**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D. C. 20549**

 

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**FORM 10-K**

 

| **ý** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**      |
|------------|------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                     |
|       | **For the fiscal year ended December 31, 2005**                                                |
|       |                                                                                           |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES   EXCHANGE ACT OF 1934** |

 

**CommissionFile Number: 333-115186**

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

(Exact name of registrant asspecified in its charter)

 

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

 

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**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: NONE**

 

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

 

Indicateby check mark if registrant is not required to file reports pursuant toRule 13 or Section 15(d) of the Act. Yes ý 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 of 1934during 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 ý 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 any amendmentto this Form 10-K. ý

 

Indicateby check mark whether the registrant is a Large Accelerated filer, anAccelerated filer, or a Non-accelerated filer (as defined in Exchange ActRule 12b-2).

 

LargeAccelerated Filer o Accelerated Filer o Non-accelerated Filer ý

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act) Yes o No ý

 

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, 2005).

 

Theregistrant has no outstanding common equity.

 

**Documents Incorporated By Reference**

None.

 

 

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**RIVER ROCKENTERTAINMENT AUTHORITY**

 

**INDEX TOFORM 10-K**

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

 

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**CAUTIONARY STATEMENT**

 

*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 of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. Such forward-looking statements are based upon currentexpectations that involve risks and uncertainties and include declarationsregarding the intent, belief or current expectations of us and our managementand may be signified by the words “believes”, “anticipates”, “plan”, “expects”,“intends” and similar expressions. Our actual results and the timing of certainevents 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-K tothe “Authority” and the “Tribe” are to the River Rock Entertainment Authorityand the Dry Creek Rancheria Band of Pomo Indians, respectively. The terms “we”,“us” and “our” refer to the Authority.*

 

**PART I**

 

**Item 1.Business.**

 

**OVERVIEW**

 

River Rock Entertainment Authority (“we”, “us”, “our”or the “Authority”) is a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians of California (the “Tribe”). The Tribe is afederally recognized Indian tribe with 931 enrolled members, with anapproximately 75-acre reservation in Sonoma County, California. We were formedin 2003 as an unincorporated governmental instrumentality of the Tribe to ownand operate the River Rock Casino in Sonoma County, California. River RockCasino had previously operated as a wholly-owned governmental operatingproperty of the Tribe.

 

The Indian Gaming Regulatory Act of 1988, as amended(“IGRA”), permits federally recognized Indian tribes to conduct casino gamingoperations on certain Indian lands, subject to, among other things, thenegotiation of a compact with the affected state. The Tribe and the State ofCalifornia entered into a compact (the “Compact”) in September, 1999 whichbecame legally effective when it was approved by the U.S. Department of theInterior and notice of approval was published in the Federal Register in May,2000. The Compact authorizes certain forms of Class III casino gaming,including slot machines and house-banked card games.

 

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

 

**Our River Rock Casino**

 

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

 

•      35,500 square feet of gaming space containing1,600 slot and video poker gaming machines and 21 table games featuringBlackjack, Three Card Poker, Mini Baccarat and Pai Gow Poker and 5 tablesfeaturing Texas Hold em Poker. We offer state-of-the-art gaming devicesincluding video poker, video keno, progressive  slots and guest

 

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favorites,such as Wheel of Fortune, Triple Diamond, Match and Win, Quick Hits, BingoNights and other various themes;

 

•      both smoking and non-smoking gaming rooms inorder to satisfy customer preferences;

 

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

 

•      ThePlayers Club, a player tracking system which offers our guests incentives foradditional play;

 

•      two full-service restaurants: the Quail RunRestaurant, offering 24-hour menu dining and lunch, dinner and Sunday brunchbuffets, with 152 indoor seats and 96 outdoor seats overlooking the AlexanderValley wine region and the Russian River; the Wine Creek Room, which has alounge that features a small course menu from a wood-fired oven, and a grandpiano offering light piano jazz;

 

