian gaming in NorthernCalifornia or on us in particular.  Atpresent, these new compacts have resulted in the addition of approximately1,300 slot machines at the Cache Creek Casino Resort (owned by the Rumsey Bandof Wintun Indians) and approximately 1,500 slot machines at the Thunder ValleyCasino (owned by the United Auburn Indian Community).

 

In the summer of 2006,Governor Schwarzenegger renegotiated five compacts with five SouthernCalifornia tribes. These compacts became effective in early 2008. The newcompacts allow three of these tribes to add up to 5,500 Class III slotmachines to their casinos (providing for a total of up to 7,500 machines percasino), and allow the other two tribes each to add 3,000 additional machines(providing for a total of up to 5,000 machines each). In exchange, these tribesagreed to pay 10% of gaming win for their existing 2,000 machines, anadditional 15% of net machine win for machines 2,001 to 5,000, and 25% of netwin for machines 5,001 to 7,500.

 

*CaliforniaLottery and Other Initiatives*

 

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

 

In May 2007, GovernorSchwarzenegger proposed that the California State Lottery be leased to aprivate concessionaire to increase its revenue and efficiency. Part of theGovernor’s proposal includes authorizing the use of instant lottery videoterminals that resemble and operate like slot machines at locations includinghorse racing tracks and card rooms. Approval of this proposal 

 

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would require a two-thirdsaffirmative vote of the state legislature and could require a constitutionalamendment. While it is uncertain whether or when this proposal will beapproved, its implementation could adversely affect our and other Indiancasinos’ competitive positions. Such increased competition could negativelyimpact our operating results and our ability to satisfy our obligations underthe notes.  Other initiatives expandingcompetitive forms of gaming have been approved and may, from time to time, beapproved by state or local authorities. Examples include: (i) the passagein California of recent legislation expanding off-site betting on horse racesthrough expanded advance deposit wagering and increased satellite wageringsites; (ii) a legislative proposal in the California Assembly in February 2007to amend the California Penal Code to expand permitted bingo games bycharitable organizations to include electronic bingo cards; and (iii) theamendment of county laws in Sacramento County, California to expand permittedbingo games by charitable organizations in Sacramento County. These and otherinitiatives that might be proposed in various locations could affect ourbusiness.

 

Manyof our competitors serve alcoholic beverages on their premises. We have not yetobtained a liquor license for our Casino. We had initially applied for a liquorlicense for our Casino in 2002. 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, anAdministrative Law Judge ruled for the Tribe and recommended that the ABCreverse itself and approve the license, which the ABC did as of October 2005,pending a hearing on the protests.

 

OnMarch 18, 2008, the Tribe and the Sonoma County Board of Supervisorsentered into a memorandum of agreement (“MOA”) that will, among other things,settle several long-standing legal disputes between Sonoma County and the Tribeand provide a binding framework for resolving future disputes. In a relatedaction, the Alexander Valley Association (“AVA”), a local business andresidents association which has long opposed the Tribe’s gaming project andobjected to the issuance to it of a liquor license, agreed to withdraw its objectionsto the license and has persuaded its members and a number of other protestorsto do likewise.  In light of thosewithdrawals (and a similar agreement in the MOA requiring the County also towithdraw its objection), and with the support of both the County and AVA, theTribe is now seeking to expedite issuance of an alcohol license. Under the MOA,the Tribe agreed to restrict the sale of alcohol to only wine and beer betweenthe hours of 10 a.m. and 5 p.m. on weekdays, and to stop servingalcohol altogether at midnight except for Friday and Saturday nights and thenights before holidays. The restrictions may be renegotiated following thefirst to occur of three years or the opening of a hotel, which is projected tooccur within the next 2 to 3 years.

 

**EMPLOYEE AND LABOR RELATIONS**

 

As of December 31, 2007, we had 680 full and part-time employees.Our employees are not covered by any collective bargaining agreements. Webelieve that our relations with our employees are good. However, provisions ina labor ordinance the Tribe was required to adopt as part of the 1999 compactagreement, permits opportunities for unions to attempt to organize our laborforce. In addition, a recent decision by the United States Court of Appeals forthe District of Columbia upheld a finding by the National Labor RelationsBoard, that the National Labor Relations Act is applicable to tribal casinos.

 

**REGULATION**

 

**General**

 

Weare subject to special federal and tribal laws applicable to commercialrelationships with tribes and the management and financing of casinos owned byan Indian tribe. In addition, we are regulated by certain federal lawsapplicable to the gaming industry generally, with respect to the use of certaingaming equipment, and specifically applicable to the Indian gaming market. Weare also regulated by the provisions of the Compact, which have been ratifiedunder state law and are based in part on the California constitution and otherstate laws and policies. The following description of the regulatory environment,in which Indian gaming takes place and in which we operate our gaming facility,is only a summary and not a complete recitation of all applicable law.Moreover, our regulatory environment is more susceptible to changes in publicpolicy considerations than others. Changes in these laws could have a materialadverse impact on our operations.

 

 

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**Applicability of Federal Law**

 

Federally recognized Indian tribes are independent governments,subordinate to the United States, with sovereign powers, except as those powersmay have been limited by Congress, by treaty, or, in certain instances, by thepublic policy of the state in which the tribe’s lands are located. The power ofIndian tribes to enact their own laws to regulate gaming derives from theirsovereign right to govern and regulate their own affairs, particularly where itis consistent with federal law and the state’s public policy. Indian tribesmaintain their own governmental systems and often their own judicial systems.Indian tribes have the right to tax persons and businesses conducting businesson Indian lands and also have the right to require licenses and to impose otherforms of regulations and regulatory fees on persons and businesses operating ontheir lands.

 

**The Indian Gaming Regulatory Act of 1988**

 

*Regulatory Authority.*   Since 1988, the sovereignright of tribes to operate and regulate gaming on their lands has beensubjected 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 IIand Class III gaming (as described below), approve management agreementsfor gaming facilities, conduct investigations and generally monitor tribalgaming. The Bureau of Indian Affairs, which is a bureau of the U.S. Departmentof the Interior, retains certain responsibilities under IGRA, such as theapproval of per capita distribution plans of gaming revenues to individualtribal members and the approval of transfers of lands into trust status forgaming. The Bureau of Indian Affairs also has responsibility to review andapprove land leases and other agreements relating to Indian lands. Criminalenforcement is a shared responsibility of the U.S. Department of Justice, and,depending on the terms of a tribal-state compact that is in effect, the statein which the tribe is located, and the tribe.

 

The NIGC is empowered to inspect and audit all Indian gamingfacilities, conduct background checks on certain persons associated with Indiangaming, hold hearings, issue subpoenas, take depositions, adopt regulations,assess fees and impose civil penalties for violations of IGRA. IGRA alsoprovides for federal criminal penalties for illegal gaming on Indian land andfor theft from Indian gaming facilities. The NIGC has adopted rules implementingcertain provisions of IGRA. These rules govern, among other things, thesubmission and approval of tribal gaming ordinances or resolutions and themaintenance of minimum internal control standards for the operation of gamblinggames and equipment. IGRA and the NIGC regulations require an Indian tribe tohave 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 reportingprocedures for tribal licensing and background activities.

 

*Classes of Gaming.*   IGRA classifies gaming thatmay be conducted on Indian lands into three categories: Class I gamingincludes social games solely for prizes of minimal value or traditional formsof Indian gaming engaged in by individuals as part of, or in connection with,tribal ceremonies or celebrations. Class II gaming includes bingo and pulltabs, lotto, punch boards, tip jars, instant bingo and other games similar tobingo 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:

 

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·                  the state in which the Indian lands liepermits that gaming for any purpose by any person, organization or entity;

·                  the gaming is not otherwise specificallyprohibited on Indian lands by federal law;

·                  the gaming is conducted in accordance with atribal ordinance or resolution that has been approved by the NIGC;

·                  an Indian tribe has sole proprietary interestand responsibility for the conduct of gaming; and

·                  the primary management officials and keyemployees are tribally licensed and several other requirements are met.

 

Class III gaming is permitted on Indian lands if the conditionsapplicable to Class II gaming are met and, in addition, the gaming isconducted 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-State Compacts.*   IGRA requires Indian tribesto enter into tribal-state compacts in order to conduct Class III gaming.These tribal-state compacts may include provisions for the allocation ofcriminal 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,standards for the operation of the Class III gaming activity andmaintenance of the gaming facility, including licensing, and certain othersubjects that are directly related to the operation of gaming activities.

 

Tribal-state compacts usually specify the types of permitted games,establish technical standards for gaming devices, entitle the state to inspectcasinos, require background investigations and licensing of casino employees,and require the tribe to pay a portion of the state’s expenses for establishingand maintaining agencies that participate in the regulatory process provided inthe compact. Some tribal-state compacts are for set terms, while others are forindefinite durations.

 

The Tribe entered into a Compact with the State of California in September 1999,which became effective in May 2000, that permits the Tribe to engage insome levels of Class III gaming. The Compact will expire on December 31,2020. For additional information see “Part I. Item 1. Business—Descriptionof Material Agreements—The Compact.”

 

*Tribal Ordinances.*   Under IGRA, except to theextent otherwise provided in a tribal-state compact as described below, andsubject 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 ordinances and the compact.

 

IGRA requires that the NIGC review tribal gaming ordinances andauthorizes the NIGC to approve these ordinances only if they meet requirementsrelating to:

 

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

·                  the use of the revenues from that gaming; and

·                  the protection of the environment and thepublic health and safety.

 

**Licensing and Registration Requirements of the Compact andState Regulation**

 

*Compact.*   The Compact requires that any person who directly orindirectly extends financing to the Tribe’s gaming facility or gaming operationmust be licensed as a “financial source” by the TGA. However, as permitted bythe Compact, the TGA has exempted federally- and state-regulated banks andsavings and loan associations, as well as persons who hold less than 10% of our$200.0 million of 9-3/4% Senior Notes, due 2011 (the “Notes”). For an applicantwho is a non-exempt business entity, these licensing provisions also apply tothe entity’s officers, directors, principal management employees, owners (if anunincorporated entity), partners and greater than 10% shareholders. Under theCompact, a permanent license cannot be issued unless the TGA has conducted aninvestigation as to the suitability of the applicant. Any application for agaming license may be denied, and any license issued may be revoked, if the TGAdetermines the applicant to be unsuitable or otherwise unqualified for a gaminglicense. Each license is subject to review for compliance at least every twoyears.

 

 

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Prior to receiving a license, an applicant must apply to the CaliforniaGambling Control Commission (“CGCC”) for a determination of suitability. If theTGA receives notice that the CGCC has determined that a person is unsuitable,the Compact requires that the TGA revoke any license it has issued to suchperson.

 

The Compact states that any agreement between the Tribe and a “financialsource” terminates upon revocation or non-renewal of the financial source’slicense because of a determination of unsuitability by the CGCC. Upon such atermination, the Tribe’s only liability is for repayment of all outstandingsums owed as of the termination date, exclusive of unpaid accrued interest.Further, the Tribe is not permitted to enter into, or continue to make paymentsunder, any financing agreement with anyone whose application to the CGCC for adetermination of suitability has been denied or has expired without renewal.

 

*State and Tribal Regulation.*   The CGCC and the TGA,pursuant to the authority created in a tribal-state joint powers board known asthe “Association,” have both adopted regulations that simplify the licensingand registration process for certain large institutional investors, both in theinitial distribution of certain debt securities and the secondary market.

 

Under these regulations, certain regulated financial institutions withat least $100.0 million invested in non-affiliated securities may takeadvantage of an abbreviated licensing and certification process. Theregulations do not require any licensing or registration for persons purchasingdebt securities in the secondary market. However, unless a holder of debtsecurities is licensed or exempt from licensing, neither the holder nor theTrustee on the holder’s behalf will have any right to enforce any paymentobligation relating to the debt securities. In addition, neither the Trusteenor the Tribe may make any payment of principal or interest on the debtsecurities as a result of any enforcement action or default acceleration ofdebt security payments, except to a person who is licensed or exempt from licensing.

 

**Gaming Device Licenses**

 

The Compact permits the Tribe to operate up to 350 gaming deviceswithout licenses and up to an additional 1,650 machines with licenses.  From March 2000 through December 2001,the Tribe obtained 1,250 gaming device licenses through a process conducted bya public accounting 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 gamingdevice license issued to the Tribe and the other tribes in the earlier process.

 

In accordance with the Compact and California law, the Tribe isobligated to remit certain fees to the CGCC on a quarterly basis for inclusionin a Revenue Sharing Trust Fund (“RSTF”) maintained by the State of California.The RSTF is for the benefit of tribes that have no or limited gaming. The RSTFfees are fixed amounts per device, calculated on an annual basis and paidquarterly. We pay these fees on behalf of the Tribe. RSTF fees for the yearsended December 31, 2007 and 2006 were $1.3 million for each year.

 

In the summer of 2006, Governor Schwarzenegger renegotiated fivecompacts with five Southern California tribes. The new compact amendments allowthe tribes who agreed to the amendment to have additional slot machines, whileimposing additional significant annual payments to the State of California andrequiring extensive mitigation and compensation to impacted local communitiesand provisions affecting customers and employees. The Tribe did not seek orenter into an amendment.

 

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**Applicationfor Liquor License**

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.

 

In a relatedaction, the Alexander Valley Association (“AVA”), a local business andresidents association which has long opposed the Tribe’s gaming project andobjected to the issuance to it of a liquor license, agreed to withdraw itsobjections to the license and has persuaded its members and a number of otherprotestors to do likewise.  In light ofthose withdrawals (and a similar agreement in the MOA requiring the County alsoto withdraw its objection), and with the support of both the County and AVA,the Tribe is now seeking to expedite issuance of an alcohol license. Under theMOA, the Tribe agreed to restrict the sale of alcohol to only wine and beerbetween the hours of 10 a.m. and 5 p.m. on weekdays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The restrictions may be renegotiated followingthe first to occur of three years or the opening of a hotel, which is projectedto occur within the next 2 to 3 years.

 

**DRYCREEK RANCHERIA BAND OF POMO INDIANS**

 

**TribalAdministration**

 

The Dry CreekRancheria Band of Pomo Indians is a federally recognized, self-governing Indiantribe with 974 enrolled members. The reservation was established in 1915 underthe authority of an Executive Order dated January 12, 1891. Pursuant tothe Tribe’s Articles of Association, the Tribe is governed by a Tribal Councilcomposed of all voting members. Certain authority is delegated to electedtribal officers who comprise the Board of Directors, consisting of aChairperson, a Vice Chairperson, a Secretary/Treasurer and twomembers-at-large. The Secretary-Treasurer position has been vacant since December 12,2006.  The members of the Board ofDirectors of the Tribe are the same members as our Board of Directors, but theydo not serve in the same capacity.

 

**TheTribal Gaming Commission**

 

The Tribe enacteda tribal gaming ordinance in April 1997, which was approved by the NIGC inSeptember 1997. Among other matters, the gaming ordinance created andestablished the TGA as a governmental subdivision of the Tribe. The TGAconsists of three commissioners and supporting staff and is vested with theauthority to regulate all gaming activity conducted on the Tribe’s lands.

 

Each TGA GamingCommissioner is appointed by the Tribal Council to serve a four-year term. Thetribal gaming ordinance and the Compact require that each Commissioner undergoa comprehensive background check prior to his or her assuming office. Pursuantto the tribal gaming ordinance, the TGA is responsible for, among othermatters, inspection of all gaming operations within the Tribe’s reservationboundaries, enforcement of all provisions of the tribal gaming ordinance,investigation of all allegations of violations of the tribal gaming ordinance,conducting or arranging for background investigations of all applicants fortribal gaming licenses and issuing gaming licenses in accordance with thetribal gaming ordinance and the Compact. Under law, our Casino cannot operatewithout TGA regulation. Therefore, the costs of such regulation, including thecost of operating the TGA have, since commencement of operations of the RiverRock Casino, been paid by us and will continue to be paid by us.

 

**DESCRIPTIONOF MATERIAL AGREEMENTS**

 

*Thefollowing is a summary of the material terms of our material agreements andmaterial agreements of the Tribe relating to our Casino. This summary does notrestate these agreements in their entirety. We urge you to read theseagreements because they, and not these summaries, define our rights andobligations, and the rights and obligations of the Tribe, contained in theagreements. Copies of these agreements are included as exhibits to this Form 10-K.*

 

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**TheCompact**

 

In September 1999,the State of California and the Tribe entered into a Compact. Under its terms,the Compact was not effective until ratified by statute and a supporting stateconstitutional amendment was passed by the California voters. On March 7,2000, the California voters amended the state constitution and enacted theIndian Self-Reliance Amendment. The Amendment permits federally recognizedIndian tribes to conduct Class III gaming in California, in accordancewith compacts between such tribes and the State of California, subject toapproval by the Secretary of the Interior. In May 2000, the Secretary ofthe Interior approved the Compact, and that approval became effective when itwas published in the Federal Register on May 16, 2000.

 

Under the Compact,the gaming activities that may be offered by the Tribe include up to 2,000 Class IIIgaming devices, banked and percentage card games, and any devices or games thatare authorized by the California State Lottery, provided that the Tribe doesnot offer such games through use of the Internet unless others in Californiaare permitted to do so.

 

The Compactestablishes limitations on Class III gaming that may restrict our gamingactivities. Among those, which are of importance to our gaming facility, arethose that require the Tribe to adopt and comply with California lawsprohibiting cashing any check drawn against any public fund, free or reducedprice alcoholic beverages, food or lodging as an incentive, the extension ofcredit for gaming activities, and persons under 18 (or under 21 if alcohol maybe consumed) to be present in any room where Class III gaming is offered,other than simply to pass through the room.

 

The Compactrequires the State of California and the Tribe to establish a method forlicensing all key employees of a gaming entity and issuing work permits forother service employees. While the Tribe, as a sovereign governmental entity,is not required to be licensed, the California Gambling Control Act applies toall others associated with Class III gaming at our gaming facility. Tofacilitate that licensing and comply with all other provisions of IGRA, in 1997the Tribe adopted a tribal gaming ordinance establishing the TGA. The Chairmanof the NIGC approved the Tribe’s gaming ordinance in 1997.

 

Under the Compact,all persons connected with our gaming facility are required to be licensed orto submit to a background investigation under IGRA. All “Gaming Employees” and “GamingResource Suppliers” (as defined in the Compact) and certain other persons mustbe licensed by the TGA. Licenses granted by the TGA are subject to review andrenewal every two years. Holders of licenses granted by the TGA must, except inlimited circumstances, also be determined suitable by the CGCC to be employedby us.

 

The Compactrequires the Tribe to adopt and enforce regulations to ensure the physicalsafety of casino patrons, to prevent illegal activity, to maintain theregularity and integrity of gaming operations, and to require an annual auditconducted by an independent certified public accountant.

 

The Compactrequires the Tribe to carry public liability insurance with initial limits ofat least $5.0 million for personal injury and property damage claims. The Tribeis required to waive its sovereign immunity to the extent of the$5.0 million liability insurance limits.

 

The Compact alsorequires the Tribe to adopt and comply with standards no less stringent thanfederal workplace and occupational health and safety standards, and to adoptand comply with standards no less stringent than federal and state lawsprohibiting employment discrimination. However, our tribal gaming ordinancepermits us to give preference to Indians in employment matters.

 

The Compact alsomandates that the Tribe must follow certain procedures to assess theoff-reservation environmental impact of any reservation construction expansionprojects. The procedures require the Tribe to give notice of a covered project,to determine whether a project will have any significant adverse environmentalimpact, to accept and respond to comments, to consult with the county board ofsupervisors, and to hold a public meeting.

 

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**TheNotes and the Indenture**

 

On November 7,2003, we issued and sold our Notes in a private placement to certain “qualifiedinstitutional buyers” pursuant to Regulation 144A of the Securities Act of1933, as amended (the “Notes Offering”). On June 21, 2004, pursuant to aregistration rights agreement entered into in connection with the issuance ofthe Notes, we consummated an offer to exchange all of the Notes for $200.0million in aggregate principal amount of 9-3/4% senior notes due 2011 (the “OutstandingNotes”) registered with the Securities and Exchange Commission. The terms ofthe Outstanding Notes are substantially identical to the terms of the Notes,except that the transfer restrictions and registration rights applicable to theNotes do not apply to the Outstanding Notes. We did not receive any additionalproceeds from the exchange offer. The Outstanding Notes and the Notes wereissued under an Indenture, dated as of November 7, 2003 (the “Indenture”),among us, the Tribe and U.S. Bank National Association, as trustee. The termsof the Outstanding Notes include those stated in the Indenture, as well asthose made part of the Indenture by reference to the Trust Indenture Act of1939, as amended.

 

The net proceedsfrom the Notes Offering were used to repay a majority of our outstandingindebtedness, to fund the completion of three parking structures and relatedinfrastructure improvements, to fund the settlement of litigation involving theTribe, to fund the acquisition of real property adjacent to the Tribe’sreservation, to build an additional access road to the Tribe’s reservationthrough such property, and to repay outstanding indebtedness of the Tribe.

 

The OutstandingNotes bear interest at a fixed rate of 9-3/4% per year, and mature on November 1,2011. The Outstanding Notes are secured by a first priority pledge of ourrevenues and substantially all of our existing and future tangible andintangible personal property. The Outstanding Notes are senior debt.  As further described in the Indenture, theOutstanding Notes are subject to optional and mandatory redemption, and in somecases, holders of the Outstanding Notes may be required to surrender them forredemption by us (or to otherwise dispose of the Outstanding Notes) if certaingaming regulations are not satisfied.

 

The Indentureincludes affirmative and negative covenants that limit our ability to borrowmoney, create liens, sell assets, engage in transactions with affiliates,engage in other businesses, open other gaming facilities, engage in certainmergers and consolidations, make certain investments, make certain acceleratedpayments on our indebtedness that is subordinated to the Outstanding Notes, andmake payments to the Tribe.