•      two lounges, two bars, a gift shop and ahistoric and contemporary Pomo basketry and art display, and the Oak Bar, whichoffers “bar top” video poker games in an elegant setting;

 

•      three new parking structures allow us toaccommodate approximately 1,642 customer vehicles or up to approximately 2,100customer vehicles when operated by a valet service during peak demand periods;

 

•      an Arts and Crafts California Bungalow-styledesign and furnishings, incorporating Native American elements that feature acultural arts collection of traditional and contemporary Pomo art, includinghistorical basketry for which the Tribe is known. The interior of our gamingfacility utilizes an extensive amount of wooden casework and natural rock toemphasize the architectural style found throughout California wine country. Inkeeping with this motif, our gaming facility’s counters are constructed ofnatural stone and wood, and oak wainscoting grace the food and beveragefacilities. The gaming facility is finished with Arts and Crafts and Missionstyle furniture and fabrics; 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 toward sweeping vistas of Alexander Valley vineyards. Our gamingand entertainment facility was designed to capitalize on the setting with thefood and beverage facilities strategically placed to feature the expansiveviews.

 

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

 

We maintain a digital surveillance system thattracks the entire casino floor to secure our facility and operations. We employa 76 officer security force.

 

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**Our Market**

 

Our gaming facility is accessible to all theresidents of the San Francisco Bay area, including those within Sonoma, Marin,Mendocino, Napa, San Mateo, Contra Costa, San Francisco, Alameda and Lakecounties. Our primary market thus includes the major Bay area metropolitancities of San Francisco and Oakland, and the smaller cities of San Rafael,Berkeley, Santa Rosa and Petaluma. According to 2004 Scarborough, Simmons &MRI studies there are 6.9 million residents in the greater San Francisco BayArea and surrounding counties. The 2004 median household income for the SanFrancisco Bay Area exceeded $73,864 per annum.

 

**Our Marketing Strategy**

 

After the completion of our parking structureproject, we adopted an aggressive marketing strategy. With the additionalparking, we shifted a significant amount of the advertising focus from the busprogram to the drive-up market. Our significantly broadened marketing programincluded:

 

•      more diverse print, broadcast, promotionaland mail advertising programs, particularly in the San Francisco, San Jose andOakland markets;

 

•      increased direct marketing campaigns,targeting households in Sonoma County and the San Francisco Bay area;

 

•      increased use of special events andpromotions;

 

•      increased billboard signage in downtown SanFrancisco, Oakland and along Highway 101; and

 

•      maintained the bus program as a secondarymode of attracting guests to our gaming facility.

 

**Our Business Strengths**

 

*Strong Market Demographics.*     Our gamingfacility is easily accessible by car for nearly all the approximately6.9 million residents of the San Francisco Bay area market, including themajor metropolitan cities of San Francisco and Oakland and the smaller citiesof San Rafael, Berkeley, Santa Rosa and Petaluma. We also benefit from theapproximately 7.0 million annual visitors to Sonoma County and theapproximately 4.9 million annual visitors to Napa County and the world-renownedwineries and related amenities in our vicinity. Our gaming facility isconveniently located approximately three miles from Highway 101, a four-lanehighway that serves 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. According to the California Department ofTransportation, approximately 21.9 million vehicles passed our facility onHighway 101 in 2004.

 

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

 

*High Quality Products andAmenities.*     Ourgaming facility offers state-of-the-art gaming devices and table games in anupscale, relaxed gaming environment. Our gaming devices feature comprehensive,integrated cashless technology permitting faster wagering and payouts. Inaddition, our two restaurants offer premium food and beverages and are designedto capitalize on the spectacular views of the Alexander Valley. Our gaming andfood and beverage facilities emphasize a high level of customer service,created and maintained through comprehensive employee training.

 

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

 

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

 

**Our Business Strategy**

 

Our strategy is to grow our business by increasingthe number and duration of visits to our gaming facility and increasing theaverage revenue per visit by offering an upscale gaming and entertainmentexperience. Throughout 2005, we engaged in significant marketing initiatives,such as television commercials, extensive billboards, print, broadcast,promotional and mail advertising programs.

 

*Implement our Expanded MarketingPlan.*     Beginningin the first quarter of 2005, we initiated a comprehensive marketing plan topromote our location as the closest and most accessible gaming facility tonearly all of the residents of the San Francisco Bay area, Sonoma, Napa andLake counties. This helped promote our amenities and encouraged guests tobecome more familiar with our gaming facility, so they would visit morefrequently and for longer durations. Our marketing mediums included increasedbillboard signage in the San Francisco Bay area and along Highway 101,production of three television commercials, more diverse print, broadcast,promotional and mail advertising programs, and sponsorship of selected events,organizations and activities. We also expanded our cooperative marketingprograms with local businesses, wineries, hotels and restaurants.

 

*Build Customer Loyalty.*     We haveinstituted programs to engender loyalty from our customers by rewardingfrequent play. One such existing program is our Players Club. This clubqualifies customers for differing levels of cash and awards based upon theirlevel of slot and table game play. Our comprehensive player tracking systemallows us to track wagering levels and length of play, and to evaluate andidentify our best customers in order to provide awards and other incentives tofoster customer loyalty and more frequent and longer visits. Our database ofplayers has grown to over 200,000 as of December 31, 2005, increasing by anaverage of approximately 5,825 players per month since the Players Club startedon April 1, 2003. We have also promoted more frequent and longer visitsand increased wagering at off-peak demand periods through promotions such asour “Hot Nights, Cool Cash” and “House is Rockin” programs. These promotionsoffer customers cash rewards on weekday nights and has resulted in increasednet revenue whenever offered.

 

*Capitalize on the Tourism Appealof the Alexander Valley and Wine Country.*     The picturesqueAlexander Valley region is a premier tourist destination. We intend tocapitalize on the appeal of the region, including its reputation as one ofCalifornia’s premier wine producing regions, to further expand our customerbase. Our location benefits from the large number of annual visitors to theworld renowned wineries of Sonoma and Napa counties. Sonoma County receivesapproximately 7.0 million tourists annually and approximately4.9 million tourists visit Napa County annually.

 

*Operate our Facility as an UpscaleGaming and Entertainment Experience.*     We operate our facility as an upscalegaming and integrated entertainment experience, featuring quality service in afriendly environment. Our premium food and beverage operations supplement ourgaming experience, offering high quality dining 24 hours a day. Our otherfeatures and amenities, including our expansive views, gift shop and culturalexhibits complete our entertainment experience and create a lively, excitingenvironment for our guests.

 

*Maintain our Bus Program.*     Through 2005 wemaintained our line and charter bus program to provide customer transportationto our gaming facility. We believe that this program enabled us to maximize ournumber of guests during the off-peak times. Our guests have appreciated the convenienceoffered by this program and we have experienced an increase in the use of ourbus program. We operated an average of approximately 34 buses a day in 2005.Our bus program brings guests from San Francisco, San Mateo, Contra Costa,Alameda and Marin Counties. Our bus guests pay between $8 to $13 for aroundtrip to and from our Casino. Upon arrival, they receive an incentivepackage in the range of $15 to $25 to use on gaming in our Casino. Our specialcharter bus guests also receive a complimentary meal in our facility.