 

**CashCollateral and Disbursement Agreement**

 

Pursuant to theCash Collateral and Disbursement Agreement among U.S. Bank National Associationand Wells Fargo Bank, N.A. as disbursement agents, U.S. Bank NationalAssociation, as the trustee for the holders of the Outstanding Notes, Merritt &Harris, our independent construction consultant, the Tribe and us, a portion ofthe net proceeds of the Notes Offering was placed into a constructiondisbursement account, a construction escrow account, the Dugan Propertyimprovements account, and an operating account, all to be disbursed by thedisbursement agents pursuant to the Cash Collateral and Disbursement Agreement.

 

*ConstructionDisbursement Account. * Approximately $61.1 million of the netproceeds of the Notes Offering was deposited into a construction disbursementaccount and was used to fund the design and construction of our expansionproject. All funds in the construction disbursement account are pledged to thetrustee for the benefit of itself, and the holders of the Outstanding Notes,until disbursed by U.S. Bank National Association in accordance with the CashCollateral and Disbursement Agreement. Approximately $3.5 million from theproceeds from the Notes Offering were used to reimburse the Tribe for paymentsmade to Swinerton Builders prior to the sale of the Notes. The construction disbursementaccount had $2.6 million remaining as of December 31, 2007.

 

*ConstructionEscrow 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.  We used $10.0 million in the account to pay off theSubordinated Note on March 13, 2005. The construction escrow account has $0.1 million remaining as of December 31,2007.

 

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*DuganProperty Improvements Account.* $5.0 million of the net proceeds of theNotes Offering was deposited into the Dugan Property improvements account andwill be used to build an additional access road to the Tribe’s reservation. Allsuch funds will be held in the Dugan Property improvements account and pledgedto the trustee for the benefit of itself and the holders of the OutstandingNotes until disbursed by U.S. Bank National Association in accordance with theCash Collateral and Disbursement Agreement. Subject to certain exceptions, U.S.Bank National Association, as the disbursement agent, will disburse funds fromthe Dugan Property improvements account only upon certification by us that wehave adequate funds to complete the road project, and upon the satisfaction ofthe other disbursement conditions set forth in the Cash Collateral andDisbursement Agreement. The Dugan Property improvements account had$4.6 million remaining as of December 31, 2007.

 

*OperatingAccount.* Wedeposit all of our cash and cash equivalents in excess of $2.0 millioninto our operating account with Bank of America, N.A. on a daily basis.  All such funds are held in the operatingaccount and pledged to the trustee for the benefit of itself and the holders ofthe Outstanding Notes until disbursed in accordance with the terms of the CashCollateral and Disbursement Agreement. Funds may generally be disbursed by Bankof America, N.A. from the operating account for all purposes permitted by theIndenture.

 

*Investments;Pledge of Accounts.* Ourdisbursement 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.

 

**Memorandumof Agreement between the Tribe and Sonoma County, California**

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.

 

In a relatedaction, the Alexander Valley Association (“AVA”), a local business andresidents association which has long opposed the Tribe’s gaming project andobjected to the issuance to it of a liquor license, agreed to withdraw itsobjections to the license and has persuaded its members and a number of otherprotestors to do likewise.  In light ofthose withdrawals (and a similar agreement in the MOA requiring the County alsoto withdraw its objection), and with the support of both the County and AVA,the Tribe is now seeking to expedite issuance of an alcohol license. Under theMOA, the Tribe agreed to restrict the sale of alcohol to only wine and beerbetween the hours of 10 a.m. and 5 p.m. on weekdays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The restrictions may be renegotiated followingthe first to occur of three years or the opening of a hotel, which is projectedto occur within the next 2 to 3 years.

 

In addition, theMOA commits the County Sheriff’s Department and Fire Marshall to providingpublic safety and fire services to the Casino and the Tribe’s future gamingprojects on the Rancheria, provides detailed agreements on off reservationimpact mitigation measures, and permits the Tribe’s application to take theDugan Property into trust, which has already been approved by the Department ofthe Interior (“DOI”) but was appealed by the DOI, to move forward withoutfurther County opposition.

 

The Tribe hasagreed to pay the County up to $75 million in mitigation fees over the next 12years to offset impacts of the potential losses and impacts to the Countyresulting from the Tribe’s various ongoing projects and are intended to supportthe services being provided by the County. In addition to the mitigation fees, the Tribe will pay a fee in lieu ofthe County’s Transient Occupancy Tax in the amount of 9% of the rentalcollected on occupied hotel rooms, to be paid quarterly and continuing for fiveyears after the later to occur of the termination of the MOA, as may beextended, or the Tribe’s Compact with the State (which is now terminable in2020 at the earliest), which fees may be applied to programs and services thatserve to promote tourism in the County. Such in lieu fees could total as muchas $25 million during the term of the MOA.

 

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We believe the MOAwill have significant positive impacts on the future conduct of our businessand our and the Tribe’s ability to develop our expansions plans and constructour proposed hotel and casino resort.

 

**Leasefor Casino**

 

In May 2002,the Tribe entered into a lease with Sprung Instant Structures, Inc. fortwo dome-shaped structures that house our gaming facility. The lease agreementwas assigned to us and was renewed through August 17, 2007. Monthlypayments are $36,230. At the end of the lease term, at our option, 100% of thefirst four lease payments or, if all such payments have been timely made, 40%of the last twenty four lease payments will be credited towards the$1.5 million purchase price, which would result in a purchase price of$1.1 million.  Since the expirationof the lease on August 17, 2007, we have maintained the lease payments ona month to month basis.

 

**Developmentand Loan Agreement**

 

The Tribe entered into aDevelopment and Loan Agreement 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 providing credit enhancement and otherservices under the Development Agreement, the Tribe was obligated to pay DCC aCredit Enhancement Fee. The Credit Enhancement Fee was 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 was required to be paid monthly for a period of five years commencing on June 1,2003.

 

The Authority had the right to terminate theDevelopment Agreement by exercising a buy-out option (the “Buy-Out Option”) anddid so on January 31, 2007. Subsequently on March 2, 2007, the Authority and DCC signed amutual agreement to fix the amounts due to DCC in respect of such exercise tothe sum of $11,350,000 less the amount paid after the Authority exercised thebuy-out option of $737,491. The net payment of $10,612,509 was made in March 2007and expensed in full in the three months ended March 31, 2007.

 

 **Intercreditor Agreement**

 

Pursuant to theIntercreditor Agreement among DCC, U.S. Bank National Association, as trusteefor the holders of the Outstanding Notes, the Tribe and us, the CreditEnhancement Fees payable pursuant to the Development Agreement are subordinatedto our senior debt, including the Outstanding Notes. If all or any part of ourassets, or the proceeds from the sale of our assets are subject to anydistribution, division or application to our creditors, then any payment shallbe paid or delivered directly to the trustee for the Notes for application tosenior debt. If any payment, distribution or security is received by DCC, withrespect to the Credit Enhancement Fee in violation of the IntercreditorAgreement, DCC must deliver the same to the trustee for the benefit of theholders of our senior debt, including the Outstanding Notes.

 

We pay CreditEnhancement Fees only if we certify to the trustee as to our reasonable beliefthat we have adequate liquidity to meet our ordinary and reasonably foreseeableextraordinary expenses. In addition, we will accrue any such payments duringany period in which we are in default on the Outstanding Notes until such timeas current interest payments on the Outstanding Notes have been paid in full.

 

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**Item1A.  Risk Factors**

 

*Thefollowing is a description of what we consider our key challenges and risks:*

 

**Risks Related to Our Business**

 

***We have a substantial amount of indebtedness that couldadversely affect our financial condition and prevent us from fulfilling ourobligations under the Outstanding Notes.***

 

As of December 31,2007, we had approximately $198.7 million of indebtedness outstanding,represented by our Outstanding Notes. Our substantial indebtedness could haveimportant consequences and significant effects on our business and futureoperations. For example, it could:

 

·                  increase our vulnerability to generaladverse economic and industry conditions or a downturn in our business;

·                  limit our ability to fund future workingcapital, capital expenditures and other general operating requirements;

·                  require us to dedicate a substantialportion of our cash flow from operations to repay our outstanding indebtedness,thereby reducing the availability of our cash flow to fund working capital,capital expenditures, development and other general operating requirements;

·                  place us at a competitive disadvantagecompared to our competitors that have less debt or greater resources; and

·                  limit our ability to borrow additionalfunds.

 

The occurrence ofany one of these events or conditions could have a material adverse effect onour business, financial condition, results of operations, prospects, ability toservice or otherwise satisfy our obligations under the Outstanding Notes. Inaddition, the Indenture permits us to incur debt in addition to the OutstandingNotes in certain circumstances. If we were to incur additional debt, therelated risks could intensify.

 

***We will require a significant amount of cash to service ourindebtedness and fund our gaming operations. Our ability to generate cashdepends on many factors beyond our control.***

 

Our ability tomake payments on and refinance our debt, including the Outstanding Notes, andto fund our gaming operations, will depend on our ability to generate cash flowfrom our gaming operations. Our ability to generate sufficient cash flow tosatisfy our debt obligations will depend on our future operating performancethat is subject to many economic, competitive, regulatory and business factorsthat are beyond our control. If we are not able to generate sufficient cashflow to service our debt obligations, we may need to refinance or restructureour debt, sell assets, reduce or delay capital investments or seek to raiseadditional capital. These measures may not be available to us or, if available,they may not be sufficient to enable us to satisfy our obligations under theOutstanding Notes and may restrict our ability to pay operating expenses. Ifour cash flow is insufficient and we are unable to implement one or more ofthese alternatives, we may not be able to service our debt obligations or fundour gaming operations.

 

***Since we depend on operations in a single location, certainevents that we cannot control may adversely affect the business performance ofour gaming facility.***

 

We rely primarilyon guests living within 100 miles of our Casino. We rely exclusively on cashflow from our Casino to service our obligations, including our obligationsunder the Outstanding Notes. Therefore, we are subject to greater risks thanmore geographically diversified gaming operations, including:

 

·                  a decline in the economies of the localareas where our guests are located or a decline in the number of gaming guestsfrom these areas for any reason;

·                  a downturn in regional or local economicconditions;

·                  an increase in competition in the localareas where our guests reside;

·                  inaccessibility due to road constructionor closures of primary access routes; and

·                  natural and other disasters and climateconditions in the surrounding area.

 

The occurrence ofany of the events or conditions described above could cause a materialdisruption in our business and cause us to be unable to generate sufficientcash flow to make payments on the Outstanding Notes.

 

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***We have experienced landslides and may not be insuredagainst damage resulting from landslides.***

 

Although wemaintain insurance customary in our industry, including earthquake insurance,our insurance coverage may not be adequate to cover all the risks to which ourbusiness and assets may be subject to. Although we have experienced twolandslides since our operations began, our landslide-related insurance islimited to events incident to earthquakes. Although neither landslide disruptedour operations or our expansion project, including the excavation, retainingwall and parking structures, the insurance is intended for futurelandslides.  A landslide could occur inthe future that could materially disrupt our operations and materially affectour financial condition.

 

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

 

The gamingindustry is very competitive. We face or will face competition from existingand proposed Indian gaming facilities in the surrounding area, and elsewhere inCalifornia, and with casino gaming in Nevada, including gaming facilities thatcould be located closer to the San Francisco Bay area. We also compete withcard rooms located in the surrounding area, and other forms of gaming that arelegal in California, including on and off-track wagering and the CaliforniaState Lottery, as well as with non-gaming leisure activities, and theavailability of such alternative gaming and non-gaming activities which mayincrease in the future. Many of our competitors have substantially greaterresources and name recognition than our Casino. In addition, we may also facecompetition in our market from new facilities that may be built by other Indiantribes in the future.

 

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

 

Unlike most of ourcompetitors, we do not currently hold a license to sell alcohol on our gamingfacility premises. To obtain a liquor license, the Tribe’s liquor licenseapplication must be approved by the Department of Alcohol Beverage Control (“ABC”).

 

On March 18, 2008,the Tribe and the Sonoma County Board of Supervisors entered into a memorandumof agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.

 

In a related action, theAlexander Valley Association (“AVA”), a local business and residentsassociation which has long opposed the Tribe’s gaming project and objected tothe issuance to it of a liquor license, agreed to withdraw its objections tothe license and has persuaded its members and a number of other protestors todo likewise.  In light of thosewithdrawals (and a similar agreement in the MOA requiring the County also towithdraw its objection), and with the support of both the County and AVA, theTribe is now seeking to expedite issuance of an alcohol license. Under the MOA,the Tribe agreed to restrict the sale of alcohol to only wine and beer betweenthe hours of 10 a.m. and 5 p.m. on weekdays, and to stop servingalcohol altogether at midnight except for Friday and Saturday nights and thenights before holidays. The restrictions may be renegotiated following thefirst to occur of three years or the opening of a hotel, which is projected tooccur within the next 2 to 3 years.

 

***Restrictive covenants in the Indenture may limit our abilityto expand our operations and to pursue our business strategies.***

 

The Indentureincludes covenants that limit our ability to borrow money, make investments,create liens, sell assets, engage in transactions with affiliates, engage inother businesses, open other gaming facilities and engage in mergers orconsolidations. These restrictive covenants may limit our ability to expand ouroperations and to pursue our business strategies. If we are unable tocapitalize on business opportunities, we may be unable to make payments on theOutstanding Notes. Additionally, a violation of any of these restrictivecovenants would constitute a default under the Indenture.

 

***Risks related to environmental matters could have an adverseeffect on us.***

 

We are subject to various federal laws and tribal ordinances andregulations, and the Compact which governs activities or operations that mayhave adverse environmental effects, such as discharges to air and water, aswell as handling and disposal of hazardous material or solid or hazardouswaste. Environmental laws enacted in the future may create material obligationsor liabilities

 

20

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whichmay have a material adverse effect on us. In addition, certain provisions ofthe Compact regarding environmental matters may be the subject of renegotiationwith the State of California and could limit any future physical expansion ofour gaming facility. If so, such limitations may have a material adverse effecton our operations.

 

Pursuant to and inaccordance with the Compact, the Tribe adopted an ordinance providing for thepreparation and circulation by the Tribe of an environmental study concerningpotential off-reservation environmental impacts of any renovation,modification, and construction or development project relating to or associatedwith the gaming facility. Among other things, the Compact requires that infashioning the ordinance, the Tribe must make a good faith effort toincorporate the policies and purposes of the National Environmental Policy Actand the California Environmental Quality Act consistent with the Tribe’sgovernmental interests. The Compact’s environmental provisions are identical tosuch provisions in compacts for all other California tribes that entered intocompacts in or around 1999. The Tribe believes it has complied, and intends tocontinue to comply, with all applicable requirements in its environmentalordinance, but the County of Sonoma has taken issue with the Tribe’s positionand claims that the Compact’s environmental requirements are not beingfulfilled. The State could claim the Tribe is in breach of the Compact and seekto have the Compact terminated.

 

***Our business and assets could become liable for claimsasserted against the Tribe if the Tribe waives its sovereign immunity withrespect to our business or assets or if tribal law intended to limit suchliability is ineffective.***

 

We are an unincorporatedinstrumentality of the Tribe, formed pursuant to a law of the Tribe. Thistribal law also provides that our obligations and other liabilities are notthose of the Tribe and that the obligations and liabilities of the Tribe arenot ours. This law is untested and generally has no direct counterpart in otherareas of the law. If this law should prove to be ineffective at limiting ourliability, 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.

 

##### ***Changes in U.S. or regional economic conditions could adversely affectthe profitability of our business.***

##### *** ***

A decrease in economic activity in theUnited States, particularly in the State of California, could adversely affectdemand for our business, thus reducing our revenue and earnings.  A decline in economic conditions could reduceattendance and spending at our Casino. In addition, an increase in price levels generally, or in price levelsin a particular sector, could result in a shift in consumer demand away fromthe entertainment we offer, which could also adversely affect our revenues and,at the same time, increase our costs.

 

***Our business is subject to contingencies beyond our control, includingthe aftermath of terrorist acts and wars, which may significantly and adverselyaffect our business, financial condition, results of operations and ability tomake payments on the Notes.***

 

The war with Iraq, the United States’ongoing military campaign against terrorism and continued violence, conflictsand instability in other areas of the world have created many economic andpolitical uncertainties, some of which may affect our ability to attractcustomers outside our current primary market as well as our operations andprofitability.  The potential short-termand long-term effects that these and other similar situations and events mayhave for our customers, our primary and secondary markets and the U.S. economyin general are uncertain.  These andother similar future events could have a significant impact on the number ofcustomers visiting our Casino and, as a result, may have a material adverseeffect on our business, financial condition, results of operations and abilityto make payments on the Notes.

 

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***Actsof terrorism may negatively impact our future profits.***

 

Terrorist attacks and other acts of war orhostility have created many economic and political uncertainties.  We cannot predict the extent to whichterrorism, security alerts or war, or hostilities in Iraq and other countriesthroughout the world, will continue to directly or indirectly impact ourbusiness and results.  As a consequenceof the threat of terrorist attacks and other acts of war or hostility in thefuture, premiums for a variety of insurance products have increased, and sometypes of insurance are no longer available. Given current conditions in the global insurance markets, we arepredominantly uninsured for losses and interruptions caused by terrorist actsand acts of war.  If any such event wereto affect our properties, we likely would be adversely impacted.

 

***A variety of uncontrollable events and natural disasters may reducedemand for our Casino.***

 

Demand for our Casino is partly dependenton the general environment for travel and tourism.  The environment for travel and tourism can besignificantly adversely affected in the United States or in specific regions asa result of a variety of factors beyond our control, including adverse weatherconditions or natural disasters (such as excessive heat or rain, hurricanes andearthquakes); health concerns; and international, political or militarydevelopments.  These events, and otherssuch as fluctuations in travel and energy costs, may also damage our ability toprovide our services or to obtain insurance coverage with respect to theseevents.

 

***Highway and bridge construction projects have impacted the length oftravel to our Casino by certain customers.***

 

In March 2006,Caltrans began construction on a 2-mile stretch of Highway 101 in the downtownsection of Santa Rosa, California, approximately 20 miles south of ourCasino.  The project is intended to widen Highway 101 resulting in anadditional third lane in each direction.  The project requires the closureof one lane of Highway 101 in both directions from 11 p.m. to 5 a.m.,Monday through Thursday, and from 12:00 a.m. to 5 a.m. onFridays.  All lanes will be open during daylight hours and weekends. Theproject will also involve the closure of certain freeway entrance and exitramps and some local streets in Santa Rosa.  The lane widening project isexpected to be completed by the end of 2008. There has not been a major impactfrom this project on our operations.

 

***We may facedifficulties in recruiting, training and retaining qualified managementemployees.***

 

The operation of the Casino requires us tocontinuously recruit and retain a substantial number of qualifiedprofessionals, employees, executives and managers with gaming, hospitality,management and financial reporting experience. There can be no assurance that we will be able to recruit, train andretain a sufficient number of qualified employees.  A failure to be able to recruit and retainqualified personnel could result in management, operating and financialreporting difficulties or affect the experience and enjoyment of our patrons,either of which could have a material adverse effect on our business, financialcondition, results of operations or ability to make payments on the notes.

 

***The loss of management and otherkey personnel could significantly harm our business.***

 

Our ability tomaintain our competitive position is dependent to a large degree on the effortsand skills of the senior management team. In addition to the senior management team, the operation of our Casinowill require other qualified and skilled employees with gaming and hospitalityindustry experience and qualifications. Currently, there is a shortage of skilled labor in the gaming industryin general.  In addition, we are subjectto the policy of Tribal hiring preference that requires us to give preferenceto members of the Tribe. Despite these limitations, our future success dependsupon, among other things, our ability to attract and retain senior managementand highly qualified employees. Currently, approximately 90 percent of the employees at the Casino arenot members of the Tribe. We compete with other potential employers foremployees, and we may not succeed in hiring or retaining the executives andother employees that we may need, particularly due to the very small number ofworkers skilled in the gaming industry that reside in the immediate vicinity ofour businesses.

 

We do not have employment agreements withany key executives or employees other than with our Chief Executive Officer andour Chief Financial Officer.  We do notmaintain key-man life insurance policies for any of our executives.  A sudden loss or inability to replace keyemployees could have a material adverse effect on our financial condition andresults of operation.

 

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*** ***

***Arecent federal court decision could lead to unionization in the tribal gamingindustry*.**

 

A recentdecision by the United States Court of Appeals for the District of Columbiaupheld a finding by the National Labor Relations Board that the National Labor RelationsAct is applicable to tribal casinos. This decision could lead to unionization activities, which couldadversely affect our operations.

 

***The market data relied on by usmay be inaccurate or incomplete and is subject to change.***

 

We have basedmarket data and other data provided herein with respect to the Casino and ourmarket on information supplied by sources that we believe are reliable, such asindependent industry publications, government publications, reports by marketresearch firms or other published independent sources.  Some data are also based on our good faithestimates, which are derived from our review of internal surveys, as well asthe independent sources listed above. Although we believe that these sources are reliable, we have not independentlyverified this information, and the market data and information may not beaccurate in all material respects. Accordingly, you should not rely too greatly on this data.  The gaming market in California is subject tochange, including changes in the number of facilities expanding, closing andopening, and changes in the size of these facilities.  For these and other reasons discussed herein,our estimates of our current and future market position and performance couldprove to be materially inaccurate.