 

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**COMPETITION**

 

Federal and California law currently permits ClassIII casino gaming only on federally recognized tribal lands pursuant tocompacts negotiated with the State of California and approved by the U.S.Secretary of the Interior. Class II gaming for tribes is permitted only onfederally recognized tribal lands. There are currently 55 tribes operating 56compacted gaming facilities in the State of California. The closest existingcompetitors are the Hopland Sho-Ka-Wah Casino, located approximately 35 milesnorth of the Tribe’s reservation, the Konocti Vista Casino, locatedapproximately 45 miles northeast of the Tribe’s reservation, and Cache CreekIndian Casino and Bingo, located approximately 40 miles east of the Tribe’sreservation. Several potential competitors are attempting to develop and opencasinos near our facility. In April 2003, the Federated Indians of the GratonRancheria, also known as the Coast Miwoks, announced plans to purchase land inSonoma County near Highway 37 and Lakeville Highway, approximately 20 milessouth of our gaming facility and closer to San Francisco. The announced plansinclude construction of a casino-hotel complex that will be managed by StationCasinos, Inc. based in Las Vegas, Nevada. As a result of environmentalopposition to the development of such location, the Federated Indians of theGraton Rancheria announced plans to move the proposed casino-hotel complex to asite near Rohnert Park, California. The Rohnert Park City Council has approvedan agreement with the Federated Indians of the Graton Rancheria to share withRohnert Park and various community groups approximately $200.0 millionover 20 years to offset the impact of the proposed project. The Lytton Band ofPomo Indians have also announced plans to convert the San Pablo Card Room,located in the City of San Pablo near Oakland, California, on land that wasplaced in trust for the Tribe through congressional legislation, into a tribal casino.The Lytton Band has signed a compact with Governor Arnold Schwarzenegger foroperating casino gaming on the San Pablo site, but the state legislature haswithheld its approval. The Lytton Band of Pomo Indians could develop andoperate a Class II gaming facility on that site under its present status. Eachproject described above faces numerous obstacles including negotiation andapproval of a compact with the State of California, approval from the Bureau ofIndian Affairs to put the land on which the project would be located intofederal trust on behalf of the tribe and certain environmental approvals.

 

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

 

Many of our competitors serve alcoholic beverages ontheir premises. We have not yet obtained a liquor license for our Casino. Wehad initially applied for a liquor license for our Casino in 2002. On September 13, 2004, the Department ofAlcoholic Beverage Control (“ABC”) denied the Tribe’s application for a liquorlicense based on the State Fire Marshal’s interpretation of the UniformBuilding Code. In May 2005, an Administrative Law Judge heard the Tribe’sappeal of the ABC’s denial and recommended that the ABC reverse itself andapprove the license. On August25, 2005, the ABC announced that, effective October 11, 2005; it would adoptthe Administrative Law Judge’s decision to approve the license transfer pendinga hearing on protests filed by citizens and government officials. The ABC hasreceived over 65 protests against the license from citizens and governmentofficials. The ABC held a hearing on the protests on March 9, 2006. Theadministrative law judge will make his decision after all post hearing briefsare received. All briefs must be filed by early May 2006. The judge must makehis decision within 30 days after receipt of the final brief. The decision toapprove or deny the license transfer application may be appealed by any partiesto the proceeding so long as the appeal is filed within forty (40) days of theABC’s decision. The first appeal is to the ABC Appeals Board, and its decisionmay be appealed to the California State court system.

 

**EMPLOYEE AND LABOR RELATIONS**

 

As of December 31, 2005, we had 691 full-timeemployees and 35 seasonal and part-time employees. Our employees are notcovered by any collective bargaining agreements. We believe that our relationswith our employees are good. Provisions in a labor ordinance the Tribe wasrequired to adopt as part of the 1999 compact agreement permit opportunitiesfor unions to attempt to organize our labor force. In addition, a recentdecision of the National Labor Relations Board, reversing 30 years ofprecedent, holds that the National Labor Relations Act is applicable to tribalcasinos. The latter decision is being challenged by another tribe. The Tribe isnot a party to that proceeding.

 

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**REGULATION**

 

**General**

 

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

 

**Applicability of Federal Law**

 

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

 

**The Indian Gaming Regulatory Act of 1988**

 

*Regulatory Authority.*     Since 1988, thesovereign right of tribes to operate and regulate gaming on their lands hasbeen subjected to the provisions of the Indian Gaming Regulatory Act of 1988 (“IGRA”).IGRA is administered by the National Indian Gaming Commission (“NIGC”), anindependent agency within the U.S. Department of Interior that exercisescertain regulatory responsibilities in connection with Indian gaming on behalfof the United States. The NIGC has authority to issue regulations governingtribal gaming activities, approve tribal ordinances for regulating Class II andClass III gaming (as described below), approve management agreements for gamingfacilities, conduct investigations and generally monitor tribal gaming. TheBureau of Indian Affairs, which is a bureau of the U.S. Department of theInterior, retains certain responsibilities under IGRA, such as the approval ofper capita distribution plans of gaming revenues to individual tribal membersand the approval of transfers of lands into trust status for gaming. The Bureauof Indian Affairs also has responsibility to review and approve land leases andother agreements relating to Indian lands. Criminal enforcement is a sharedresponsibility of the U.S. Department of Justice, and, depending on the termsof a tribal-state compact that is in effect, the state in which the tribe islocated, and the tribe.

 

The NIGC is empowered to inspect and audit allIndian gaming facilities, conduct background checks on certain personsassociated with Indian gaming, hold hearings, issue subpoenas, takedepositions, adopt regulations, assess fees and impose civil penalties forviolations of IGRA. IGRA also provides for federal criminal penalties forillegal gaming on Indian land and for theft from Indian gaming facilities. TheNIGC has adopted rules implementing certain provisions of IGRA. These rulesgovern, among other things, the submission and approval of tribal gamingordinances or resolutions and the maintenance of minimum internal controlstandards for the operation of gambling games and equipment. IGRA and the NIGCregulations require an Indian tribe to have the sole proprietary interest in,and to maintain a high level of responsibility for, the conduct of any gamingon its lands. Tribes are required to issue gaming licenses under articulatedstandards, conduct or commission financial audits of their gaming enterprises,perform or commission background investigations for primary managementofficials and key employees and maintain facilities in a manner that adequatelyprotects the environment and the public health and safety. These rules also setout review and reporting procedures for tribal licensing and back groundingactivities.

 

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

 

Class I gaming on Indian lands is within theexclusive jurisdiction of Indian tribes and is not subject to federalregulation under IGRA. Class II gaming is permitted on Indian lands if:

 

•      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

 

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

 

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

 

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

 

While the terms of tribal-state compacts vary fromstate to state, (compacts within one state tend to be substantially similar).Tribal-state compacts usually specify the types of permitted games, establishtechnical standards for gaming devices, entitle the state to inspect casinos,require background investigations and licensing of casino employees, andrequire the tribe to pay a portion of the state’s expenses for establishing andmaintaining agencies that participate in the regulatory process provided in thecompact. Some tribal-state compacts are for set terms, while others are forindefinite duration.

 

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

 

*Tribal Ordinances.*     Under IGRA,except to the extent otherwise provided in a tribal-state compact as describedbelow, and subject to certain oversight and enforcement authority by the NIGC,Indian tribal governments have primary regulatory authority over gaming on landwithin a tribe’s jurisdiction. Therefore, our gaming operations and personsengaged in gaming activities are subject to the provisions of the Tribe’sordinances and regulations regarding gaming. The Tribe maintains a fullystaffed tribal gaming agency (“TGA”), known as the Dry Creek Gaming Commission,to carry out the Tribe’s regulatory responsibilities under IGRA, its ordinance,and the Compact.

 

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

 

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

 

•       the use of the revenues from thatgaming; and

 

•       the protection of the environment andthe public health and safety.

 

**Licensing and Registration Requirements of the Compactand State Regulation**

 

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

 

Prior to receiving a license, an applicant mustapply to the California Gambling Control Commission (“CGCC”) for adetermination of suitability. If the TGA receives notice that the CGCC hasdetermined that a person is unsuitable, the Compact requires that the TGArevoke any license it has issued to such person.