 

***Energy price increases mayadversely affect our costs of operations and our revenues.***

 

Our Casinouses significant amounts of electricity, natural gas and other forms ofenergy.  While we have not experiencedany shortages of energy to date, the recent substantial increases in the costof energy in the United States could negatively impact our operatingresults.  In addition, energy priceincreases could result in a decline in disposable income of potential customersand a corresponding decrease in visitation to our gaming and hotel facilities,which could negatively impact our revenues.

 

**Risks Relating to the Indian GamingIndustry**

 

***Our gaming operations are extensivelyregulated by federal laws and the Compact, and non-compliance with these laws orthe 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’sreservation is regulated extensively by federal, state and tribal regulatorybodies, including the NIGC, the CGCC, the California Department of Justice andthe TGA. The Compact imposes ongoing compliance obligations on us. Our failureto observe any of these obligations could result in a breach of the Compact andthe loss of our right to conduct gaming.

 

Changes in applicablelaws or regulations, or future interpretation of these laws or regulationscould limit or materially affect the types of gaming that we may offer and,consequently, our revenue. Congress has regulatory authority over Indianaffairs and can establish and change the terms upon which Indian tribes mayconduct gaming. Currently, the operation of all gaming on Indian lands issubject to IGRA. For the past several years, legislation has been introduced inCongress designed to amend IGRA, including proposed legislation limiting thescope of gaming that can be offered and the conditions under which gaming maybe offered. While none of the substantive proposed amendments to IGRA haveproceeded very far in the legislative process, we cannot predict theramifications of future congressional legislative acts. It is possible thatfuture legislation may result in a material adverse effect on our operations.

 

***Tribal-state compacts are renegotiable and theoutcome of any renegotiation may negatively impact our competitive position orotherwise adversely affect our financial condition, results of operations orcash flows.***

 

In March 2003, theState of California requested renegotiations with the Tribe and other tribeswith respect to matters related to the number of slot machines permitted attribal casinos under tribal-state gaming compacts, the way in which slotmachine licenses

 

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are allocated within the state under those compacts,and the fees charged for slot machine licenses. We did not renegotiate theterms of our compact, although some other tribes in California have done so.Those renegotiations, plus the addition of new compacts the State may beentering into with tribes in our market area that were not previously engagedin gaming, may have negative effects on our competitive position, and ourresults of operations could be materially and adversely affected. Even if ournegotiations with the State of California were to result in an increase in thenumber of slot machines we could operate, the State has indicated that anyincrease could result in higher license fees being imposed, which, in light ofpossible other competition, could result in lower revenues. In addition, theState’s willingness to renegotiate over slot machine limits has been tied toits imposition of further regulations on Indian gaming, particularly on thesubject of greater County involvement, provisions favoring negotiating opportunitiesfor organized labor, and other non-economic issues. The effect of the State’sinjection of those issues into the renegotiation process, and the resistance ofsome tribes to renegotiate because of those issues, could have a negativeimpact on the public’s view of Indian gaming, the effect of which we cannotpredict. Finally, any amendment to our compact or any other compact in theState requires the approval of the tribe, the Governor, the Californialegislature and the U.S. Secretary of the Interior. Some renegotiated (and new)compacts have been approved through that process, but the public debate thathas surrounded those renegotiations and the approval process could have anegative impact on Indian gaming generally within the State and on a nationallevel, the likelihood or extent of which cannot be predicted.

 

***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 interpretationsof U.S. tax laws, we are not now, and it is anticipated that we will not be, ataxable entity for U.S. federal income tax purposes. If these interpretationsare reversed or modified, or if the federal tax law changes in this regard, ourcash flow, results of operations, financial conditions and our ability tofulfill our obligations under the Outstanding Notes would be adverselyaffected.

 

Efforts have been made inCongress over the past several years to tax the income of tribal businessenterprises. These have included a House of Representatives bill that wouldhave taxed gaming income earned by Indian tribes as business income subject tocorporate tax rates. Although such legislation was not enacted, similarlegislation could be passed in the future. Future legislation in this areacould materially adversely affect our ability to fulfill our obligations underthe Outstanding Notes.

 

**BENEFIT OBLIGATIONS**

 

On April 1, 2006, we became fully self-insuredfor our medical benefits plan coverage from $250 to $2,000 of medical benefitcost per covered person per year. Employees are responsible for the first $250of medical 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. Coverageabove $2,000 is provided by a fully insured, high deductible medical benefitsplan. We pay 100% of the medical benefits plan coverage cost for employees, and50% of the coverage cost for dependents and domestic partners based oncalculated premiums. Maximum coverage under the fully self-insured medicalbenefits plan is limited to $1,400 per covered person per year. All employeesworking an average of 60 hours per pay period are eligible for the medicalbenefits plan. Administration of the plan is provided by a third party under anadministrative services agreement.

 

On April 1, 2006, we became fully self-insuredfor our dental benefits plan. We pay 100% of the dental benefits plan coveragecost for employees and 50% of the coverage cost for dependents and domesticpartners based on calculated premiums. Maximum coverage under the dental planis limited to $2,000 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.

 

The Claims payable, ClaimsIBNR (incurred but not reported), and Insurance premiums payable for the aboveself-insured benefits plans are recorded in Accounts payable trade on thefinancial statements.

 

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| ** **                              | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2007**              | ** ** | **2006**              | ** ** |
|                                    |       |                  |       |                  |       |
| Claims Payable                          |       | $                     | 20,173     |                  | $          | 16,406 |   |
| Claims IBNR (Incurred but not reported) |       | 43,454                |       | 41,122                |       |
| Insurance premiums payable              |       | —                |       | —                |       |
| Total Benefit Obiligations              |       | $                     | 63,627     |                  | $          | 57,528 |   |

 

**Item 2. Properties.**

 

Our Casino is located onthe Tribe’s 75-acre reservation near Geyserville, located in the heart of theAlexander Valley in Sonoma County, California. We do not own the land on whichour gaming business is located. The use of tribal land is provided to us freeof rent by the Tribe. The United States government holds all the real propertyunderlying our facility in trust for the benefit of the Tribe.

 

We made a distribution tothe Tribe from the net proceeds of the Notes Offering to enable the Tribe toacquire and develop an approximately 18-acre parcel of land adjacent to thereservation (the “Dugan Property”). Title to the parcel will initially be heldby the Tribe, although the Tribe is seeking to have the parcel taken into trustfor the Tribe’s benefit. The Tribe has granted us access to any benefits theproperty may have for our Casino, including road access and water rights. As ofDecember 31, 2007, we had $4.6 million remaining in an improvementsaccount which was funded from proceeds from the Notes Offering to be usedprimarily to build an additional access road to the Tribe’s reservation throughthe Dugan Property. The Dugan Property may be subject to certain zoning, use,environmental and other restrictions, permits and processes under county andstate law, including but not limited to certain agreements that have been maderelative to the Dugan Property regarding agricultural use limitations and relatedproperty tax benefits. We have completed the initial planning on the road fromthe Dugan Property to the Tribe’s reservation.

 

**Item 3. Legal Proceedings.**

 

*Runyan Litigation*

 

On March 7, 2008, Norman Runyan, our former ChiefOperations Officer, filed suit against us, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of our Board, in the SonomaCounty Superior Court.  Mr. Runyan’scomplaint asserts causes of actions for breach of contract, wrongfultermination in violation of public policy, intentional interference withcontract and intentional infliction of emotional distress. He seeks unspecifiedcompensatory and punitive damages. Mr. Runyan alleges that he waswrongfully terminated from his employment because he opposed certain allegedactions on the part of the defendants, including contracts for constructionwork allegedly performed on the reservation by affiliates of the Tribe and Mr. Hopkins.Mr. Runyan claims that the work violated the Indenture and that Mr. Runyanwas forced to resign from his employment in violation of public policy afterprotesting that the alleged work violated the Indenture, the Compact, and theSecurities Exchange Act of 1934.  He alsoclaims that the defendants unlawfully discriminated against him in connectionwith his status as a debtor under the Bankruptcy Code. We believe that Mr. Runyan’slawsuit is based on erroneous information and is without merit, and we and theTribe intend to vigorously defend against it.

 

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

 

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

 

None.

 

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**PART II**

 

**Item 5. Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.**

 

We have not issued or sold any equity securities.

 

**Item 6. Selected Financial Data**.

 

River Rock Casino hashistorically operated as a separate wholly owned operating property of theTribe. We were formed as an unincorporated instrumentality of the Tribe to ownand operate the River Rock Casino. Upon the issuance of our Notes, the Tribereorganized so that its gaming business became owned and operated by us. Thisreorganization was accounted for as a reorganization of entities under commoncontrol. In accordance 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 tablepresents summary historical statements of revenues and expenses, balance sheetand other data for the periods presented and should be read in conjunction withItem 7 – “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” our financial statements and the related notesthereto.  The three years ended December 31,2007, 2006 and 2005 are all included elsewhere in this Form 10-K. Thehistorical financial data for the years ended December 31, 2007, 2006 and2005 have been derived from our audited historical financial statementsincluded elsewhere in this report. The following table sets forth our statementof operations for the years ended December 31, 2007, 2006, 2005, 2004 and2003.

 

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**STATEMENTSOF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT**

**YEARSENDED DECEMBER 31, 2007, 2006, 2005, 2004 AND 2003**

 
| ** **                                     | ** ** | **Year Ended**          | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **December 31,**        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                     | ** ** | **2007**                     | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003 (d)**     | ** ** |
| ** **                                     | ** ** | **(Dollars  in thousands )** | ** ** |
| **Statement of Revenues and Expenses:**        |       |                         |       |                  |       |                  |       |                  |       |                  |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Revenues                                       |       |                         |       |                  |       |                  |       |                  |       |                  |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Casino                                         |       | $                            | 145,714    |                  | $          | 136,294               |       | $                     | 132,831    |                  | $          | 101,605 |   | $ | 65,446 |   |
| Food, beverage & retail               |       | 7,516                        |       | 6,244                 |       | 6,920                 |       | 4,959                 |       | 2,848                 |       |
| Other                                          |       | 615                          |       | 623                   |       | 663                   |       | 575                   |       | 380                   |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Gross revenues                                 |       | 153,845                      |       | 143,161               |       | 140,414               |       | 107,139               |       | 68,674                |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Promotional allowance                          |       | (14,467                      | )          | (12,542               | )          | (6,856                | )          | (2,632                | )          | (1,348                | )          |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Net revenues                                   |       | 139,378                      |       | 130,619               |       | 133,558               |       | 104,507               |       | 67,325                |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Operating Expenses                             |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Casino                                         |       | 23,376                       |       | 20,454                |       | 19,187                |       | 16,909                |       | 10,961                |       |
| Food, beverage & retail               |       | 4,640                        |       | 5,997                 |       | 6,311                 |       | 4,516                 |       | 3,089                 |       |
| Selling, general and administrative            |       | 43,979                       |       | 39,903                |       | 46,174                |       | 39,009                |       | 28,044                |       |
| Depreciation                                   |       | 11,801                       |       | 11,503                |       | 11,012                |       | 6,390                 |       | 4,391                 |       |
| Credit enhancement fee                         |       | 11,349                       |       | 8,079                 |       | 7,669                 |       | 5,112                 |       | 1,435                 |       |
| Gaming commission and surveillance expense (a) |       | 3,023                        |       | 3,154                 |       | 2,773                 |       | 1,780                 |       | 1,335                 |       |
| Compact revenue sharing trust fund             |       | 1,335                        |       | 1,335                 |       | 1,335                 |       | 1,335                 |       | —                |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Total Operating expenses                       |       | 99,502                       |       | 90,425                |       | 94,461                |       | 75,050                |       | 51,504                |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Income from operations                         |       | 39,876                       |       | 40,194                |       | 39,097                |       | 29,458                |       | 15,821                |       |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Interest expense, net                          |       | (20,872                      | )          | (20,884               | )          | (21,047               | )          | (17,446               | )          | (7,064                | )          |
| Interest income                                |       | 1,701                        |       | 1,046                 |       | 332                   |       | 499                   |       | 108                   |       |
| Gain (loss) on sale of assets                  |       | 4                            |       | (126                  | )          | (104                  | )          | (63                   | )          | —                |       |
| Other income (expense), net                    |       | 1                            |       | (1                    | )          | (2                    | )          | (1                    | )          | (1                    | )          |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Other expense-net                              |       | (19,166                      | )          | (19,965               | )          | (20,821               | )          | (17,011               | )          | (6,956                | )          |
|                                           |       |                         |       |                  |       |                  |       |                  |       |                  |       |
| Income before distribution to the Tribe (b)    |       | $                            | 20,710     |                  | $          | 20,229                |       | $                     | 18,276     |                  | $          | 12,447 |   | $ | 8,865 |   |

 
| ** **                                                               | ** ** | **Year Ended**                  | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **December 31,**                | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                               | ** ** | **2007**                             | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003 (a)**     | ** ** |
| ** **                                                               | ** ** | **(Dollars in Thousands)** | ** ** |
| **Other Financial Data:**                                      | ** ** | ** **                           | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** |
| Net cash provided by operating activities                                |       | $                                    | 65,215     |                  | $          | 60,550                |       | $                     | 55,749     |                  | $          | 38,128 |   | $ | 26,545 |   |
| Net cash provided by (used in) capital and related financing  activities |       | $                                    | (40,505    | )                     | $          | (32,557               | )          | $                     | (45,870    | )                     | $          | (29,292 | ) | $ | 44,256 |   |
| Net cash provided by investing activites                                 |       | $                                    | 1,701      |                  | $          | 1,046                 |       | $                     | 332        |                  | $          | 499 |   | $ | 108 |   |
| Net cash used in non-capital financing activities                        |       | $                                    | (12,427    | )                     | $          | (14,140               | )          | $                     | (11,180    | )                     | $          | (7,613 | ) | $ | (54,883 | ) |
| EBITDA (c)                                                               |       | $                                    | 53,383     |                  | $          | 52,615                |       | $                     | 50,335     |                  | $          | 36,283 |   | $ | 20,321 |   |
| Capital expenditures                                                     |       | $                                    | 8,193      |                  | $          | 4,475                 |       | $                     | 17,456     |                  | $          | 57,741 |   | $ | 35,511 |   |
| Ratio of earnings to fixed charges                                       |       | 1.95X                                |       | 1.92X                 |       | 1.83X                 |       | 1.37X                 |       | 1.87X                 |       |
| Total Assets                                                             |       | $                                    | 184,504    |                  | $          | 174,869               |       | $                     | 167,678    |                  | $          | 174,813 |   | $ | 170,180 |   |
| Long term liabilities                                                    |       | $                                    | 198,748    |                  | $          | 198,500               |       | $                     | 198,243    |                  | $          | 197,823 |   | $ | 197,410 |   |
| Distributions to Tribe                                                   |       | $                                    | 12,427     |                  | $          | 15,521                |       | $                     | 11,180     |                  | $          | 7,613 |   | $ | 54,883 |   |

 

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Thefollowing table reconciles EBITDA and net cash provided by operating activitiesfor the periods indicated:

 
| ** **                                              | ** ** | **Year Ended**             | ** ** | **Year Ended**        | ** ** | **Year Ended**        | ** ** | **Year Ended**        | ** ** | **Year Ended**        | ** ** |
|---------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **December 31,**      | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                              | ** ** | **2007**                   | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003 (a)**          | ** ** |
| ** **                                              | ** ** | **(Dollars in Thousands)** | ** ** |
| ** **                                              | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** |
| Net cash provided by operating activities               |       | $                          | 65,215     |                  | $          | 60,550                |       | $                     | 55,749     |                  | $          | 38,128 |   | $ | 26,545 |   |
| Increase (decrease) in accounts receivable              |       | 104                        |       | 110                   |       | 39                    |       | (53                   | )          | 96                    |       |
| Increase (decrease) in inventories                      |       | (7                         | )          | 1                     |       | (224                  | )          | 233                   |       | 145                   |       |
| Increase (decrease) in prepaid and other current assets |       | 32                         |       | (32                   | )          | 654                   |       | (109                  | )          | 853                   |       |
| (Increase) decrease in accounts payable trade credit    |       | (1,062                     | )          | (322                  | )          | 1,220                 |       | 2,787                 |       | (4,378                | )          |
| (Increase) decrease in accrued liabilities              |       | (1,256                     | )          | (533                  | )          | 338                   |       | (27                   | )          | (800                  | )          |
| Gain (Loss) on sale of fixed assets                     |       | 5                          |       | (126                  | )          | (104                  | )          | (63                   | )          | —                |       |
| Interest income received                                |       | 1,701                      |       | 1,046                 |       | 332                   |       | 499                   |       | 109                   |       |
| Credit enhancement fee                                  |       | (11,349                    | )          | (8,079                | )          | (7,669                | )          | (5,112                | )          | (2,249                | )          |
|                                                    |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| **EBITDA (c)**                                          |       | $                          | 53,383     |                  | $          | 52,615                |       | $                     | 50,335     |                  | $          | 36,283 |   | $ | 20,321 |   |

 

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(a) Pursuantto the regulation, the tribal gaming agency (“TGA”) charged us a flat monthlyfee of $324,395 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 TGA and 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, 2007, 2006 and 2005 were$3,023,303, $3,154,384 and $2,773,369, respectively.

 

 (b) Our financial statements are preparedin accordance with Governmental Accounting Standards Board (“GASB”)pronouncements. There are differences between financial statements prepared inaccordance with GASB pronouncements and those prepared in accordance withFinancial Accounting Standards Board (“FASB”) pronouncements. The Statements ofRevenues, Expenses and Changes in Fund (deficit) Equity are a combinedstatement under GASB pronouncements. FASB pronouncements allow a statement ofincome or operations and a separate statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements. The amount shown above as income (loss) beforedistributions to the Tribe would not be different if we followed all FASBpronouncements to determine net income and would be the most comparable amountto net income computed under FASB pronouncements. River Rock EntertainmentAuthority is a separate fund of the Tribe, a governmental entity, and, as such,there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements. The most comparable measure of owners’(deficit) equity is presented on the River Rock Entertainment Authority balancesheet as fund (deficit) equity.

 

 (c) “EBITDA” is income (loss) beforedistributions to Tribe plus interest, taxes, depreciation and amortization.EBITDA does not represent and should not be considered an alternative to netincome or cash flow from operations, as determined by Generally AcceptedAccounting Principals.  Moreover, ourmethodologies and practices in determining EBITDA may not be comparable tothose used by other companies. EBITDA is included in this Form 10-Kbecause it is a basis upon which we assess our liquidity and because certaincovenants 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.

 

(d) RiverRock Casino commenced full-scale operations on April 1, 2003 and increasedits number of gaming devices to reach 1,600 on June 18, 2003.

 

** Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

 

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with the accompanying financial statements and relatednotes beginning on page 48 of this Annual Report on Form 10-K, Item 6— “Selected Financial Data” and Part I. Item 1. “Business.”

 

**Overview**

 

*General*

 

We have historicallyoperated as a separate wholly-owned operating property of the Tribe. We wereformed as an unincorporated governmental instrumentality of the Tribe to ownand operate the River Rock Casino. Upon the issuance of our Notes, the Tribereorganized so that its gaming business became owned and operated by us. This reorganizationwas accounted for as a

 

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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 IIIslot and video poker gaming machines, house banked table games (includingBlackjack, Three card poker, Mini-baccarat and Pai Gow poker), Poker, featuringTexas Hold’em, comprehensive food and non-alcoholic beverage offerings, andgoods for sale in our gift shop.

 

On November 7, 2003,we issued the Notes. A portion of the net proceeds from the sale of the Noteswas used to fund three new parking structures, and related infrastructureimprovements, to repay various debts and accrued expenses of the Tribe, as wellas to increase our cash on hand. The balance of the net proceeds was used tofund a land purchase by the Tribe and settle litigation of the Tribe. The Notesare secured by a first priority pledge of our revenues and substantially all ofour existing and future tangible and intangible personal property.

 

At the beginning of 2003,we started our infrastructure projects, including the excavation of a hillsideand the construction of retaining walls. In April 2003, we began thedesign process for the three new parking structures. The parking structureportion of the expansion project was completed in two phases and our existinggaming facility remained open during construction. On October 29, 2004, weobtained a temporary certificate of occupancy to open the entire first parkingstructure for self and valet parking. On December 1, 2004, we received acertificate of substantial completion on the first parking structure. Thesecond phase, which included our second and third parking structures withapproximately 445 and approximately 470 spaces, respectively, opened on December 29,2004. Since December 31, 2006, we have had enough parking spaces availableto accommodate a total of approximately 1,584 customer parked vehicles.

 

**CriticalAccounting Policies and Estimates**

 

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

 

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

 

·                  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 our property and equipment for impairment in accordancewith the Financial Accounting Standards Board’s Statement of FinancialAccounting Standards No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.”  When events orcircumstances indicate that an asset should be reviewed for impairment, we 

 

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                        compare the undiscounted cash flow derived from theasset or asset group to the net carrying value. If an impairment is indicated,the impairment loss is measured by the amount in which the carrying value of theasset or asset group exceeds its fair value. Fair value is measured bycomparable sales, solicited offers or discounted cash flow models.

 

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

 

·                  Contingencies – We assess our exposure to loss contingencies, includinglegal matters, and provide for an exposure if it is judged to be probable andestimable. If the actual loss from a contingency differs from management’sestimate, operating results could be materially impacted. As of December 31,2007, we have determined that no accruals for claims and legal actions arerequired. If circumstances surrounding claims and legal actions change, theaddition of accruals for such items in future periods may be required, whichaccruals may be material.