 

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

 

*State and Tribal Regulation.*     The CGCC andthe TGA, pursuant to the authority created in a tribal-state joint powers boardknown as the “Association”, have both adopted regulations that simplify thelicensing and registration process for certain large institutional investors,both in the initial distribution of certain debt securities and the secondarymarket.

 

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

 

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**Gaming Device Licenses**

 

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

 

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

 

In accordance with the Compact and California law,the Tribe is obligated to remit certain fees to the CGCC on a quarterly basisfor inclusion in a Revenue Sharing Trust Fund (“RSTF”) maintained by the Stateof California. The RSTF is for the benefit of tribes that have no or limitedgaming. The RSTF fees are fixed amounts per device, calculated on an annualbasis and paid quarterly. We pay these fees on behalf of the Tribe. RSTF feesfor the years ended December 31, 2005 and 2004 were $1.3 million for eachyear.

 

The U.S. Secretary of the Interior approvedamendments to or approval of 10 gaming compacts between the State of Californiaand some Indian tribes in California that were negotiated in June, 2004. Thenew compact amendments allow the tribes who agreed to the amendment to haveadditional slot machines while imposing additional significant annual paymentsto the State of California and requiring extensive mitigation and compensationto impacted local communities and provisions affecting customers and employees.The Tribe did not seek or enter into an amendment.

 

**Application for Liquor License**

 

On September 13, 2004, the Department of AlcoholicBeverage Control (“ABC”) denied the Tribe’s application for a liquor licensebased on the State Fire Marshal’s interpretation of the Uniform Building Code. InMay 2005, an Administrative Law Judge heard the Tribe’s appeal of the ABC’sdenial and recommended that the ABC reverse itself and approve the license. On August 25, 2005, the ABC announced that,effective October 11, 2005; it would adopt the Administrative Law Judge’sdecision to approve the license transfer pending a hearing on protests filed bycitizens and government officials. The ABC has received over 65 protestsagainst the license from citizens and government officials. The ABC held ahearing on the protests on March 9, 2006. The administrative law judge willmake his decision after all post hearing briefs are received. All briefs mustbe filed by early May 2006. The judge must make his decision within 30 daysafter receipt of the final brief. The decision to approve or deny the licensetransfer application may be appealed by any parties to the proceeding so longas the appeal is filed within forty (40) days of the ABC’s decision. The firstappeal is to the ABC Appeals Board, and its decision may be appealed to theCalifornia State court system.

 

 **Possible Changes in Federal Law**

 

Several billshave been introduced in Congress that would amend IGRA. While there have been anumber of technical amendments to the law, to date there have been no materialchanges to IGRA. Any amendment of IGRA could change the governmental structureand requirements within which the Tribe could conduct gaming, and may have anadverse effect on our results of operations or financial condition or imposeadditional regulatory or operational burdens.

 

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**DRY CREEK RANCHERIA BAND OF POMO INDIANS**

 

**Tribal Administration**

 

The Dry Creek Rancheria Band of Pomo Indians is afederally recognized, self-governing Indian tribe with 929 enrolled members.The reservation was established in 1915 under the authority of an ExecutiveOrder dated January 12, 1891. Pursuant to the Tribe’s Articles ofAssociation, the Tribe is governed by a Tribal Council composed of all votingmembers. Certain authority is delegated to elected tribal officers who comprisethe Board of Directors, consisting of a Chairperson, a Vice Chairperson, aSecretary/Treasurer and two members-at-large. The members of the Board ofDirectors of the Tribe are, and will continue, to serve in identical capacitiesas our Board of Directors.

 

**The Tribal Gaming Commission**

 

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

 

Each TGA Gaming Commissioner is appointed by theTribal Council to serve a three-year term. The tribal gaming ordinance and theCompact require that each Commissioner undergo a comprehensive background checkprior to his or her assuming office. Pursuant to the tribal gaming ordinance,the TGA is responsible for, among other matters, inspection of all gamingoperations within the Tribe’s reservation boundaries, enforcement of allprovisions of the tribal gaming ordinance, investigation of all allegations ofviolations of the tribal gaming ordinance, conducting or arranging forbackground investigations of all applicants for tribal gaming licenses andissuing gaming licenses in accordance with the tribal gaming ordinance and theCompact. Under law, our Casino cannot operate without TGA regulation.Therefore, the costs of such regulation, including the cost of operating theTGA have, since commencement of operations of the River Rock Casino, been paidby us and will continue to be paid by us.

 

**DESCRIPTION OF MATERIAL AGREEMENTS**

 

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

 

**The Compact**

 

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

 

Under the Compact, the gaming activities that may beoffered by the Tribe include up to 2,000 Class III gaming devices, banked andpercentage card games, and any devices or games that are authorized by theCalifornia State Lottery, provided that the Tribe does not offer such gamesthrough use of the Internet unless others in California are permitted to do so.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

**The Notes and the Indenture**

 

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

 

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

 

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The Outstanding Notes bear interest at a fixed rateof 93/4 % per year, and mature on November 1, 2011. TheOutstanding Notes are secured by a first priority pledge of our revenues andsubstantially all of our existing and future tangible and intangible personalproperty. The Outstanding Notes are senior debt. As further described in theIndenture, the Outstanding Notes are subject to optional and mandatoryredemption, and in some cases, holders of the Outstanding Notes may be requiredto surrender them for redemption by us (or to otherwise dispose of theOutstanding Notes) if certain gaming regulations are not satisfied.

 

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

 

**Cash Collateral and Disbursement Agreement**

 

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

 

*Construction Disbursement Account.*     Approximately$61.1 million of the net proceeds of the Notes Offering was deposited intoa construction disbursement account and was used to fund the design andconstruction of our expansion project. All funds in the constructiondisbursement account are pledged to the trustee for the benefit of itself andthe holders of the Outstanding Notes until disbursed by U.S. Bank NationalAssociation in accordance with the Cash Collateral and Disbursement Agreement.Approximately $3.5 million from the proceeds from the Notes Offering willbe used to reimburse the Tribe for payments made to Swinerton Builders prior tothe sale of the Notes. We have agreed to reimburse those costs to the Tribe.Through December 31, 2005, we reimbursed $1.5 million of this amount and planto reimburse the balance to the Tribe. The construction disbursement accounthad $2.8 million remaining as of December 31, 2005.

 

*Construction Escrow Account.*     $10.0 millionof the net proceeds of the Notes Offering was deposited into a constructionescrow account to fund qualifying construction cost overruns. All funds in theconstruction escrow account are pledged to the trustee for the benefit ofitself and the holders of the Outstanding Notes until disbursed by U.S. BankNational Association in accordance with the Cash Collateral and DisbursementAgreement.

 

Balances remaining in the construction escrowaccount after substantial completion of the expansion project may be disbursedfrom the construction escrow account to repay our subordinated indebtedness, asprovided in the Intercreditor Agreement. We used $10.0 million in the accountto pay off the Subordinated Note on March 13, 2005. The construction escrowaccount has $0.1 million remaining as of December 31, 2005.

 

*Dugan Property ImprovementsAccount.*     $5.0 millionof the net proceeds of the Notes Offering was deposited into the Dugan Propertyimprovements account and will be used to build an additional access road to theTribe’s reservation through the Dugan Property and related improvements to theDugan Property. All such funds will be held in the Dugan Property improvementsaccount and pledged to the trustee for the benefit of itself and the holders ofthe Outstanding Notes until disbursed by U.S. Bank National Association inaccordance with the Cash Collateral and Disbursement Agreement. Subject tocertain exceptions, U.S. Bank National Association, as the disbursement agent,will disburse funds from the Dugan Property improvements account only uponcertification by us that we have adequate funds to complete the road projectand upon the satisfaction of the other disbursement conditions set forth in theCash Collateral and Disbursement Agreement. If there are funds in the DuganProperty improvements account after the road project is completed, such balancemay be transferred to the operating account. The Dugan Property improvementsaccount had $4.5 million remaining as of December 31, 2005.