 

AccountingStandards – There are differences between financial statements prepared inaccordance with Governmental Accounting Standards Board (“GASB”) pronouncementsand those prepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statement of revenues, expenses and fund deficit is acombined statement under GASB pronouncements. FASB pronouncements allow astatement of income or operations and a statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements. The amount shown on our statement of revenues,expenses and fund deficit as income before distributions to the Tribe, wouldnot be different if we followed all FASB pronouncements to determine netincome, and would be the most comparable amount to net income computed underFASB pronouncements. We are an unincorporated instrumentality created by triballaw and accounted for as a separate fund of the Tribe.  As such, there is no owners’ or shareholders’(deficit) equity as traditionally represented under FASB pronouncements. Themost comparable measure of owners’ (deficit) equity presented on our balancesheet would be Fund Deficit.

 

**Resultsof Operations**

 

**QuarterlyResults of Operations**

 

The following table setsforth unaudited quarterly operations data for each full quarter for the pastthree years. In our opinion, this data reflects all adjustments, consistingonly of normal recurring adjustments, necessary for a fair presentation of thedata. The results of operations for any quarter are not necessarily indicativeof the results of operations for a full year or any future period. Certainamounts from prior quarters have been reclassified to be consistent with ourcurrent presentation, i.e. surveillance costs are now included in Gamingcommission expense.  We expect ourquarterly operating results to vary significantly in future periods.

 

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**RIVER ROCKCASINO**

**STATEMENTOF REVENUES AND EXPENSES**

**2007, 2006AND 2005 BY QUARTERS**

 
| ** **                                          | ** ** | **Quarters Ended** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|
| ** **                                          | ** ** | **December 31,**   | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
| ** **                                          | ** ** | **2007**                | ** ** | **2007** | ** ** | **2007** | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Statement of Revenues and Expenses:**             |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                            |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                              |       | $                       | 37,462     |   | $ | 36,578 |   | $ | 36,215 |   | $ | 35,459 |   | $ | 35,717 |   | $ | 35,704 |   | $ | 32,352 |   | $ | 32,521 |   | $ | 33,604 |   | $ | 34,042 |   | $ | 34,158 |   | $ | 31,027 |   |
| Food, beverage and retail                           |       | 2,034                   |       | 1,967 |   | 1,800 |   | 1,715 |   | 1,607 |   | 1,656 |   | 1,505 |   | 1,476 |   | 1,823 |   | 1,946 |   | 1,697 |   | 1,454 |   |
| Other                                               |       | 144                     |       | 151 |   | 161 |   | 160 |   | 169 |   | 156 |   | 145 |   | 153 |   | 155 |   | 159 |   | 168 |   | 181 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross revenues                                      |       | 39,640                  |       | 38,696 |   | 38,175 |   | 37,334 |   | 37,493 |   | 37,516 |   | 34,002 |   | 34,150 |   | 35,582 |   | 36,147 |   | 36,023 |   | 32,662 |   |
| Promotional allowances                              |       | (4,163                  | )          | (3,671 | ) | (3,403 | ) | (3,230 | ) | (3,121 | ) | (3,954 | ) | (2,940 | ) | (2,526 | ) | (2,495 | ) | (2,147 | ) | (1,438 | ) | (777 | ) |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenues                                        |       | 35,476                  |       | 35,025 |   | 34,772 |   | 34,104 |   | 34,372 |   | 33,562 |   | 31,062 |   | 31,624 |   | 33,087 |   | 34,000 |   | 34,585 |   | 31,885 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                  |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                              |       | 7,888                   |       | 5,312 |   | 4,981 |   | 5,195 |   | 5,253 |   | 5,192 |   | 4,970 |   | 5,039 |   | 4,943 |   | 4,923 |   | 4,587 |   | 4,734 |   |
| Food, beverage and retail                           |       | 514                     |       | 1,270 |   | 1,414 |   | 1,442 |   | 1,442 |   | 1,570 |   | 1,468 |   | 1,517 |   | 1,873 |   | 1,568 |   | 1,505 |   | 1,364 |   |
| Selling, general and administrative                 |       | 12,079                  |       | 10,967 |   | 11,096 |   | 9,837 |   | 9,372 |   | 9,533 |   | 9,608 |   | 11,390 |   | 10,026 |   | 12,551 |   | 13,163 |   | 10,434 |   |
| Depreciation                                        |       | 2,908                   |       | 2,968 |   | 2,997 |   | 2,928 |   | 2,887 |   | 2,884 |   | 2,872 |   | 2,861 |   | 2,822 |   | 2,798 |   | 2,757 |   | 2,634 |   |
| Credit enhancement fee                              |       | —                  |       | — |   | — |   | 11,349 |   | 2,304 |   | 2,313 |   | 1,859 |   | 1,602 |   | 2,007 |   | 1,862 |   | 1,857 |   | 1,943 |   |
| Gaming commission expense                           |       | 780                     |       | 748 |   | 820 |   | 675 |   | 1,033 |   | 673 |   | 726 |   | 723 |   | 1,258 |   | 623 |   | 356 |   | 537 |   |
| Compact revenue sharing trust fund                  |       | 334                     |       | 333 |   | 333 |   | 334 |   | 334 |   | 333 |   | 334 |   | 334 |   | 334 |   | 334 |   | 334 |   | 333 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                            |       | 24,503                  |       | 21,598 |   | 21,641 |   | 31,760 |   | 22,625 |   | 22,498 |   | 21,837 |   | 23,466 |   | 23,263 |   | 24,659 |   | 24,559 |   | 21,979 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                              |       | 10,973                  |       | 13,427 |   | 13,131 |   | 2,344 |   | 11,747 |   | 11,064 |   | 9,225 |   | 8,158 |   | 9,824 |   | 9,341 |   | 10,026 |   | 9,906 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other expense - Net                                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                    |       | (5,217                  | )          | (5,219 | ) | (5,217 | ) | (5,219 | ) | (5,219 | ) | (5,219 | ) | (5,221 | ) | (5,225 | ) | (5,225 | ) | (5,230 | ) | (5,245 | ) | (5,347 | ) |
| Interest income                                     |       | 479                     |       | 504 |   | 351 |   | 368 |   | 342 |   | 301 |   | 211 |   | 192 |   | 132 |   | 108 |   | 51 |   | 40 |   |
| Gain (loss) on sale of assets                       |       | —                  |       | — |   | — |   | 5 |   | — |   | (85 | ) | (37 | ) | (3 | ) | — |   | (70 | ) | — |   | (34 | ) |
| Other income (expense), net                         |       | —                  |       | 2 |   | — |   | — |   | — |   | (1 | ) |   |   |   |   | — |   | (1 | ) | — |   | — |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Expense, Net                                  |       | (4,739                  | )          | (4,713 | ) | (4,867 | ) | (4,846 | ) | (4,877 | ) | (5,004 | ) | (5,047 | ) | (5,036 | ) | (5,093 | ) | (5,193 | ) | (5,194 | ) | (5,341 | ) |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before distribution to the  Tribe (a) |       | $                       | 6,234      |   | $ | 8,714 |   | $ | 8,264 |   | $ | (2,502 | ) | $ | 6,870 |   | $ | 6,060 |   | $ | 4,178 |   | $ | 3,122 |   | $ | 4,731 |   | $ | 4,148 |   | $ | 4,832 |   | $ | 4,565 |   |

 

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(a) Ourfinancial statements are prepared in accordance with Governmental AccountingStandards Board (“GASB”) pronouncements. There are differences betweenfinancial statements prepared in accordance with GASB pronouncements and thoseprepared in 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.

 

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** **

**Resultsof Operations – Fiscal Years ended December 31, 2007 and 2006**

 

*NetRevenues*. Netrevenues for the fiscal year ended December 31, 2007 (“FY 2007”),increased by $8.8 million to $139.4 million, from $130.6 million for the fiscalyear ended December 31, 2006 (“FY 2006”). The increase is attributed toimproved access to our Casino in FY 2007 following the lack of accessibility toour casino due to the damage and resulting closure of the Geyserville Bridge inGeyserville, California from January 1, 2006 through August 18, 2006(the “Geyserville Bridge Closure”). Approximately 96.2% of our net revenues,net of respective promotional allowances, were from gaming activities for FY2007. We generated $118.9 million, or 85.3% of our net revenues, net of respectivepromotional allowances of $11.4 million, from gaming devices and $15.2 million,or 10.9% of our net revenues, net of respective promotional allowances of $0.2million, from table games for FY 2007, compared to $111.4 million from gamingdevices, or 85.3% of our net revenues, net of respective promotional allowancesof $10.2 million, and $14.5 million, or 11.1% of our net revenues, net ofrespective promotional allowances of $0.2 million, from table games for FY2006. Our win per slot machine per day increased to $207 in FY 2007 from $194in FY 2006.

 

For FY 2007, wegenerated $7.5 million in food, beverage and retail sales, compared to $6.2million, for FY 2006.  The increase isprimarily due to improved access to our Casino in FY 2007 following the GeyservilleBridge Closure during the first eight months of 2006. The retail value of ourfood and beverage provided to customers without charge is included in grossrevenues and then deducted as promotional allowances. Such allowances were $2.9million and $2.3 million for FY 2007 and FY 2006, respectively.

 

*PromotionalAllowances*.Promotional allowances for the FY 2007 were $14.5 million, or 10.4% of netrevenues, compared to $12.5 million, or 9.7% of net revenues, for FY 2006. 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.

 

*Operatingexpenses*.Operating expenses for FY 2007 were $99.5 million, or 71.4% of net revenues,compared to $90.4 million, or 69.2% of net revenues, for FY 2006. The increasein operating expenses is attributable to the increased costs associated withthe early buy-out of the Credit Enhancement Fee and increased costs in selling,general and administrative expenses from changing advertising agencies andenhanced marketing and guest service initiatives.

 

Casino expenseincludes costs associated with our gaming operations and an allocation of foodand beverage expense related to the costs of complimentary activities. Casinoexpense for FY 2007 increased to $23.4 million, or 17.4% of Casino revenues,from $20.5 million, or 16.2% of Casino revenues, for FY 2006, net of respectivepromotional allowances. The increase in Casino expense is attributable to anincrease in labor costs in gaming operations and an increase in participationfees and commissions on wide area progressive slot machines.

 

Food, beverage andretail expense for FY 2007 was $4.6 million, or 99.5% of food, beverage andretail revenue, decreasing from $6.0 million, or 150.6% of food, beverage andretail revenue for FY 2006, net of respective promotional allowances. We haveincreased our retail prices to offset the use of promotional food and beverageas part of our marketing initiatives. Our food and beverage expense ratio isstill significantly higher than industry average because we have utilized theseamenities as an opportunity to build customer loyalty rather than as a sourceof income.

 

Selling, generaland administrative expense for FY 2007 increased by $4.1 million to $44.0million, or 31.6% of net revenues, from $39.9 million, or 30.5% of netrevenues, for FY 2006, net of respective promotional allowances. The increasein selling, general and administrative expense is attributable to increases in payroll,increased advertising costs from restructuring the marketing department’sapproach to focus more on direct marketing and the change in our advertisingagency.  These efforts led to increasedcosts in television, radio and newsprint media as compared to 2006.

 

Depreciationexpense for FY 2007 was $11.8 million compared to $11.5 million for FY 2006.Depreciation expense was computed using the straight-line method over theuseful lives of property, plant and equipment. The increase in depreciation expenseis due to the addition of depreciable assets.

 

32

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Credit Enhancement Fee expense for FY 2007 was $11.3million compared to $8.1 million for FY 2006. We began payingthe credit enhancement fee to DCC in June 2003. We had the right to terminate the DevelopmentAgreement by exercising a buy-out option and did so on January 31, 2007. Subsequently on March 2, 2007, we signed with DCC a mutualagreement to fix the amounts due to DCC in respect of such exercise to the sumof $11,350,000 less the amount paid after we exercised the buy-out option of$737,491. The net payment of $10,612,509 was made in March 2007 and wasexpensed in full in the three months ended March 31, 2007.

 

Gaming Commission and surveillance expenses for FY 2007 and FY 2006were $3.0 million and $3.2 million, respectively.   The decrease is due to decreased costs andincreased efficiencies from normalized operations in regulatory and surveillance.

 

Compact revenuesharing trust fund expense remained the same at $1.3 million for FY 2007 and2006. Compact revenue sharing trust fund expense includes payments associatedwith operating 1,600 gaming devices. These fees became payable by the Tribewhen we commenced operations in September 2002, and are based on thenumber of our gaming device licenses. Compact revenue sharing trust fundexpense includes payments to the Revenue Sharing Trust Fund (“RSTF”) asrequired by our Compact with the State of California. The Tribe is obligated toremit certain fees to the California Gambling Control Commission on a quarterlybasis for inclusion in the RSTF. The RSTF is for the benefit of tribes thathave no or limited gaming. We pay these fees on behalf of the Tribe.

 

*Incomefrom operations.*Income from operations for FY 2007 was $39.9 million, or 28.6% of net revenues,compared to $40.2 million, or 30.8% of net revenues, for FY 2006.

 

*Otherexpense, net.*Other expense, net for FY 2007 decreased to $19.2 million, or 13.8% of netrevenues, from $20.0 million, or 15.3% of net revenues, for FY 2006.  Other expense, net included $1.7 million ofinterest income for FY 2007, compared to $1.0 million of interest income, forFY 2006.  No interest costs werecapitalized in 2007.

 

*Incomebefore distributions to the Tribe*. Income before distributions to the Tribe for FY 2007increased by $0.5 million, to $20.7 million, or 14.9% of net revenues, from$20.2 million, or 15.5% of net revenues, for FY 2006.

 

**Resultsof Operations – Fiscal Years ended December 31, 2006 and 2005**

 

*NetRevenues*. Netrevenues for the fiscal year ended December 31, 2006 (“FY 2006”),decreased by $3.0 million to $130.6 million, from $133.6 million, for thefiscal year ended December 31, 2005 (“FY 2005”). The decrease isattributed to the lack of accessibility to our casino due to the damage andresulting closure of the Geyserville Bridge in Geyserville, California from January 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, wegenerated $6.2 million in food, beverage and retail sales, compared to $6.9million, for FY 2005.  The decrease isprimarily due to the Geyserville Bridge Closure. The retail value of our foodand beverage provided to customers without charge is included in gross revenuesand then deducted as promotional allowances. Such allowances were $2.3 millionand $2.8 million for FY 2006 and FY 2005, respectively.

 

*PromotionalAllowances*.Promotional allowances for the FY 2006 were $12.5 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.

 

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*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 decreasein operating expenses is attributable to operational efficiencies, largely dueto a hiring freeze, and changing from cash incentives being recorded as anoperating expense in 2005, to E-coupons in 2006, which are reflected inpromotional allowances.  The reason forchanging cash incentives to E-coupons in 2006, is due to E-coupon technology becomingavailable in late 2005.

 

Casino expenseincludes costs associated with our gaming operations and an allocation of foodand beverage expense related to the costs of complimentary activities. Casinoexpense for FY 2006 increased to $20.5 million, or 16.2% of Casino revenues,from $19.2 million, or 14.9% of Casino revenues, for FY 2005, net of respectivepromotional allowances. The increase in Casino expense is attributable to anincrease in labor costs in gaming operations and an increase in participationfees on slot machines.

 

Food, beverage andretail expense for FY 2006 was $6.0 million, or 150.6% of food, beverage andretail revenue, decreasing from $6.3 million, or 154.1% of food, beverage andretail revenue for FY 2005, net of respective promotional allowances. We haveincreased our use of promotional food and beverage as part of our marketinginitiatives. Our food and beverage expense ratio is still significantly higherthan industry average because we have utilized these amenities as anopportunity to build customer loyalty rather than as a source of income.

 

Selling, generaland administrative expense for FY 2006 decreased by $6.3 million to $39.9million, or 30.5% of net revenues, from $46.2 million, or 34.6% of netrevenues, for FY 2005, net of respective promotional allowances. The decreasein selling, general and administrative expense is attributable to reductions inpayroll from a hiring freeze during an evaluation of vacant positions fromattrition, reduction in advertising costs from restructuring the marketingdepartment’s approach to focus more on direct marketing and the change in ouradvertising agency.  These efforts led toreduced costs in television, radio and newsprint media as compared to 2005.

 

Depreciationexpense for FY 2006 was $11.5 million compared to $11.0 million for FY 2005.Depreciation expense was computed using the straight-line method over theuseful lives of property, plant and equipment. The increase in depreciationexpense is due to the addition of depreciable assets.

 

We began payingthe credit enhancement fee to DCC in June 2003. The credit enhancement feewas $8.1 million, or 6.2% of net revenues for FY 2006, compared to $7.7million, or 5.7% of net revenues, for FY 2005. The increase is directlyattributable to our improved operating results.

 

Pursuant to the regulation, the tribal gaming agency (“TGA”) charged usa flat monthly fee of $235,000 from January 1, 2006 through May 31,2006.  In June 2006, our Boardapproved a fee increase to $344,000 to cover all operating expenses incurred bythe TGA and surveillance, which are directly related and necessary to theregulation of the Casino. Following the end of each calendar quarter, the TGA mustreconcile the monthly regulatory fee and actual operating expenses and makenecessary adjustments.  As of July 1,2005, TGA and surveillance expenses are being recorded in Gaming Commission andsurveillance expenses on the Statement of Revenues, Expenses and Changes inFund Balance.  TGA and surveillanceexpenses for FY 2006 and FY 2005 were $3.2 million and $2.8 million,respectively.

 

Compact revenuesharing trust fund expense remained the same at $1.3 million for FY 2006 and2005. Compact revenue sharing trust fund expense includes payments associatedwith operating 1,600 gaming devices. These fees became payable by the Tribewhen we commenced operations in September 2002, and are based on thenumber of our gaming device licenses. Compact revenue sharing trust fundexpense includes payments to the RSTF as required by our Compact with the Stateof California. 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 $40.2 million, or 30.8% of net revenues,compared to $39.1 million, or 29.3% of net revenues, for FY 2005.

 

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*Otherexpense, net.*Other expense, net for FY 2006 decreased to $20.0 million, or 15.3% of netrevenues, from $20.8 million, or 15.6% of net revenues, for FY 2005.  Other expense, net included $1.0 million ofinterest income for FY 2006, compared to $0.3 million of interest income for FY2005.  No interest costs were capitalizedin 2006.

 

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

 

**Liquidityand Capital Resources**

 

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

 

Construction ofour Casino and infrastructure improvements commenced on April 1, 2002. Thefirst portion of our gaming facility was completed in September 2002. Asof December 31, 2007, we had spent approximately $159.2 million on theplanning, development and construction of our gaming facility, infrastructureand furniture, fixtures and equipment, excluding the expansion project. Wefinanced the development with borrowings and development advances.

 

As of December 31,2007, we spent $1.1 million on the development of land adjacent to the Tribe’sreservation (the “Dugan Property”) which is expected to include an additionalaccess road to our Casino. We have $4.6 million remaining in a restrictedaccount funded from the proceeds of our Notes Offering for the development ofthe Dugan Property.

 

Our capitalexpenditures for FY 2007 and 2006 were $8.2 million and $4.5 million,respectively. The increase in 2007 is attributable to the preliminary workcompleted and reimbursed to the Tribe for master plan development cost for ourproposed expansion project and infrastructure improvements.

 

As of December 31,2007, we had cash and cash equivalents net of $46.5 million, as compared to$32.5 million, as of December 31, 2006. As of December 31, 2007, wehad restricted cash of $7.3 million, as compared to $7.2 million, as of December 31,2006. Our principal source of liquidity for uses other than our expansionproject during FY 2007 consisted of cash flow from operating activities.

 

Net cash providedby operating activities for FY 2007 was $65.2 million, an increase of $4.6million, from $60.6 million, for FY 2006. The increase in our net cash providedby operations is a result of improved performance of our Casino in FY 2007. Netcash provided by operating activities for FY 2006 increased by $4.9 million,from $55.7 million, for FY 2005.

 

Restricted cashconsists of net proceeds from the Notes Offering and investment earningsthereon set aside in construction financing accounts, for construction costsfor the three parking structures, infrastructure improvements and constructioncontingencies. It also includes funds that are reserved for additional constructioncontingencies and the funds for the development of the Dugan Property. Ourrestricted cash is held in escrow accounts that can only be used for authorizedconstruction disbursements until the related projects are completed.

 

Net cash used incapital and related financing activities for FY 2007 was $40.5 million,compared to $32.6 million for FY 2006. Cash flow used in capital and relatedfinancing activities was primarily for the purchase of property and equipment,credit enhancement fee and interest paid on the Notes.  The primary increase is attributable to theexercise by us of the buy-out option on the Credit Enhancement Fee in March 2007which increased cash used in capital and related financing activities by $4.1million.

 

Net cash used innon-capital financing activities for FY 2007 was $12.4 million, a decrease of$1.7 million from $14.1 million, for FY 2006. Net cash used in non-capital financing activities consisted ofdistributions to the Tribe in the amount of $12.4 million.

 

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We believe thatexisting cash balances, cash from operations, as well as permitteddisbursements from our restricted cash escrow accounts will provide adequatefunds for our working capital needs, planned capital expenditures and debtservice requirements for the foreseeable future. However, our ability to fundour operations, make planned capital expenditures, make scheduled debt paymentsand refinance our indebtedness depends on our future operating performance andcash flow, which, in turn, are subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control.Additionally, the Indenture limits our ability to incur additionalindebtedness. See Item 1 – “Business – Material Agreements – The Notes and theRelated Indenture.”

 

On June 28,2007, we and the Tribe announced plans to build a destination resort as morefully described in the press release furnished as an exhibit to our Form 8-Kdated June 28, 2007. The proposed project includes the construction of acasino, hotel and spa, several food and beverage venues, parking and storage,administrative facilities, a garden and terrace plaza, balconies and terraces,a retail area, conference facilities, and back of house facilities. Theproposed project includes three above-ground levels and a hotel tower (up toeight levels) and four below-ground levels. We do not currently have adequateliquidity or cash flow to finance the project as proposed. We will considervarious sources of liquidity to finance the first phase of the proposedproject.

 

The Tribe hasincurred expenses on our behalf that relate to the master planning of theproposed resort and Tribal infrastructure that benefit us. Total expensesincurred and subsequently reimbursed to the Tribe for the years ended December 31,2007 were $4.6 million.

 

The Tribe hasincurred an additional $5.6 million in costs relating to the master planning ofthe proposed resort. While the Tribe has not made any request to us for reimbursementof such amount, it may request reimbursement from us in the future.  Whilewe have no obligation to pay such amounts when requested, and any suchreimbursement would need to be approved by management and our Board ofDirectors, there is a possibility that such request for reimbursement may bemade by the Tribe. Prior to making any reimbursement payment, we will considervarious factors, including, but not limited to, whether the costs incurred wereactually related to the master planning, whether such costs are beneficial toour gaming business and expansion plans, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture for the Outstanding Notes.

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.  We believe the MOA willhave significant positive impacts on the future conduct of our business and ourand the Tribe’s ability to develop our expansions plans and construct ourproposed hotel and casino resort.  Pursuant to the MOA, the Tribe hasagreed to pay the County up to $75 million in mitigation fees over the next 12years to offset impacts of the potential losses and impacts to the Countyresulting from the Tribe’s various ongoing projects and are intended to supportthe services being provided by the County.  In addition to the mitigationfees, the Tribe will pay a fee in lieu of the County’s Transient Occupancy Taxin the amount of 9% of the rental collected on occupied hotel rooms, to be paidquarterly and continuing for five years after the later to occur of thetermination of the MOA, as may be extended, or the Tribe’s Compact with theState (which is now terminable in 2020 at the earliest), which fees may beapplied to programs and services that serve to promote tourism in the County.Such in lieu fees could total as much as $25 million during the term of theMOA.  It is currently unclear to us what, if any, amounts we will berequested to pay to the Tribe to fund its obligations pursuant to the MOA.

 

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**ContractualObligations as of December 31, 2007**

 

Thefollowing table summarizes our contractual obligations and commitments as of December 31,2007:

 

| ** **                          | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
|-------------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|------------|
| Long-term debt obligations (a)      |       | $         | 200,015,306 |            | $          | 7,992              |       | $                  | 7,314      |   | $ | 200,000,000 |   |
| Capital lease and other obligations |       | 238,293   |        | 205,181         |       | 33,112             |       | —             |       |
| Operating lease obligations         |       | 1,047,143 |        | 242,183         |       | 455,730            |       | 349,230            |       |
|                                |       |      |        |            |       |               |       |               |       |
| Total obligations (b)               |       | $         | 201,300,742 |            | $          | 455,356            |       | $                  | 496,156    |   | $ | 200,349,230 |   |

 

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(a)       Excluded from long-termdebt obligations above are interest payments of $19.5 million in 1 year; $39.0million in 2-3 years; $35.7 million in 4-5 years.

(b)      The Compact requires us topay a quarterly fee of $0.4 million to the RSTF based on the number of ourlicensed gaming devices. Total obligations do not include the RSTF payments.

 

**Regulationand Taxes**

 

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

 

On March 18,2008, the Tribe and the Sonoma County Board of Supervisors entered into amemorandum of agreement (“MOA”) that will, among other things, settle severallong-standing legal disputes between Sonoma County and the Tribe and provide abinding framework for resolving future disputes.

 

In a relatedaction, the Alexander Valley Association (“AVA”), a local business andresidents association which has long opposed the Tribe’s gaming project andobjected to the issuance to it of a liquor license, agreed to withdraw itsobjections to the license and has persuaded its members and a number of otherprotestors to do likewise.  In light ofthose withdrawals (and a similar agreement in the MOA requiring the County alsoto withdraw its objection), and with the support of both the County and AVA,the Tribe is now seeking to expedite issuance of an alcohol license. Under theMOA, the Tribe agreed to restrict the sale of alcohol to only wine and beerbetween the hours of 10 a.m. and 5 p.m. on weekdays, and to stopserving alcohol altogether at midnight except for Friday and Saturday nightsand the nights before holidays. The restrictions may be renegotiated followingthe first to occur of three years or the opening of a hotel, which is projectedto occur within the next 2 to 3 years.

 

In addition, theMOA commits the County Sheriff’s Department and Fire Marshall to providingpublic safety and fire services to the Casino and the Tribe’s future gamingprojects on the Rancheria, provides detailed agreements on off reservationimpact mitigation measures, and permits the Tribe’s application to take theDugan Property into trust, which has already been approved by the Department ofthe Interior (“DOI”) but was appealed by the DOI, to move forward withoutfurther County opposition.

 

The Tribe hasagreed to pay the County up to $75 million in mitigation fees over the next 12years to offset impacts of the potential losses and impacts to the Countyresulting from the Tribe’s various ongoing projects and are intended to supportthe services being provided by the County. In addition to the mitigation fees, the Tribe will pay a fee in lieu ofthe County’s Transient Occupancy Tax in the amount of 9% of the rentalcollected on occupied hotel rooms, to be paid quarterly and continuing for fiveyears after the later to occur of the termination of the MOA, as may beextended, or the Tribe’s Compact with the State (which is now terminable in2020 at the earliest), which fees may be applied to programs and services thatserve to promote tourism in the County. Such in lieu fees could total as muchas $25 million during the term of the MOA.

 

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We believe the MOAwill have significant positive impacts on the future conduct of our businessand our and the Tribe’s ability to develop our expansions plans and constructour proposed hotel and casino resort.

 

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

 

**Impactof Inflation**

 

Absent changes incompetitive and economic conditions or in specific prices affecting the casinoindustry, we do not expect that inflation will have a significant impact on ourgaming facility operations. Changes in specific prices, such as fuel and transportationprices, relative to the general rate of inflation may have a material adverseeffect 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 Qualitative Disclosure About MarketRisk.**

 

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

 

Through December 31,2007, 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 and Supplementary Data.**

 

Our financialstatements and notes thereto, referred to in Item 15(A) (1) of this Form 10-K,are filed as part of this report and appear in this Form 10-K beginning onpage 48.

 

**Item 9. Changes in and Disagreements with Accountants onAccounting and Financial Disclosure.**

 

None.

 

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

 

**Evaluationof Disclosure Controls and Procedures**

 

We maintain disclosurecontrols and procedures that are designed to ensure that the informationrequired to be disclosed in our reports filed with, or furnished to the SEC,pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules, regulations and forms, and that such informationis accumulated and communicated to our management, including our ChiefExecutive Officer, Chief Financial Officer and Chief Operations Officer, asappropriate, to allow timely decisions regarding required disclosure based onthe definition of “disclosure controls and procedures” in Rule 13a-15(e) and15d-15(e) of the Exchange Act.  Ourdisclosure controls and procedures

 

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are designed to providereasonable assurances of achieving its objectives.

 

As of the end ofthe period covered by this Annual Report, management performed, with theparticipation of our Chief Executive Officer and Chief Financial Officer, anevaluation of the effectiveness of our disclosure controls and procedures asdefined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.Our disclosure controls and procedures are designed to ensure that informationrequired to be disclosed in the report we file or submit under the Exchange Actis recorded, processed, summarized, and reported within the time periodsspecified in the SEC’s forms, and that such information is accumulated andcommunicated to our management including our Chief Executive Officer and ourChief Financial Officer, to allow timely decisions regarding requireddisclosures.  Based on the evaluation and the identification of thematerial weaknesses in internal control over financial reporting describedbelow, our Chief Executive Officer and our Chief Financial Officer concludedthat, as of December 31, 2007, our disclosure controls and procedures werenot effective.

 

*Management’sReport on Internal Control Over Financial Reporting*

 

Management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as defined in Rules 13a-15(f) and 15d-15(f) ofthe Exchange Act.  Internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements in accordance withGAAP.  Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements.  Also,projection of any evaluation of effectiveness to future periods is subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Management hasconducted, with the participation of our Chief Executive Officer and our ChiefFinancial Officer, an assessment, including testing of the effectiveness of ourinternal control over financial reporting as of December 31, 2007. Management’s assessment of internal control over financial reporting wasconducted using the criteria in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”).

 

A materialweakness is a deficiency, or a combination of deficiencies, in internal controlover financial reporting, such that there is a reasonable possibility that amaterial misstatement of our annual or interim financial statements will not beprevented or detected on a timely basis.   In connection with management’sassessment of our internal control over financial reporting as required under Section 404of the Sarbanes-Oxley Act of 2002, we identified the following materialweaknesses in our internal control over financial reporting as of December 31,2007:

 

1.               There is a strong reliance on theexternal auditors to review and adjust the quarterly and annual financialstatements, to monitor new accounting principles, and to ensure compliance withSEC disclosure requirements.

 

2.               The Tribe contracts and pays for materialcapital expenditures and other Tribal department expenses on our behalf.  The Tribe submits invoices to us forreimbursement of these costs.  Thesigning officials (CEO and CFO) have no visibility to the specific nature ofthe capital expenditures or Tribal department expenses being presented forreimbursement on invoices from the Tribe. Supporting documentation for the invoices is not subsequently furnishedwith the invoice to the signing officials, and as such, the signers cannotensure that a material error or omission to Construction in Progress (“CIP”) orexpense accounts would be discovered on a timely basis.

 

3.               Subsequent to the completion of ourannual financial statement review process, a computational error was discoveredin the National Progressive Slot accruals and related fees.  The initial internal control procedures didnot detect an error in the percentage breakdown between the progressive slotaccruals included with net revenue and related progressive slot fees thatshould have been classified as an operating expense to the Casino Expensesbalance.  An audit adjustment wasrecorded as part of our close process to properly reflect such activity.

 

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4.               We did not maintain effective policies andprocedures related to fixed assets.  Inaddition, we do not have a formal procedure for assessing potential assetimpairments.

 

Becauseof the material weaknesses noted above, management has concluded that we didnot maintain effective internal control over financial reporting as of December 31,2007, based on the *InternalControl—Integrated Framework*issued by COSO.

 

**Remediationof Material Weaknesses in Internal Control Over Financial Reporting**

 

Wehave engaged in, and continue to engage in, substantial efforts to address thematerial weaknesses in our internal control over financial reporting and theineffectiveness of our disclosure controls and procedures.  We are in theprocess of remediating these material weaknesses through the following actions:

 

1.               Management intends to decrease itsreliance on the external auditors by subscribing to a service that providesregular updates and research capabilities related to SEC and accountingpronouncements, and where needed, hiring external consultants with appropriateSEC and GAAP expertise to assist in financial statement review, filing of SECreports, policy and procedure compilation assistance and other related advisoryservices.  Going forward, we will beimplementing the use of a disclosure checklist to ensure completeness of ourdisclosures.

 

2.               To gain increased visibility for thesigning officials to inter-governmental Tribal capital projects and expenses,management will plan regular meetings with the CFO of the Tribe to ensure goodcommunication is maintained between us and the Tribe.  The purpose of these meetings will be togather all data necessary to gain the understanding necessary to accountproperly for Construction in Progress and inter-governmental expenses prior tothe commencement of a contract with a selected vendor for CIP projects andprior to our quarterly or annual closing process.  Management also plans to hire a ProjectMonitor that will work directly with Construction in Progress vendors to monitoractual project costs as compared to budget and to estimate future costs inorder to ensure completeness of accrued liabilities.

 

3.               To ensure reconciliations of significantaccounts are performed at a level that will appropriately identify errors, suchas the progressive slot classification error that was referenced above, theController is compiling a detailed closing checklist.  The checklist will provide detailed stepsrequired to ensure account reconciliations are performed completely andaccurately at the close of quarterly and annual filing periods.  Finance and Accounting employees reviewingreconciliations will be required to sign each step as evidence of thecompletion of their review.

 

4.               Management plans to hire an employee withexperience in accounting for fixed assets to develop fixed asset policies andprocedures, including the fixed asset impairment review procedures discussedabove, and add needed support to our finance staff to ensure fixed assetaccounts are reconciled and reviewed in a timely manner and at a detailed levelto ensure completeness and accuracy.

 

Theforegoing initiatives will enable us to improve our internal controls overfinancial reporting.  Management is committed to continuing efforts aimedat fully achieving an operationally effective system of internal controls. The remediation efforts noted above are subject to our internal controlassessment, testing and evaluation process.

 

**Changesin Internal Control Over Financial Reporting**

 

There were nochanges in our internal control over financial reporting during the fourthquarter ended December 31, 2007 that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

**Item 9B. Other Information.**

 

None.

 

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**PART III**

 

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

 

We were formed in 2003 as an unincorporated instrumentality of theTribe. We are governed by a five-member Board of Directors consisting of thesame five members as those of the Tribe’s Board of Directors. The Tribe’s Boardof Directors is elected biennially by the Tribal Council (the approximately 548voting members of the Tribe), and includes a Chairperson, a Vice Chairperson, aSecretary-Treasurer and two members-at-large. The Secretary-Treasurer positionhas been vacant since December 12, 2006. Our last election took placeon October 7, 2006.  The members of our Board of Directors willserve for so long as they serve on the Tribe’s Board of Directors.

 

**Our Board of Directors**

 

The table below sets forth information about the current members of ourBoard of Directors:

 
| **Name**                      | ** ** | **Age** | ** ** | **Position(s) Held** |
|-------------------------------|------------|---------|------------|---------------------------|
|                          |       |    |       |                      |
| Betty  Arterberry             |       | 61      |       | Chairperson               |
| Margie  Rojes                 |       | 61      |       | Vice Chairperson          |
| Harvey  Hopkins               |       | 59      |       | Member                    |
| Augusto  “Gus” Pina |       | 64      |       | Member                    |
| Gabriel  Nevarez              |       | 44      |       | Member                    |

 

*Betty Arterberry*has served as Chairperson of our Board ofDirectors since July 18, 2006. Prior to that, Ms. Arterberry servedas Vice Chairperson since our inception. On July 18, 2006, Ms. Arterberryassumed the title of Chairperson of the Authority while also serving as theVice Chairperson of the Tribe’s Board of Directors. Prior thereto, Ms. Arterberrypreviously served as the Tribe’s Secretary-Treasurer for three consecutivetwo-year terms. Ms. Arterberry is currently employed at Sonoma CountyIndian Health Project as Chief Administrative Officer where she has workedsince 1977. Ms. Arterberry is a member of the National Congress ofAmerican Indians and the California Nations Indian Gaming Association andserves on various other national, state and tribal associations.

 

*Margie Rojes*has served as Vice Chairperson of our Boardof Directors since December 12, 2006. Prior to that, Ms. Rojes served as our Secretary-Treasurer of ourBoard of Directors since our inception. Ms. Rojes has also served as theSecretary-Treasurer of the Tribe’s Board of Directors since September 9,2001. Ms. Rojes served as member of the Board of Directors for the Tribefor the last four terms since 1994. Ms. Rojes retired from the WindsorElementary School District after 20 years of service. Ms. Rojes is amember of the National Congress of American Indians and the California NationsIndian Gaming Association and is the tribal delegate for Indian Child andFamily Preservation Program. She also serves as a member of the Finance andLegislative Committees for the Tribe.

 

*Harvey Hopkins* has served as Chairperson of the Tribe’s Board of Directors since November 20,2004.  Mr. Hopkins served as ourChairperson from November 20, 2004 to July 14, 2006. Mr. Hopkinsbegan a professional career in construction in 1970 and has been a licensedexcavating contractor for 29 years.  He grew up in Santa Rosa, California,and has been a lifelong member of the Dry Creek Rancheria.  He and hiswife 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 WestCoast for the past 15 years.

 

*Augusto “Gus” Pina* has served as a member of our Board ofDirectors since November 20, 2004. Mr. Pina retired as vice presidentof the Santa Rosa office of Bank of the West. Prior to joining Bank of the Westin 1992, Mr. Pina served in various managerial positions at Crocker Bankand Bank of America. Mr. Pina was honorably discharged from the US Navy in1964. Except during his service to the US Navy, Mr. Pina has lived inSonoma County his entire life. He has been a member of Rotary International,Cotati Planning Commissioner, Cotati Chamber President, former board member ofKRCB channel 22 and a former member of the Petaluma Boys & Girls Club.

 

41

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*Gabe Nevarez* has served as a member of our Board of Directors since October 7,2006. Mr. Nevarez had served on the Tribe’s Board of Directors as amember-at-large from 1998 through 2004. He had previously served on theAuthority’s Board of Directors as a member-at-large from its inception through November 2004.Mr. Nevarez has been employed in retail sales in Santa Rosa, CA since1986. Mr. Nevarez has previously served as a member of the Enrollment,Personnel, Housing and Legislative Committees of the Tribe.

 

**Executive Officers**

 

The table below sets forth information about certain key executiveofficers as of December 31, 2007.

 
| **Name**           | ** ** | **Age** | ** ** | **Position(s) Held**                 | ** ** |
|--------------------|------------|---------|------------|-------------------------------------------|------------|
| Shawn S. Smyth     |       | 59      |       | Chief  Executive Officer; General Manager |       |
| Joseph R. Callahan |       | 55      |       | Chief  Financial Officer                  |       |
| Anthony J. Averitt |       | 51      |       | Marketing  Manager                        |       |
| Willam D. Carnahan |       | 63      |       | Slot  Manager                             |       |

 

Set forth below is a brief description of the business experience ofour key executive officers. The following descriptions for our officers includeemployment by River Rock Casino as our predecessor.

 

**Shawn S. Smyth** has been our Chief Executive Officer andGeneral Manager since April 13, 2006.  Mr. Smyth has more than26 years experience in the gaming industry. He has been responsible fordeveloping, 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 adjacentcasinos. Prior to that, he was Chief Executive Officer of the Seven FeathersHotel and Casino Resort in Canyonville, Oregon, where he was responsible fordaily operations, strategic planning and master plan development. His previousexperience also includes 15 years as the Chief Executive Officer of CarsonValley Inn Properties in Minden, Nevada.

** **

**Joseph R. Callahan**has been our Chief Financial Officer since August 8,2007.  Mr. Callahan has a diverseCasino Executive background in Finance and Accounting, Hotel, Food and Beverageand Gaming Operations. Most recently, Mr. Callahan worked for FantasySprings Casino in Indio, California where he had been the Director of Accountingand Finance since 2005.  Prior to that he spent 5 years with Mohegan Sunwhere he was Finance Director specializing in Strategic Planning and Analysisand Labor and Productivity.  Mr. Callahanhas also spent several years working for Station Casinos in Las Vegas,Nevada as an Analyst, Finance Director and also Director of HotelOperations.  In 1994, Colonel Callahan retired from the U.S. Air Forceafter 20 years of service.

 

*Anthony J. Averitt*has been our Marketing Manager since August 2002.  Mr. Averitt has more than 13 years ofgaming experience and is responsible for the establishment and development ofour gaming facility’s marketing department, and all our marketing policies andprocedures. Prior to his employment at our gaming facility, Mr. Averittwas the Marketing Director for Casino Arizona in Scottsdale, Arizona from 1998through 2002.  Mr. Averitt helpeddevelop three casinos for the Salt River Pima – Maricopa Indian community, andformulated and managed the marketing, advertising and guestservice departments.

 

*William D. Carnahan* has been our Slot Manager since September 2002.With over 31 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 systems and progressivesystems 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.

 

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**Code of Ethics**

 

We have adopted a code of ethics that applies to all of our executiveofficers, including our Chief Executive Officer and Chief Financial Officer.Our code of ethics is available on our website at *www.riverrockcasino.com* under “Contact Us/InvestorRelations/Corporate Governance.” We will provide a copy of our code of ethicsto any person upon request in writing to us at our address.

 

**Item 11. Executive Compensation.**

 

**Compensation Discussion and Analysis**

 

**Philosophy**

 

Ourcompensation policies are designed to attract and retain key employees,motivating them to achieve and rewarding them for superior performance. We choose to pay competitive levels of base compensation and discretionarybonuses in order to attract and retain the necessary executive talent, rewardannual performance and provide incentive for their balanced focus on long-termstrategic goals as well as short-term performance. Since we believe theperformance of every employee is important to our success, we are mindful ofthe effect of executive compensation on all of our employees.

 

Webelieve that the compensation of our officers should reflect their success asan individual and as a management team, in attaining key operating objectives,such as growth of revenues and operating earnings. We believe that theperformance of the officers in managing our company, considered in light ofgeneral economic and specific company, industry and competitive conditions,should be the basis for determining their overall compensation. In setting ourofficers’ compensation, we intend to be competitive with other gamingcompanies. Our discretionary cash bonuses are an important element of ourability to recruit and retain talented employees and reward achievement sincewe do not pay any equity-based compensation.

 

**Overview of Compensation and Process**

 

Inlieu of a compensation committee, our Board of Directors acts as a whole tomake determinations regarding compensation of our executive officers. Elementsof compensation for our executives include: salary, incentive bonus, andbenefits such as health, disability, life insurance and perquisites. Basesalaries for our non-contracted executives and discretionary bonuses for allexecutives are set for our officers annually by the Board of Directors.

 

Aspart of its annual review of officer compensation, our Board of Directors takesinto account each officer’s total compensation from prior years, as well asinformation contained in compensation surveys. After reviewing the abovefactors, our Board of Directors makes the ultimate compensationdeterminations.  Compensationdeterminations relating to incentive bonuses to our Chief Executive Officer,Chief Operations Officer and Chief Financial Officer, as well as basecompensation, are determined solely by our Board of Directors.

 

Thefollowing are certain factors that our Board of Directors will also take intoaccount in determining the various components of our executive officers’ totalcompensation package:

 

·                  Performance against corporate and individualobjectives for the previous year;

·                  Difficulty of achieving desired results inthe coming year;

·                  Value of their unique skills and capabilitiesto support our long-term performance;

·                  Performance of their managementresponsibilities;

·                  Responsibility and authority of each positionrelative to other positions within the Authority; and

·                  Contributions as a member of the seniormanagement team.

 

Theseelements fit into our overall compensation objectives by helping to secure thefuture potential of our operations, providing proper compliance and regulatoryguidance, and helping to create a cohesive team.

 

43

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Inaddition to wages, the Authority provides all employees including executiveswith 401(k) match at 100% up to 5% of gross annual pay, paid medical,dental, vision, chiropractic, acupuncture and life insurance.  The Authority also provides insurance fordependents while paying for 50% of employee dependent premiums.

 

**Overview of 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.

 

**Retention Agreements**

 

Wedo not have individual retention agreements with any employee except forseverance arrangements with our Chief Executive Officer and Chief FinancialOfficer contained in their respective employment contracts that are discussedin Item 11 under “Employment Agreements.”

 

  **Compensation Committee Interlocks andInsider Participation**

 

Nomember of the Board of Directors has served as one of our officers or employeesat any time. None of our executive officers serve as a member of the Board ofDirectors of any other company that has an executive officer serving as amember of our Board.

 

**Boardof Directors**Report**

 

OurBoard of Directors has reviewed the Compensation Discussion and Analysis anddiscussed that analysis with management. Based on its review and discussionswith management, the Board of Directors has approved the CompensationDiscussion and Analysis and it is to be included in our Annual Report on Form 10-Kfor 2007. This report is provided by our full Board of Directors:

 

BettyArterberry, Chairperson

MargieRojes, Vice Chairperson

HarveyHopkins, Member

GusPina, Member

GabeNevarez, Member

 

**Executive Officers**

 

The following table provides summary information concerningcompensation of our Chief Executive Officer, former Chief Operations Officer,Chief Financial Officer and our two most highly compensated executive officersfor each of our fiscal years ended December 31, 2007, 2006 and 2005:

 

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| **Name and Principal Position** | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus (a)** | ** ** | **Other   Compensation (b)** | ** ** | **Total**  | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|--------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Shawn S. Smyth (c)                             |       | 2007       |       | $          | 324,038    |               | $          | 51,500                                 |       |       | $          | 18,753 |   |   | $ | 394,291 |   |
| Chief Executive Officer                        |       | 2006       |       | 182,692    |       | —             |       |                                   | 10,393     |       |       | 193,085 |   |
|                                           |       | 2005       |       | —     |       | —             |       |                                   | —     |       |       | — |   |
|                                           |       |       |       |       |       |               |       |                                   |       |       |       |   |   |
| Norman Runyan                                  |       | 2007       |       | $          | 380,265    |               | $          | 66,875                                 |       |       | 13,910     |   |   | $ | 461,050 |   |
| Chief Operations Officer (d)                   |       | 2006       |       | 263,317    |       | 62,500             |       |                                   | 13,467     |       |       | 339,284 |   |
|                                           |       | 2005       |       | 240,973    |       | 58,320             |       |                                   | 7,386      |       |       | 306,679 |   |
|                                           |       |       |       |       |       |               |       |                                   |       |       |       |   |   |
| David B. Wolfe                                 |       | 2007       |       | $          | 56,438     |               | $          | —                                 |       |       | 1,865      |   |   | $ | 58,303 |   |
| Chief Financial Officer (e)                    |       | 2006       |       | 66,807     |       | 11,250             |       |                                   | 1,975      |       |       | 80,032 |   |
|                                           |       | 2005       |       | —     |       | —             |       |                                   | —     |       |       | — |   |
|                                           |       |       |       |       |       |               |       |                                   |       |       |       |   |   |
| Joseph R. Callahan                             |       | 2007       |       | $          | 78,346     |               | $          | 19,587                                 |       |       | 2,182      |   |   | $ | 100,115 |   |
| Chief Financial Officer (f)                    |       | 2006       |       | —     |       | —             |       |                                   | —     |       |       | — |   |
|                                           |       | 2005       |       | —     |       | —             |       |                                   | —     |       |       | — |   |
|                                           |       |       |       |       |       |               |       |                                   |       |       |       |   |   |
| Anthony J. Averitt                             |       | 2007       |       | $          | 179,357    |               | $          | 26,434                                 |       |       | 7,658      |   |   | $ | 213,449 |   |
| Marketing Manager                              |       | 2006       |       | 181,651    |       | 19,063             |       |                                   | 13,075     |       |       | 213,789 |   |
|                                           |       | 2005       |       | 160,267    |       | 23,751             |       |                                   | 8,675      |       |       | 192,693 |   |
|                                           |       |       |       |       |       |               |       |                                   |       |       |       |   |   |
| William D. Carnahan                            |       | 2007       |       | $          | 151,650    |               | $          | 22,789                                 |       |       | 8,723      |   |   | $ | 183,162 |   |
| Slot Manager                                   |       | 2006       |       | 151,289    |       | 21,704             |       |                                   | 7,512      |       |       | 180,505 |   |
|                                           |       | 2005       |       | 136,875    |       | 20,304             |       |                                   | 10,703     |       |       | 167,882 |   |
|                                                |            |            |            |            |            |                    |            |                                        |            |            |            |  |  |  |  |  |  |

 

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(a)  Dollaramounts for bonuses are not guaranteed and represent the maximum amount thatthe principal officer may receive.

(b)  “OtherCompensation” includes medical, dental, vision and other health benefitsprovided.

(c)  Shawn S. Smyth began serving as our ChiefExecutive Officer in April 2006.

(d)  Norman Runyan, our former Chief OperationsOfficer, served until his resignation on November 14, 2007.  This position was vacant as of December 31,2007.

(e)  DavidB. Wolfe, our former Chief Financial Officer, served until his resignation on April 11,2007.

(f)  Joseph R. Callahan began serving as our ChiefFinancial Officer as of August 8, 2007.

 

**Employment Agreements**

 

We amended an employment agreement with Mr. ShawnSmyth on July 30, 2007 to continue to serve as our Chief ExecutiveOfficer. This three year amendment to the original employment agreementcommenced as of July 30, 2007, and provides Mr. Smyth a base annualsalary of $300,000 and a discretionary bonus, as determined by our Board, ofnot more than 25% of his annual salary based on various criteria.  If Mr. Smyth’s employment is terminatedfor other reasons set forth in the employment agreement including death ordisability, Mr. Smyth will be entitled to his salary for threemonths.  Either party may terminate theagreement with a 90 day written notice.

 

We entered into an employment agreement with Mr. JosephR. Callahan on October 17, 2007 effective as of August 8, 2007 toserve as our Chief Financial Officer. This three year employment agreementcommenced on August 8, 2007, and provides Mr. Callahan an annualsalary of $225,000 and a discretionary bonus, as determined by our Board, ofnot more than 25% of his annual salary based on various criteria.  If Mr. Callahan’s employment isterminated for other reasons set forth in the employment agreement includingdeath or disability, Mr. Callahan will be entitled to his salary for threemonths.  Either party may terminate theagreement with a 30 day written notice.

 

We have no other employment agreements withour principal executive officers. Compensation for our principal executive officers other than thosesubject to employment agreements is set based on the following criteria:

 

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·                  Performance against corporate and individualobjectives for the previous year;

·                  Difficulty of achieving desired results inthe coming year;

·                  Value of their unique skills and capabilitiesto support our long-term performance;

·                  Performance of their managementresponsibilities;

·                  Responsibility and authority of each positionrelative to other positions within the Authority; and

·                  Contributions as a member of the seniormanagement team.

 

**Compensation of Our Board**

 

We are governed by a five-member Board of Directorsconsisting of the same five members as those of the Tribe’s Board of Directors.The Tribe compensates members of each Board of Directors for the services theyrender. In 2006, we reimbursed the Tribe for 50% of the total compensation ofthe Board members reflecting an estimate of the total time allocable toAuthority Board matters. In 2007, we reimbursed the Tribe for 50% of the totalcompensation of the Board members. The members of the Board of Directorsreceived the following amounts for their service as members of the Tribe’sBoard of Directors and as members of the Authority’s Board of Directors for thefiscal year 2007:

** **
| **Name**           | ** ** | **Title**         | ** ** | **Fees Paid in   Cash** | ** ** | **All Other   Compensation** | ** ** | **Total** | ** ** |
|--------------------|------------|-------------------|------------|----------------------------------------|------------|----------------------------------------|------------|-----------|------------|
| Betty Arterberry   |       | Chairperson       |       | $                                      | 70,000     |                                   | $          | —    |       | $ | 70,000 |   |
| Margie Rojes       |       | Vice  Chairperson |       | 60,000                                 |       | —                                 |       | 60,000    |       |
| Harvey Hopkins (a) |       | Board Member      |       | 100,000                                |       | —                                 |       | 100,000   |       |
| Gus Pina           |       | Board Member      |       | 40,000                                 |       | —                                 |       | 40,000    |       |
| Gabe Nevarez       |       | Board Member      |       | 40,000                                 |       | —                                 |       | 40,000    |       |
|                    |            |                   |            |                                        |            |                                        |            |           |            |  |  |  |

 

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(a)          Mr. Hopkins is Chairman of the Board ofDirectors of the Tribe.

 

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

 

We have no outstanding equity securities.

 

**Item 13.****CertainRelationships and Related Transactions.**

 

Distributions to the Tribe were $12.4 million, $15.5million and $11.2 million for the years ended December 31, 2007, 2006 and2005, respectively. Under the Indenture, we currently are restricted from makingpayments to the Tribe other than payments specifically permitted by ourIndenture.

 

The Tribe has incurred expenses on behalf ofthe Authority that relate to the master planning of the proposed resort andTribal infrastructure that benefit the Authority.  Total expenses incurred and subsequentlyreimbursed to the Tribe for the twelve months ended December 31, 2007 were$4.6 million.  No amounts were incurredor reimbursed in 2006 or 2005.

 

The Tribe has incurred an additional $5.6 million incosts relating to the master planning of the proposed resort. While the Tribehas not made any request to us for reimbursement of such amount, it may requestreimbursement from us in the future.  While we have no obligation to paysuch amounts when requested and any such reimbursement would need to beapproved by management and our Board of Directors, there is a possibility thatsuch request for reimbursement may be made by the Tribe. Prior to making anyreimbursement payment, we will consider various factors, including, but notlimited to, whether the costs incurred were actually related to the masterplanning, whether such costs are beneficial to our gaming business andexpansion plans, the reasonableness of such costs, the availability of cash andwhether the reimbursement payment is in compliance with the covenants in theIndenture for the Outstanding Notes.

 

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The Tribe has, or currently intends to, enter into contracts withvarious design, engineering and testing consultants to perform geotechnicalengineering, geological services, civil engineering, traffic planning andengineering services, wastewater disposal evaluation and geotechnicalinvestigation services, land surveying and civil engineering design services,landscape architectural design services, construction testing and inspectingservices that will benefit the Casino. We intend to make payments under thesecontracts on behalf of the Tribe. Through December 31, 2007, we have madepayments of approximately $9.6 million pursuant to such design,engineering and testing contracts.

 

The Tribe enacted a tribal gaming ordinance in April 1997, which,among other matters, created and established the TGA as a governmentalsubdivision of the Tribe. The TGA is responsible for the regulation of allgaming activities conducted by the Tribe or us on tribal lands. We pay forvarious expenses of the TGA (gaming commission expense), surveillance, plantoperations, human resources, and as of May 8, 2006, purchasing andwarehouse. All of these departments are operated by the Tribe. These expensesinclude but are not limited to payroll and related expenses, legal and otheroperational expenses.   These expenseswere $7.2 million for FY 2007, $6.2 million for FY 2006 and $4.7 million for FY2005.

 

The Tribe is obligated to remit certain fees to the CGCC on a quarterlybasis for inclusion in the RSTF. The RSTF is for the benefit of tribes inCalifornia that have no or limited gaming. We pay these fees on behalf of theTribe. Compact revenue sharing trust fund expense remained the same at $1.3million for FY 2007 and FY 2006. Compact revenue sharing trust fund expenseincludes payments associated with operating 1,600 gaming devices. These feesbecame payable by the Tribe when we commenced operations in September 2002,and are based on the number of our gaming device licenses. Compact revenuesharing trust fund expense includes payments to the RSTF as required by ourCompact with the State of California.

 

We have pledged a cash gift, on behalf of the Tribe, to the GeyservilleUnified School District in the amount of $1.2 million, to be provided inequal parts during each of the 2003 through 2007 school years. The cashdonation to the school district is a gift and not part of any revenue sharingagreement with state or local government. On July 1, 2007 the Tribe and the Authority amended the $1.2million dollar pledge to continue through December 31, 2007, whichincreased the total pledge to by $150,000 to $1.4 million.  The amended amount was paid equally by theTribe and the Authority and as of December 31, 2007 the entire pledge of$1.4 million has been satisfied.

 

Pursuant to the MOA, theTribe has agreed to pay the County up to $75 million in mitigation fees overthe next 12 years to offset impacts of the potential losses and impacts to theCounty resulting from the Tribe’s various ongoing projects and are intended tosupport the services being provided by the County.  In addition to the mitigation fees, the Tribewill pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of9% of the rental collected on occupied hotel rooms, to be paid quarterly andcontinuing for five years after the later to occur of the termination of theMOA, as may be extended, or the Tribe’s Compact with the State (which is nowterminable in 2020 at the earliest), which fees may be applied to programs andservices that serve to promote tourism in the County. Such in lieu fees couldtotal as much as $25 million during the term of the MOA.  It is currently unclear to us what, if any,amounts we will be requested to pay to the Tribe to fund its obligationspursuant to the MOA.

 

47

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** **

**Item 14.  Principal Accounting Fees and Services.**

 

Thefollowing table sets forth the aggregate fees billed for professional servicesrendered by Deloitte & Touche LLP, for the audit of our annualfinancial statements for FY 2007 and FY 2006 and the aggregate fees billed foraudit-related services and all other services rendered by Deloitte &Touche LLP for FY 2007 and FY 2006.

 
| ** **         | ** ** | **Fiscal Year  2007** | ** ** | **Fiscal Year  2006** | ** ** |
|--------------------|------------|----------------------------|------------|----------------------------|------------|
|               |       |                       |       |                       |       |
| Audit Fees         |       | $                          | 317,376    |                       | $          | 256,597 |   |
| Audit-Related Fees |       | —                     |       | —                     |       |
| All Other Fees     |       | 55,191                     |       | 24,500                     |       |
|                    |            |                            |            |                            |            |  |  |

 

Thecategory of “Audit Fees” includes fees for our annual audit, quarterly reviewsand services rendered in connection with statutory and regulatory filings, orengagements for those fiscal years.

 

Thecategory of “Audit-Related Fees” includes aggregate fees billed in each of thelast two fiscal years, for assurance and related services by the principalaccountant, that are reasonably related to the performance of the audit orreview of the Authority’s financial statements.

 

Thecategory of “All Other Fees” includes aggregate fees billed in each of the lasttwo fiscal years which are not covered by the above categories.

 

Allabove audit services were pre-approved by the TGA, which, under the Compact,has responsibility for ensuring that the audit is performed. The TGA concludedthat the provision of such services by Deloitte & Touche LLP wascompatible with the maintenance of that firm’s independence in the conduct ofauditing functions. The TGA’s outside auditor independence policy provides forpre-approval of all services performed by the outside auditors.

 

**PART IV**

 

**Item 15. Exhibits, FinancialStatement Schedules and Reports on Form 8-K.**

 

**A. Financial Statements**

 

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

 

1.The following financial statements of the Authority and the Report of Deloitte &Touche LLP, independent registered public accounting firm, appear on pages 53through 67 of this Form 10-K and are incorporated by reference in Part II,Item 8:

 

Reportof Independent Registered Public Accounting Firm

 

BalanceSheets of the River Rock Entertainment Authority as of December 31, 2007and 2006

 

Statementsof Revenues, Expenses and Changes in Fund Deficit for the Years Ended December 31,2007, 2006 and 2005

 

Statementsof Cash Flows for the Years Ended December 31, 2007, 2006 and 2005

 

Notesto Financial Statements for the Years Ended December 31, 2007, 2006 and2005

 

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2.List of financial statement schedules. All schedules are omitted because theyare not applicable or the required information is shown in the financialstatements or notes thereto.

 

3.List of exhibits required by Item 601 of Regulation S-K. See part (B.) below.

 

(b) *Reports on Form 8-K.*The followingcurrent reports were filed on Form 8-K for the year ended December 31,2007:

 

CurrentReport on Form 8-K filed on February 5, 2007

 

CurrentReport on Form 8-K filed on March 7, 2007

 

CurrentReport on Form 8-K filed on April 12, 2007

 

CurrentReport on Form 8-K filed on June 28, 2007

 

CurrentReport on Form 8-K filed on August 2, 2007

 

CurrentReport on Form 8-K filed on August 9, 2007

 

CurrentReport on Form 8-K filed on October 23, 2007

 

CurrentReport on Form 8-K filed on November 20, 2007

 

**B. Exhibits.**

 

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

 

**EXHIBITINDEX**

 
| **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)                                                                                                                                                        |

 

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| 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)                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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                                                                                                                                                                                                                                                                                                                                                                  |

 

50

----

 
|   |   | 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)                                          |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.17  |   | Employment Agreement,  dated as of August 8, 2007, by and between the Authority and Joseph R.  Callahan (filed as Exhibit 10.1 to the Form 8-K filed with the SEC  on October 23, 2007, and incorporated by reference herein).                                   |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.18  |   | 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)                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.19  |   | 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)                                                                        |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.20  |   | 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)                                           |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.21  |   | Amendment No. 2 to  Lease Agreement, dated as of August 29, 2005, by and between the Tribe  and Sprung Instant Structures, Inc. (filed as Exhibit 10.20 to the  Form 10-K filed with the SEC on April 17, 2007, and incorporated by  reference herein) |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.22  |   | Memorandum of Agreement  between the Dry Creek Rancheria Band of Pomo Indians and the County of  Sonoma, California, together with exhibits thereto (filed herewith as  Exhibit 10.22)                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                 |
| 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 Joseph  R. Callahan, Chief 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)                                                                                           |

 

51

----

 
| 32.2* |   | Certification by Joseph  R. Callahan, Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith) |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

| * | These  certifications are being 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 the Securities Exchange Act of 1934 and are not to be  incorporated by reference into any filing of River Rock Entertainment  Authority whether made before or after the date hereof, regardless of any  general incorporation language in such filing. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Supplemental Information to be Furnished With Reports FiledPursuant to Section 15(d) of the Act by Registrants Which Have NotRegistered Securities Pursuant to Section 12 of the Act**

 

Theregistrant has not sent an annual report or proxy statement to securityholders. The registrant will not be sending an annual report or proxy statementto its security holders subsequent to the filing of this Form 10-K.

 

52

----

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

The Board of Directors of River Rock EntertainmentAuthority

 

We have audited the accompanying balance sheets ofthe River Rock Entertainment Authority (the “Authority”), a governmentalinstrumentality of the Dry Creek Rancheria Band of Pomo Indians (the “Tribe”),as of December 31, 2007 and 2006, 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, 2007. These financial statementsare the responsibility of the Authority’s management. Our responsibility is toexpress an opinion on the financial statements 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 obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. The Authority is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting.Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances but not for the purpose of expressing an opinion on theeffectiveness of the Authority’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that 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, 2007 and 2006, and the revenuesand expenditures and changes in fund deficit and the cash flows for each of thethree years in the period ended December 31, 2007 in conformity withaccounting principles 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.

 

 

/s/ Deloitte & Touche LLP

 

San Francisco, CAApril 14, 2008

 

53

----

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

**BALANCE SHEETSDECEMBER 31, 2007 AND 2006**

 
| ** **                                      | ** ** | **December 31, 2007** | ** **  | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **                      | ** **  | ** **                      | ** ** |
|                                            |       |                            |        |                            |       |
| CURRENT  ASSETS:                                |       |                            |        |                            |       |
| Cash and  cash equivalents                      |       | $                               | 46,533,389  |                            | $          | 32,549,001 |   |
| Restricted  cash-current                        |       | 466,517                         |        | 467,997                         |       |
| Accounts  receivable                            |       | 307,386                         |        | 203,555                         |       |
| Inventories                                     |       | 153,215                         |        | 160,601                         |       |
| Prepaid  expenses and other current assets      |       | 1,427,891                       |        | 1,396,289                       |       |
|                                            |       |                            |        |                            |       |
| Total  current assets                           |       | 48,888,398                      |        | 34,777,443                      |       |
|                                            |       |                            |        |                            |       |
| RESTRICTED  CASH - net of current               |       | 6,868,956                       |        | 6,780,256                       |       |
|                                            |       |                            |        |                            |       |
| PROPERTY AND  EQUIPMENT:                        |       |                            |        |                            |       |
| Buildings  and building improvements            |       | 129,642,521                     |        | 129,245,481                     |       |
| Furniture,  fixtures and equipment              |       | 29,969,430                      |        | 27,110,280                      |       |
|                                            |       |                            |        |                            |       |
| Accumulated  depreciation                       |       | (44,460,665                     | )           | (32,696,126                     | )          |
| Construction  in progress                       |       | 9,256,830                       |        | 4,385,195                       |       |
|                                            |       |                            |        |                            |       |
| Property and  equipment-net                     |       | 124,408,116                     |        | 128,044,830                     |       |
|                                            |       |                            |        |                            |       |
| DEPOSITS AND  OTHER ASSETS                      |       | 4,339,002                       |        | 5,266,658                       |       |
|                                            |       |                            |        |                            |       |
| TOTAL ASSETS                                    |       | $                               | 184,504,472 |                            | $          | 174,869,187 |   |
|                                            |       |                            |        |                            |       |
| **LIABILITIES  AND FUND DEFICIT**               |       |                            |        |                            |       |
|                                            |       |                            |        |                            |       |
| CURRENT  LIABILITIES:                           |       |                            |        |                            |       |
| Accounts  payable:                              |       |                            |        |                            |       |
| Trade                                           |       | $                               | 3,563,243   |                            | $          | 2,500,226 |   |
| Construction                                    |       | 466,517                         |        | 467,997                         |       |
| Accrued  liabilities                            |       | 7,566,821                       |        | 7,094,168                       |       |
| Current  maturities of long-term debt           |       | 213,172                         |        | 642,413                         |       |
|                                            |       |                            |        |                            |       |
| Total  current liabilities                      |       | 11,809,753                      |        | 10,704,804                      |       |
|                                            |       |                            |        |                            |       |
| LONG-TERM  DEBT - net of current maturities     |       | 198,747,638                     |        | 198,500,275                     |       |
|                                            |       |                            |        |                            |       |
| Total  long-term liabilities                    |       | 198,747,638                     |        | 198,500,275                     |       |
|                                            |       |                            |        |                            |       |
| COMMITMENTS  AND CONTINGENCIES                  |       |                            |        |                            |       |
|                                            |       |                            |        |                            |       |
| FUND  DEFICIT:                                  |       |                            |        |                            |       |
| Invested in  capital assets-net of related debt |       | (74,552,694                     | )           | (71,097,858                     | )          |
| Restricted  for capital projects                |       | 7,335,473                       |        | 7,248,253                       |       |
| Unrestricted                                    |       | 41,164,302                      |        | 29,513,713                      |       |
|                                            |       |                            |        |                            |       |
| Total fund  deficit                             |       | (26,052,919                     | )           | (34,335,892                     | )          |
|                                            |       |                            |        |                            |       |
| TOTAL  LIABILITIES AND FUND DEFICIT             |       | $                               | 184,504,472 |                            | $          | 174,869,187 |   |

 

The accompanying notes arean integral part of these financial statements.

 

54

----

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

**STATEMENTSOF REVENUES, EXPENSES AND CHANGES IN FUND DEFICITYEARS ENDED DECEMBER 31, 2007, 2006 AND 2005**

 
| ** **                                  | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|---------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| REVENUES:                                   |       |        |        |        |       |        |       |
|                                        |       |        |        |        |       |        |       |
| Casino                                      |       | $           | 145,714,135 |        | $          | 136,294,029 |       | $ | 132,831,172 |   |
| Food,  beverage & retail           |       | 7,516,412   |        | 6,244,262   |       | 6,920,246   |       |
| Other                                       |       | 614,939     |        | 622,605     |       | 662,894     |       |
|                                        |       |        |        |        |       |        |       |
| Gross  revenues                             |       | 153,845,486 |        | 143,160,896 |       | 140,414,312 |       |
|                                        |       |        |        |        |       |        |       |
| Promotional  allowances                     |       | (14,467,530 | )           | (12,541,699 | )          | (6,855,551  | )          |
|                                        |       |        |        |        |       |        |       |
| Net revenues                                |       | 139,377,956 |        | 130,619,197 |       | 133,558,761 |       |
|                                        |       |        |        |        |       |        |       |
| OPERATING  EXPENSES:                        |       |        |        |        |       |        |       |
| Casino                                      |       | 23,375,622  |        | 20,454,077  |       | 19,187,233  |       |
| Food,  beverage & retail           |       | 4,640,121   |        | 5,996,913   |       | 6,311,028   |       |
| Selling,  general and administrative        |       | 43,978,609  |        | 39,903,231  |       | 46,174,080  |       |
| Depreciation                                |       | 11,800,855  |        | 11,502,565  |       | 11,012,094  |       |
| Credit  enhancement fee                     |       | 11,348,897  |        | 8,078,806   |       | 7,669,147   |       |
| Gaming  commission and surveillance expense |       | 3,023,303   |        | 3,154,384   |       | 2,773,369   |       |
| Compact  revenue sharing trust fund         |       | 1,335,000   |        | 1,335,000   |       | 1,335,000   |       |
|                                        |       |        |        |        |       |        |       |
| Total  Operating expenses                   |       | 99,502,407  |        | 90,424,976  |       | 94,461,951  |       |
|                                        |       |        |        |        |       |        |       |
| INCOME FROM  OPERATIONS                     |       | 39,875,549  |        | 40,194,221  |       | 39,096,810  |       |
|                                        |       |        |        |        |       |        |       |
| OTHER  EXPENSE-Net:                         |       |        |        |        |       |        |       |
| Interest  expense                           |       | (20,871,677 | )           | (20,883,967 | )          | (21,046,944 | )          |
| Interest  income                            |       | 1,700,885   |        | 1,045,942   |       | 332,122     |       |
| Gain (loss)  on sale of assets              |       | 4,547       |        | (126,394    | )          | (104,117    | )          |
| Other income  (expense), net                |       | 869         |        | (640        | )          | (1,683      | )          |
|                                        |       |        |        |        |       |        |       |
| Other  expense-net                          |       | (19,165,376 | )           | (19,965,059 | )          | (20,820,622 | )          |
|                                        |       |        |        |        |       |        |       |
| INCOME  BEFORE DISTRIBUTIONS TO TRIBE       |       | 20,710,173  |        | 20,229,162  |       | 18,276,188  |       |
|                                        |       |        |        |        |       |        |       |
| TRIBAL  CONTRIBUTIONS (DISTRIBUTIONS):      |       |        |        |        |       |        |       |
| Contributions  from the Tribe               |       | —      |        | 1,381,137   |       | —      |       |
| Distributions  to the Tribe                 |       | (12,427,200 | )           | (15,521,137 | )          | (11,180,000 | )          |
|                                        |       |        |        |        |       |        |       |
| NET INCOME  AFTER TRIBAL DISTRIBUTIONS      |       | 8,282,973   |        | 6,089,162   |       | 7,096,188   |       |
|                                        |       |        |        |        |       |        |       |
| FUND  DEFICIT-Beginning of period           |       | (34,335,892 | )           | (40,425,054 | )          | (47,521,242 | )          |
|                                        |       |        |        |        |       |        |       |
| FUND  DEFICIT-End of period                 |       | $           | (26,052,919 | )           | $          | (34,335,892 | )          | $ | (40,425,054 | ) |

 

The accompanying notes are an integral part of these financialstatements.

 

55

----

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

**STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2007, 2006 AND 2005**

 
| ** **                                                                                             | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                                                 |       |        |        |        |       |        |       |
| Cash received  from gaming winnings and concessions                                                    |       | $           | 139,274,125 |        | $          | 130,439,469 |       | $ | 133,203,873 |   |
| Cash paid  for salaries and benefits                                                                   |       | (28,936,485 | )           | (27,675,936 | )          | (30,268,234 | )          |
| Cash paid to  suppliers                                                                                |       | (43,787,259 | )           | (40,878,038 | )          | (45,851,753 | )          |
| Cash paid  for compact revenue sharing trust fund                                                      |       | (1,335,000  | )           | (1,335,000  | )          | (1,335,000  | )          |
|                                                                                                   |       |        |        |        |       |        |       |
| Net cash  provided by operating activities                                                             |       | 65,215,381  |        | 60,550,495  |       | 55,748,886  |       |
|                                                                                                   |       |        |        |        |       |        |       |
| CASH FLOWS  FROM CAPITAL AND RELATED FINANCING ACTIVITIES:                                             |       |        |        |        |       |        |       |
| Payments of  long-term debt                                                                            |       | (835,207    | )           | (522,311    | )          | (10,478,627 | )          |
| Purchases of  property and equipment                                                                   |       | (7,876,958  | )           | (4,474,546  | )          | (17,456,371 | )          |
| Change in  restricted cash                                                                             |       | (87,220     | )           | 125,228     |       | 8,828,240   |       |
| Interest  paid                                                                                         |       | (19,512,732 | )           | (19,525,022 | )          | (19,763,000 | )          |
| Credit  enhancement fee                                                                                |       | (12,131,967 | )           | (7,981,395  | )          | (7,372,759  | )          |
| Proceeds  from sale of fixed assets                                                                    |       | 33,445      |        | 27,350      |       | 9,500       |       |
| Other                                                                                                  |       | (94,039     | )           | (206,398    | )          | 362,841     |       |
|                                                                                                   |       |        |        |        |       |        |       |
| Net cash  used in capital and related financing activities                                             |       | (40,504,678 | )           | (32,557,094 | )          | (45,870,176 | )          |
|                                                                                                   |       |        |        |        |       |        |       |
| CASH FLOW  FROM INVESTING ACTIVITIES:                                                                  |       |        |        |        |       |        |       |
| Interest  Income                                                                                       |       | 1,700,885   |        | 1,045,942   |       | 332,122     |       |
|                                                                                                   |       |        |        |        |       |        |       |
| CASH FLOW  FROM NON-CAPITAL FINANCING ACTIVITIES:                                                      |       |        |        |        |       |        |       |
| Distributions  to Tribe                                                                                |       | (12,427,200 | )           | (15,521,137 | )          | (11,180,000 | )          |
| Contributions  from Tribe                                                                              |       | —      |        | 1,381,137   |       | —      |       |
| Net cash  used in non-capital financing activites                                                      |       | (12,427,200 | )           | (14,140,000 | )          | (11,180,000 | )          |
|                                                                                                   |       |        |        |        |       |        |       |
| CHANGE IN  CASH AND CASH EQUIVALENTS                                                                   |       | 13,984,388  |        | 14,899,343  |       | (969,168    | )          |
|                                                                                                   |       |        |        |        |       |        |       |
| CASH AND  CASH EQUIVALENTS, Beginning of the period                                                    |       | 32,549,001  |        | 17,649,658  |       | 18,618,826  |       |
|                                                                                                   |       |        |        |        |       |        |       |
| CASH AND  CASH EQUIVALENTS, End of the period                                                          |       | $           | 46,533,389  |        | $          | 32,549,001  |       | $ | 17,649,658 |   |
|                                                                                                   |       |        |        |        |       |        |       |
| RECONCILIATION  OF INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING  ACTIVITIES: |       |        |        |        |       |        |       |
| Income  before Distributions to Tribe                                                                  |       | $           | 20,710,173  |        | $          | 20,229,162  |       | $ | 18,276,188 |   |
|                                                                                                   |       |        |        |        |       |        |       |
| Adjustments  to reconcile operating income to net cash provided by operating activities:               |       |        |        |        |       |        |       |
| Depreciation                                                                                           |       | 11,800,855  |        | 11,502,565  |       | 11,012,094  |       |
| Interest Expense, net                                                                                  |       | 20,871,677  |        | 20,883,967  |       | 21,046,944  |       |
| Interest Income                                                                                        |       | (1,700,885  | )           | (1,045,942  | )          | (332,122    | )          |
| Credit enhancement fee                                                                                 |       | 11,348,897  |        | 8,078,806   |       | 7,669,147   |       |
| (Gain) Loss on sale of assets                                                                          |       | (4,547      | )           | 126,394     |       | 104,117     |       |
| Changes in operating assets and  liabilities:                                                          |       |        |        |        |       |        |       |
| Accounts  receivable                                                                                   |       | (103,831    | )           | (110,303    | )          | (39,456     | )          |
| Inventories                                                                                            |       | 7,386       |        | (1,167      | )          | 223,977     |       |
| Prepaid  expenses and other current assets                                                             |       | (31,602     | )           | 31,617      |       | (654,075    | )          |
| Accounts  payable                                                                                      |       | 1,061,537   |        | 322,195     |       | (1,220,143  | )          |
| Accrued  liabilities                                                                                   |       | 1,255,721   |        | 533,201     |       | (337,785    | )          |
| Total  adjustments                                                                                     |       | 44,505,208  |        | 40,321,333  |       | 37,472,698  |       |
|                                                                                                   |       |        |        |        |       |        |       |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                             |       | $           | 65,215,381  |        | $          | 60,550,495  |       | 55,748,886 |   |
|                                                                                                   |       |        |        |        |       |        |       |
| SUPPLEMENTARY  SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES:                      |       |        |        |        |       |        |       |
| Acquisition  of property and equipment through third party financing                                   |       | $           | 316,080     |        | $          | 980,995     |       | $ | 224,267 |   |
| Acquisition  of property and equipment through                                                         |       |        |        |        |       |        |       |
| Accounts  Payable Construction                                                                         |       | $           | —      |        | $          | 467,997     |       | $ | 666,517 |   |

 

The accompanying notes arean integral part of these financial statements.

 

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** **

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

 

**1.**                            DESCRIPTION OF BUSINESS

** **

River Rock Entertainment Authority (the “Authority”)is a governmental instrumentality of the Dry Creek Rancheria Band of PomoIndians (the “Tribe”), a federally recognized Indian tribe. River Rock Casino(the “Casino”) is a governmental development project of the Authority. TheCasino offers Class III gaming (as defined by the Indian Gaming RegulatoryAct) on tribal land located in Geyserville, California. The legal authority forslot machines and table games is provided by the Tribe’s gaming compact withthe State of California (the “Compact”), which was entered into in September 1999and became effective upon approval by the Secretary of Interior on May 5,2000.  The Compact expires on December 31,2020.

 

The Tribe opened a portion of the Casino on September 14,2002. Following completion of construction the Casino was fully opened on April 1,2003.

 

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

 

The Authority operates as a separate, whollyowned operating unit of the Tribe and is not a separate legal entity. Thesefinancial statements reflect the financial position and activity of only theAuthority and do not purport to represent the financial position and activityof the Tribe.

 

**2.**                            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Standards—The Authority preparesits financial statements in accordance with accounting principles generallyaccepted in the United States of America (“generally accepted accountingprinciples”). The financial statements presented are prepared on the accrualbasis of accounting from the accounts and financial transactions of theAuthority. Generally accepted accounting principles require the Authority toapply all applicable pronouncements of the Governmental Accounting Standards Board(“GASB”). The Authority is also required to follow Financial AccountingStandards Board (“FASB”) Statements and Interpretations, Accounting PrinciplesBoard Opinions and Accounting Research Bulletins issued on or before November 30,1989, unless those pronouncements conflict with or contradict GASBpronouncements.  The Authority is giventhe option whether to apply all FASB Statements and Interpretations issuedafter November 30, 1989, except for those that conflict with or contradictGASB pronouncements. Accordingly, the Authority has elected to implement nonconflicting FASB Statements and Interpretations issued after November 30,1989.

 

There are differences between financialstatements prepared in accordance with GASB pronouncements and those preparedin accordance with FASB pronouncements. The statements of revenues, expensesand changes in fund deficit is a combined statement under GASB pronouncements,FASB pronouncements 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.  The amount shown as income beforedistributions to Tribe would not be different if the Authority followed all FASBpronouncements to determine net income and would be the most comparable amountto net income computed under FASB pronouncements. The Authority is a separatefund of the 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 September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*.SFAS No. 157 defines fair value, establishes a framework for measuringfair value in accordance with generally accepted accounting principles, andexpands disclosures about fair value measurements. The provisions of SFAS No. 157are effective for the fiscal year beginning January 1, 2008. The futureimpact of the adoption of SFAS No. 157 by the Authority has not yet beenevaluated.

 

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In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial 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 Authorityconsiders all highly liquid investments with a maturity of three months or lessat date of purchase as cash equivalents. The carrying amount of cash and cashequivalents approximates its fair value. Cash and cash equivalents include cashon 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, consistingprincipally of gaming supplies and food and beverage items, are stated at thelower of cost (first-in, first-out) or market value.

 

Restricted Cash—Restricted cash consists ofestimated construction expenses for three parking structures, relatedinfrastructure improvements and construction contingencies. It also includesfunds that are reserved for additional construction contingencies and the fundsnecessary to develop an approximately 18 acre parcel of land adjacent to theTribe’s reservation. These funds are held in escrow accounts which arerestricted for authorized construction disbursements. These escrow accounts areinvested in CDs, which generate interest on a monthly basis. The FDIC hasinsured $100,000 of this balance. The Authority believes that there is littlerisk of loss regarding the uninsured amounts of restricted cash held in theescrow account. Restricted cash was $7,335,473 and $7,248,253 at December 31,2007 and December 31, 2006, respectively. As of December 31, 2007, restricted cash includes amounts availablefor construction of $2,751,535 and land development funds of $4,583,296.

 

Property and Equipment—Property and equipmentare stated 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 |
|-----------------------------------|--------|----------|
| Furniture, fixtures and equipment |   | 5 years  |

 

The Authority evaluates its property andequipment for impairment in accordance with the FASB’s Statement of FinancialAccounting Standards (“SFAS”) No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*. When events orcircumstances indicate that an asset should be reviewed for impairment, theAuthority compares the undiscounted cash flows derived from the asset or assetgroup to the net carrying value. If impairment is indicated, the impairmentloss is measured by the amount in which the carrying value of the asset orasset group exceeds its fair value. Fair value is measured by comparable sales,solicited offers or discounted cash flow models.

 

Capitalized Interest—The interest costassociated with major development and construction projects is capitalized andincluded in the cost of the asset. Capitalization of interest ceases when theproject is substantially complete or development activity is suspended.  There was no capitalized interest for theyears ended December 31, 2007 and 2006.

 

Deposits and Other Assets—As of December 31,2007 and December 31, 2006, deposits and other assets include $3,918,837and $4,940,532 in unamortized bond discount, legal fees and other issuancecosts related to the issuance of the Notes, $350,485 and $0 of deferredfinancing fees, $41,883 and $0 of equipment deposits, $11,372 and $213,218 ofperformance deposits and $16,425 and $112,908 of rental deposits.  Deferred loan costs are amortized using theeffective interest method to interest expense over the term of the relatedfinancial arrangement.

 

Accrued Liabilities—Accrued liabilitiesconsist of accrued interest, accrued payroll, accrued credit enhancement feeand other accrued liabilities.

 

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Accrued Progressive Slot Jackpots—Accruedprogressive slot jackpots consist of estimates for prizes relating to variousgames that have accumulated jackpots. The Authority has recorded the cost ofthese anticipated payouts as a reduction of Casino revenues, and the cost isincluded as a component of accrued liabilities.

 

Accrued Slot Players Club—In accordance withEmerging Issues 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 industrypractice, the Authority recognizes as casino revenue the net win from gamingactivities, which is the difference between gaming wins and losses. Casinorevenues are net of accruals for anticipated payouts of progressive slotjackpots.

 

Food, Beverage and Retail—The Authorityrecognizes as food, beverage and retail revenues the proceeds from its food,beverage and gift shop sales. The Authority continues to distribute beveragesfreely in the gaming area for playing guests.

 

Other Revenues—Other revenues are comprisedof commissions on ATM and vending machine transactions.

 

Promotional Allowances—The retail value offood and beverages provided to playing customers without charge is included ingross revenues and then deducted as promotional allowances.  Such amounts that are included in Food,beverage and retail revenues for the years ended December 31, 2007, 2006and 2005 are $2,897,660, $2,160,035 and $2,825,772, 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 years ended December 31, 2007, 2006 and 2005 are$9,562,441 $8,788,573 and $2,568,393, respectively.  The redemption of cash incentives earned bythe Players Club members is also recorded as promotional allowances.  The total cash incentives for the years endedDecember 31, 2007, 2006 and 2005 are $2,007,429, $1,593,091 and$1,461,386, respectively.

 

Food and Beverage Costs—Food and beveragecosts include costs associated with food and beverage, excluding amounts classifiedas casino expenses.  The estimated costsof providing complimentary services are reclassified from food and beverage toCasino expenses.  The costs of suchservices were $5,801,400, $3,845,342 and $3,642,229 for the years ended December 31,2007, 2006 and 2005.

 

Advertising Costs—Advertising costs areexpensed the first time advertising takes place. Advertising costs included inselling, general and administrative expenses were $7,910,198, $5,210,739 and$8,032,085 for the years ended December 31, 2007, 2006 and 2005,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 years ended December 31, 2007, 2006 and2005 are $3,023,303, $3,154,384 and $2,773,369, respectively.

 

Income Taxes—As a governmentalinstrumentality of the Dry Creek Rancheria Band of Pomo Indians, a federallyrecognized Indian tribe, the Authority is a nontaxable entity for purposes offederal and state income taxes.

 

Distributions to Tribe—Distributions to Tribeconsist of payments permitted by the terms of the Indenture for the Notes.  They are included in the Statement ofRevenues, Expenses and Changes in Fund Deficit as distributions to Tribe.Monthly permitted payments increased by $20,800 from $1,020,000 to $1,040,800in April 2007.  Total distributionsto the Tribe were $12,427,200, $15,521,137 and $11,180,000, for the years ended December 31,2007, 2006 and 2005, respectively.

 

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**3.        CERTAIN RISKS AND UNCERTAINTIES**

** **

The Authority’s operations are dependent onthe continued 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 federalland beneficially owned by the Tribe. The Authority does not pay the Tribe forthe use of the land.

 

Commencing January 1, 2004, theAuthority paid for various expenses for the following departments operated bythe Tribe: Tribal Gaming Commission, surveillance, plant operations, humanresources, purchasing and warehousing. On January 1, 2005, the Authority operated the Purchasing andWarehouse departments and continued to pay expenses for the other departmentsoperated by the Tribe.  Thesedepartmental expenses include but are not limited to payroll and relatedexpenses, legal and other operational expenses. Under direction of the River Rock Entertainment Authority Board and theTribal Council, the Tribe assumed responsibility of the Purchasing andWarehouse departments on May 8, 2006. The expenses associated with the Purchasing and Warehouse departmentsincurred by the Tribe are included in these amounts and will be reimbursed tothe Tribe by the Authority as with other Tribal departments.

 

Total expenses for these departments,excluding Tribal Gaming Commission and surveillance, were $4,178,576,$3,188,736 and $1,874,919 for the years ended December 31, 2007, 2006 and2005, respectively.  They are recorded asa component of Selling, General, and Administrative expenses.

 

The Authority pays for various expenses forthe Tribal Gaming Commission and surveillance. The Tribal Gaming Commission and surveillance expenses are recorded inGaming Commission and surveillance expenses on the Statement of Revenues,Expenses and Changes in Fund Deficit. Gaming Commission and surveillance expenses were $3,023,303, $3,154,384and $2,773,369 for the years ended December 31, 2007, 2006 and 2005,respectively.

 

The Tribe has incurred expenseson behalf of the Authority that relate to the master planning of the proposedresort and Tribal infrastructure that benefit the Authority.  Total expenses incurred and subsequently reimbursedto the Tribe for the yearsended December 31, 2007 were $4.6 million. The Tribe has incurred an additional $5.6 million in costs relating tothe master planning of the proposed resort. While the Tribe has not made anyrequest to the Authority for reimbursement of such amount, it may requestreimbursement from the Authority in the future.  While the Authority hasno obligation to pay such amounts when requested and any such reimbursementwould need to be approved by management and the Board of Directors of theAuthority, there is a possibility that such request for reimbursement may bemade by the Tribe. Prior to making any reimbursement payment, the Authoritywill consider various factors, including, but not limited to, whether the costsincurred were actually related to the master planning, whether such costs arebeneficial to the gaming business and expansion plans of the Authority, thereasonableness of such costs, the availability of cash and whether thereimbursement payment is in compliance with the covenants in the indenture forthe Authority’s senior notes.

 

**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 providing credit enhancement and otherservices under the Development Agreement, the Tribe was obligated to pay DCC aCredit Enhancement Fee. The Credit Enhancement Fee was 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 was required to be paid monthly for a period of five years commencing on June 1,2003.

 

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The Authority had the right to terminate theDevelopment Agreement by exercising a buy-out option (the “Buy-Out Option”) anddid so on January 31, 2007. Subsequently on March 2, 2007, the Authority and DCC signed amutual agreement to fix the amounts due to DCC in respect of such exercise tothe sum of $11,350,000 less the amount paid after the Authority exercised thebuy-out option of $737,491. The net payment of $10,612,509 was made in March 2007and expensed in full in the three months ended March 31, 2007.  Credit Enhancement Fee expense was$11,348,897, $8,078,806 and $7,669,147 for each of the years ended December 31,2007, 2006 and 2005, respectively.

 

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

** **

Cash and cash equivalents and restricted cash consisted of thefollowing as of December 31, 2007 and December 31, 2006:

 
| ** **                                          | ** ** | **December 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
|                                                |       |                            |       |                            |       |
| Operating accounts                                  |       | $                               | 6,352,843  |                            | $          | 5,573,333 |   |
| Money Market Accounts                               |       | 3,000,298                       |       | 31,967                          |       |
| Short Term Investments                              |       | 31,013,947                      |       | 22,304,924                      |       |
| Cash on hand                                        |       | 6,166,301                       |       | 4,638,777                       |       |
|                                                |       |                            |       |                            |       |
| Cash and cash equivalents                           |       | 46,533,389                      |       | 32,549,001                      |       |
| Restricted cash                                     |       | 7,335,473                       |       | 7,248,253                       |       |
|                                                |       |                            |       |                            |       |
| Total cash and cash equivalents and restricted cash |       | $                               | 53,868,862 |                            | $          | 39,797,254 |   |

 

The Authority’s cash inbanks and cash equivalents (the “Investments”) are categorized by level ofcredit risk assumed by the Authority. Category 1 includes investments thatare insured or registered or for which the investments are held by theAuthority or its agent in the Authority’s name. Category 2 includesuninsured and unregistered investments for which the investments are held bythe counterparty’s trust department or agent in the Authority’s name.Category 3 includes uninsured and unregistered investments for which theinvestments are held by the counterparty’s agent but not in the Authority’sname. At December 31, 2007, the Authority had $200,000 in Category 1investments, $6,252,843 cash in banks, $3,000,298 in Money Market accounts and$31,013,947 in short term investments which are Category 2 investments and$7,235,473 restricted 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 of December 31,2007 and 2006, these amounts are composed of money market accounts in theamount of $3,000,298 and $31,967, respectively and A1/P1 securities in theamount of $31,013,947 and $22,304,924, respectively.

 

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**7.**                            PROPERTY AND EQUIPMENT

** **

Property and equipment at December 31,2006 and December 31, 2007 consisted of the following:

 
| ** **                        | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**          | ** ** |
|-----------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **December 31,** | ** ** |
| ** **                        | ** ** | **2006**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2007**              | ** ** |
|                              |       |                  |        |          |       |             |       |                  |       |
| Buildings and improvements        |       | $                     | 129,245,481 |          | $          | 397,040          |       | $                     | —     |   | $ | 129,642,521 |   |
| Furniture, fixtures and equipment |       | 27,110,280            |        | 2,924,363     |       | (65,213          | )          | 29,969,430            |       |
| Less accumulated depreciation     |       | (32,696,126           | )           | (11,800,854   | )          | 36,315           |       | (44,460,665           | )          |
|                              |       |                  |        |          |       |             |       |                  |       |
|                              |       | 123,659,635           |        | (8,479,451    | )          | (28,898          | )          | 115,151,286           |       |
| Construction in progress          |       | 4,385,195             |        | 4,871,635     |       | —           |       | 9,256,830             |       |
|                              |       |                  |        |          |       |             |       |                  |       |
| Property and equipment—net   |       | $                     | 128,044,830 |          | $          | (3,607,816       | )          | $                     | (28,898    | ) | $ | 124,408,116 |   |

 

Construction in progressconsists of payments to various vendors related to the Authority’s master plandevelopment and land improvements. Substantially all of the Authority’spersonal property is pledged as collateral to secure its debt.  At December 31, 2007 and 2006, theAuthority had $415,639 and $376,636 in capital lease assets with relatedaccumulated depreciation of $203,781 and $117,378.

 

**8.**                            ACCRUED LIABILITIES

** **

Accrued liabilities consisted of the following as of December 31,2007 and December 31, 2006:

 
| ** **                                 | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2007**              | ** ** | **2006**              | ** ** |
|                                       |       |                  |       |                  |       |
| Accrued in-house progressive slot jackpots |       | $                     | 1,081,121  |                  | $          | 779,408 |   |
| Accrued payroll and related benefits       |       | 2,296,131             |       | 2,005,731             |       |
| Accrued interest                           |       | 3,250,000             |       | 3,250,000             |       |
| Accrued credit enhancement fees            |       | —                |       | 783,070               |       |
| Accrued other expenses                     |       | 939,569               |       | 275,958               |       |
| Total accrued liabilities                  |       | $                     | 7,566,821  |                  | $          | 7,094,168 |   |

 

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** **

**9.**                            LONG-TERM DEBT

** **

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

 
| ** **                                                                                      | ** ** | **December 31,** | ** **        | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------|-------------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2007**              | ** **        | **2006**              | ** ** |
| ** **                                                                                      | ** ** | ** **            | ** **        | ** **            | ** ** |
| 9-3/4% Senior Notes, net of unamortized  issue discount of $1,292,789 and $1,630,039. Due 2011. |       | $                     |  198,707,212 |                  | $          | 198,369,961 |   |
|                                                                                            |
| Vehicles Notes                                                                                  |       | 15,306                |              | 25,439                |       |
| Lease obligations                                                                               |       | 238,293               |              | 747,288               |       |
| Total Long-Term Debt                                                                            |       | 198,960,810           |              | 199,142,688           |       |
| Less: current portion                                                                           |       | (213,173              | )                 | (642,413              | )          |
|                                                                                            |       |                  |              |                  |       |
| Total long-term debt - net of current maturities                                                |       | $                     | 198,747,638       |                  | $          | 198,500,275 |   |

 

Maturity schedule – Annualrequirements to retire long-term debt at December 31, 2007:

 
|   | ** ** | **Principal** | ** **  | **Interest** | ** ** | **Total**   | ** ** |
|--------|------------|---------------|-------------|--------------|------------|-------------|------------|
| 2008   | ** ** | $             | 213,173     |         | $          | 19,505,376  |       | $ | 19,718,549 | ** ** |
| 2009   | ** ** | 38,963        |        | 19,500,735   |       | 19,539,698  | ** ** |
| 2010   |       | 1,463         |        | 19,500,000   |       | 19,501,463  |       |
| 2011   |       | 200,000,000   |        | 16,250,000   |       | 216,250,000 |       |
| 2012   |       | —        |        | —       |       | —      |       |
|   |       | $             | 200,253,599 |         | $          | 74,756,111  |       | $ | 275,009,710 |   |

 

On November 7, 2003,the Authority issued the Notes. The proceeds were utilized to fund an expansionproject, which includes three parking structures and related infrastructureimprovements, repayment of various debt, advances and fund payment of variousaccruals and payables, as well as to increase cash on hand. The proceeds werealso utilized to fund a land purchase and settle litigation. The Notes weresecured by a first priority pledge of the Authority’s revenue and substantiallyall of the existing and future tangible and intangible personal property. 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 isrecorded at an amortized historical cost basis. The fair value of long-termdebt approximates $209,126,000 at December 31, 2007.

** **

**10.**                      LEASES

** **

The Authority leases asprung structure, which is accounted for as an operating lease. Such leaseexpense was $434,760, $455,290 and $482,355 for the years ended December 31,2007, 2006 and 2005. The Authority renewed the lease agreement on August 17,2005 for $36,230 per month for twenty four (24) months ending August 17,2007. Since theexpiration of the lease on August 17, 2007, the Authority has maintainedthe lease payments on a month to month basis.

 

On October 1, 2003, theTribe entered into an operating lease agreement for office and warehouse spaceto replace existing facilities. Prior to the Tribe taking control over thePurchasing and Warehouse departments, the Authority reimbursed the Tribe leasefees allocated based on the square footage utilized. Since May 2006, whenthe Tribe assumed responsibility for the Purchasing and Warehouse departments,the Authority no longer reimbursed the Tribe lease fees as a separatetransaction. This reimbursement is made through the reimbursement of Tribaldepartments’ monthly allotment and quarterly reconciliations. The Authorityreimbursed the Tribe for such lease fees in the amount of $435,763, $512,567and $439,133 for the years ended December 31, 2007, 2006 and 2005,respectively.

 

 

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OnFebruary 21, 2007 the Authority entered into a one year operating leasefor office and promotional space commencing February 21, 2007 and expiringFebruary 20, 2008. The monthly lease fee was $600 per month. On February 21,2008, the Authority extended the lease for three years, commencing on February 21,2008 and expiring on February 20, 2011. The extended lease fee is $625 per month for the first year, with adjustments for theConsumer Price Index and property taxes in the second and third years.

 

OnAugust 30, 2007 the Authority entered into a five year operating leaseagreement for office and showroom space commencing October 1, 2007 andexpiring on September 30, 2012. The monthly lease fee is $16,630. Leaseexpenses for  2007 totalled $66,520.

 

On September 1, 2004,the Authority entered into a five year capital lease to purchase two licensesto operate three-card poker tables in the amount of $120,000. The capital leaseis at 7.25% interest with monthly lease fees of $2,390 and a $1 buyout at theend of the lease term, expiring August 31, 2009.

 

On July 31, 2005, the Authority entered into athirty six month capital lease to purchase 13 Multi-deck shufflers in theamount of $88,307.  The capital lease is at 4.08% interest with monthlylease fees of $2,730 and a $1 buyout at the end of the lease term, expiring July 31,2008.

 

On July 31, 2005, the Authority entered into athirty six 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 feesof $1,899 and a $1 buyout at the end of the lease term, expiring July 31,2008.

 

On July 31, 2005, the Authority entered into athirty six 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 feesof $1,400 and a $1 buyout at the end of the lease term, expiring July 31, 2008.

 

On April 25, 2006, the Authority entered into athirty six month capital lease to purchase 5 DECK MATE poker shuffles in theamount of $61,833.  The capital lease is at 7.92% interest with monthlylease fees of $1,937 and a $1 buyout at the end of the lease term, expiring April 30,2009.

 

On August 1, 2006 the Authority entered into a36 month capital lease to purchase 2 licenses to operate pai gow poker tablesin the amount of $38,800.  The capital lease is at 4.26% interest withmonthly lease fees of $1,150 and a $1 buyout at the end of the lease term,expiring July 31, 2009.

 

Lease expenses of $336,622, $484,334, and $995,202for the years ended December 31, 2007, 2006 and 2005, respectively areincluded in general and administrative expenses in the accompanying statementof revenues, expenses and changes in fund deficit.  Expected remainingpayments under operating leases are $242,183, $242,017, $213,713, $199,560 and$149,670 for the years ending December 31, 2008 thru 2012, respectively.

** **

**11.**                      LEGAL MATTERS

** **

*Runyan Litigation*

 

On March 7, 2008, Norman Runyan, our formerChief Operations Officer, filed suit against the Authority, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of our Board, in the SonomaCounty Superior Court. Mr. Runyan’s complaint asserts causes of actionsfor breach of contract, wrongful termination in violation of public policy,intentional interference with contract and intentional infliction of emotionaldistress. He seeks unspecified compensatory and punitive damages. Mr. Runyanalleges that he was wrongfully terminated from his employment because heopposed certain alleged actions on the part of the defendants, includingcontracts for construction work allegedly performed on the reservation byaffiliates of the Tribe and Mr. Hopkins. Mr. Runyan claims that thework violated the Indenture and that Mr. Runyan was forced to resign fromhis employment in violation of public policy after protesting that the allegedwork violated the Indenture, the Tribe’s Compact with the State, and theSecurities Exchange Act of 1934. He also claims that the defendants unlawfullydiscriminated against him in connection with his 

 

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status as a debtor under the Bankruptcy Code.We believe that Mr. Runyan’s lawsuit is based on erroneous information andis without merit, and the Authority and the Tribe intend to vigorously defendagainst it.

 

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

 

12.      COMPACT REVENUE SHARING TRUST FUND

** **

The Compact requires theAuthority to pay a quarterly fee to the State of California’s revenue sharingtrust fund, based on the number of licensed gaming devices operated by theTribe. Revenue sharing trust fund fees assessed were $1,335,000 for the yearsended December 31, 2007, 2006 and 2005.

 

13.       COMMITMENTS AND CONTINGENCIES

 

The Authority is anunincorporated instrumentality of the Tribe formed pursuant to a recentlyadopted law of the Tribe. While the Authority is not a separate corporation orother legal entity distinct from the Tribe, this tribal law allows theAuthority to own and operate its business. This tribal law also provides thatthe Authority’s obligations and other liabilities are not those of the Tribeand that the obligations and liabilities of the Tribe are not the Authority’s.This law is untested and generally has no direct counterpart in other areas ofthe law. If this law should prove to be ineffective at limiting the Authority’sliability, the Authority’s business and assets could become subject to claimsasserted against the Tribe or its assets. Similarly, the Authority would beliable for such claims if the Tribe waived its sovereign immunity to an extentthat allowed enforcement of such claims against the Authority’s business orassets.

 

On November 14, 2007, Mr. NormanRunyan resigned as Chief Operations Officer of the Authority to pursue otherinterests, effective as of November 11, 2007. Pursuant to a SeveranceAgreement, the Authority was obligated to pay Mr. Runyan a severanceamount of $217,095 in installments no later than January 14, 2008, whichincludes, among other things, all accrued but unpaid salary, paid time off,vacation time, bonuses, and cost of COBRA benefits for five months.

 

On October 17, 2007,the Authority entered into an employment agreement with Mr. JosephCallahan whereby Mr. Callahan will serve as the Chief Financial Officer ofthe Authority and of the River Rock Casino. The agreement is effective as of August 8,2007, and continues through August 8, 2010, unless terminated earlier bythe parties under the terms of the agreement. The agreement provides for thepayment to Mr. Callahan of an initial annual base salary of $210,000, withan increase to $225,000, upon completion of 120 days of service or at thediscretion of the Board. Mr. Callahan will also be eligible to receive anannual bonus in the discretion of the Board not to exceed 25% of his annualbase salary. If Mr. Callahan’s employment is terminated for reasons otherthan cause, including death or disability, Mr. Callahan will be entitledto his salary for three months. Either party may terminate the agreement with30 days written notice.

 

On July 30, 2007, theAuthority entered into an amended and restated employment agreement with Mr. ShawnS. Smyth, the Chief Executive Officer of the Authority and General Manager ofthe River Rock Casino, to extend the term thereof through April 13,2010, unless terminated earlier by the parties under the terms of the agreement.The agreement provides for the payment to Mr. Smyth of an annual basesalary of $300,000. Mr. Smyth will also be eligible to receive an annualbonus in the discretion of the Board not to exceed 25% of his annual basesalary. If Mr. Smyth’s employment is terminated for reasons other thancause, including death or disability, Mr. Smyth will be entitled to hissalary for three months. Either party may terminate the agreement with 90 dayswritten notice.

 

14.       BENEFIT OBLIGATIONS

 

On April 1, 2006, theAuthority became fully self-insured for its medical benefits plan coverage from$250 to $2,000 of medical benefit cost per covered person per year. Employeesare responsible for the first $250 of medical benefit costs and 20%

 

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 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 fully insured, high deductible medicalbenefits plan. The Authority pays 100% of the medical benefits plan coveragecost for employees and 50% coverage cost for dependants and domestic partnersbased on calculated premiums. Maximum coverage under the fully self-insuredmedical benefits plan is limited to $1,400 per covered person per year. Allemployees working an average of 60 hours per pay period are eligible for themedical benefits plan. Administration of the plan is provided by a third partyunder an administrative services agreement.

 

On April 1, 2006, theAuthority became fully self-insured for its dental benefits plan. The Authoritypays 100% of the dental benefits plan coverage cost for employees and 50% ofthe coverage cost for dependants and domestic partners based on calculatedpremiums. Maximum coverage under the dental plan is limited to $2,000 percovered person per year. All employees working an average of 60 hours per payperiod are eligible for the dental benefits plan. Administration of the plan isprovided by a third party under an administrative services agreement.

 

The Claims payable, ClaimsIBNR (incurred but not reported), and Insurance premiums payable for the aboveself-insured benefits plan are recorded in Other Accrued Liabilities on thefinancial statements.

 

15.       SUBSEQUENT EVENTS

 

On March 18, 2008, theTribe and the Sonoma County Board of Supervisors entered into a memorandum ofagreement (“MOA”) that will, among other things, settle several long-standinglegal disputes between Sonoma County and the Tribe and provide a bindingframework for resolving future disputes.

 

In a related action, theAlexander Valley Association (“AVA”), a local business and residentsassociation which has long opposed the Tribe’s gaming project and objected tothe issuance to it of a liquor license, agreed to withdraw its objections tothe license and has persuaded its members and a number of other protestors todo likewise. In light of those withdrawals (and a similar agreement in the MOArequiring the County also to withdraw its objection), and with the support ofboth the County and AVA, the Tribe is now seeking to expedite issuance of analcohol license. Under the MOA, the Tribe agreed to restrict the sale ofalcohol to only wine and beer between the hours of 10 a.m. and 5 p.m.on weekdays, and to stop serving alcohol altogether at midnight except forFriday and Saturday nights and the nights before holidays. The restrictions maybe renegotiated following the first to occur of three years or the opening of ahotel, which is projected to occur within the next 2 to 3 years.

 

In addition, the MOA commitsthe County Sheriff’s Department and Fire Marshall to providing public safetyand fire services to the Casino and the Tribe’s future gaming projects on theRancheria, provides detailed agreements on off reservation impact mitigationmeasures, and permits the Tribe’s application to take the Dugan Property intotrust, which has already been approved by the Department of the Interior (“DOI”)but was appealed by the DOI, to move forward without further County opposition.

 

The Tribe has agreed to paythe County up to $75 million in mitigation fees over the next 12 years tooffset impacts of the potential losses and impacts to the County resulting fromthe Tribe’s various ongoing projects and are intended to support the servicesbeing provided by the County. In addition to the mitigation fees, the Tribewill pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of9% of the rental collected on occupied hotel rooms, to be paid quarterly andcontinuing for five years after the later to occur of the termination of theMOA, as may be extended, or the Tribe’s Compact with the State (which is nowterminable in 2020 at the earliest), which fees may be applied to programs andservices that serve to promote tourism in the County. Such in lieu fees couldtotal as much as $25 million during the term of the MOA.

 

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** **

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized, on April 14, 2008.

 

 
|   | 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 14, 2008                                                      |
|   |                                                                           |
| By:    | /s/ Margie Rojes                                                               |   |
|   | Name: Margie Rojes                                                             |
|   | Title: Vice Chairperson                                                        |
|   | Date: April 14, 2008                                                      |
|   |                                                                           |
| By:    | /s/ Augusto (Gus) Pina                                                         |   |
|   | Name: Augusto (Gus) Pina                                                       |
|   | Title: Member                                                                  |
|   | Date: April 14, 2008                                                      |
|   |                                                                           |
| By:    | /s/ Gabe Nevarez                                                               |   |
|   | Name: Gabe Nevarez                                                             |
|   | Title: Member                                                                  |
|   | Date: April 14, 2008                                                      |
|   |                                                                           |
| By:    | /s/ Shawn S. Smyth                                                             |   |
|   | Name: Shawn S. Smyth                                                           |
|   | Title: Chief Executive Officer (Principal  Executive Officer), General Manager |
|   | Date: April 14, 2008                                                      |
|   |                                                                           |
| By:    | /s/ Joseph R. Callahan                                                         |   |
|   | Name: Joseph R. Callahan                                                       |
|   | Title: Chief Financial Officer (Principal  Financial and Accounting Officer)   |
|   | Date: April 14, 2008                                                      |

 

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