 

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*Operating Account.*     We deposit allof our cash and cash equivalents in excess of $3.0 million into theoperating account 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 byWells Fargo Bank, N.A. from the operating account for all purposes permitted bythe Indenture.

 

*Investments; Pledge of Accounts.*     Eachdisbursement agent is required to invest any money held by it in the collateralaccounts established pursuant to the Cash Collateral and Disbursement Agreementin cash equivalents and such government securities as may be directed inwriting by us from time to time. Any income or gain realized as a result ofsuch investment is required to be held as part of the applicable account andreinvested as provided in the Cash Collateral and Disbursement Agreement. Allfunds, securities and other assets in the collateral accounts establishedpursuant to the Cash Collateral and Disbursement Agreement are pledged to thetrustee for the benefit of the holders of the Outstanding Notes.

 

**Construction Contracts**

 

In April 2004, we entered into a guaranteed maximumprice contract which includes work performed and cost related thereto fromOctober 2003 with Swinerton Builders as general contractor for the parking structuresportion of our expansion project, and as the design-builder of the electricaland mechanical systems of the expansion project. The guaranteed maximum priceof the parking structures contract is approximately $37.1 million. Whilethe guaranteed maximum price contains a contractor contingency for certain costoverruns, the contractor will remain liable for all additional costs notresulting from scope changes requested by us or circumstances not within thecontractor’s control. We have granted the contractor a limited waiver of oursovereign immunity from unconsented suits. Since this contract includes workperformed and costs related thereto since October 2003, we and the Tribe havemade payments to Swinerton Builders pursuant to this contract of approximately$36.6 million through December 31, 2005.

 

In October 2003, the Tribe entered into an agreementwith FFKR Architects/Planners II, of Salt Lake City, Utah, for certainarchitectural and related services as set forth in that agreement, inconnection with the parking structures portion of our expansion project.Pursuant to the contract, we have made payments to FFKR Architects/Planners IIof approximately $2.3 million through December 31, 2005.

 

In May 2003, the Tribe entered into a contract withFFKR Architects/Planners II to act as the Tribe’s representative to select andengage testing, engineering, design and certain construction subcontractors forour infrastructure project. This contract was assigned to us pursuant to theordinance of the Tribe which established us.

 

**Lease for Casino**

 

In May 2002, the Tribe entered into a lease withSprung Instant Structures, Inc. for two dome-shaped structures that house ourgaming facility. The lease agreement was assigned to us and was renewed throughAugust 17, 2007. Monthly payments are $36,230. At the end of the leaseterm, at our option, 100% of the first four lease payments or, if all suchpayments have been timely made, 40% of the last 24 lease payments will becredited towards the $1.5 million purchase price, which would result in apurchase price of $1.1 million, assuming all 24 lease payments are timelymade. The option may be exercised by payment of the full purchase price, lessthe applicable credit, on or before the expiration of the lease agreement.

 

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**Development and Loan Agreement**

 

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

 

In addition to its repayment obligations, inconsideration for DCC providing credit enhancement and other services under theDevelopment Agreement, we are obligated to pay to DCC 20% of the casino’s netincome before distributions to the Tribe plus depreciation and amortizationplus an amount equal to annual interest on $25.0 million principal amountof the Outstanding Notes less revenues from sales of alcoholic beverages (the “CreditEnhancement Fee”). The Credit Enhancement Fee is required to be paid for aperiod of five years commencing on June 1, 2003. The Credit EnhancementFee for the years ended December 31, 2005, 2004 and 2003 was $7.7 million,$5.1 million and $2.2 million, respectively.

 

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

 

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

 

**Intercreditor Agreement**

 

Pursuant to the Intercreditor Agreement among DCC,U.S. Bank National Association, as trustee for the holders of the Notes, theTribe and us and the Credit Enhancement Fees payable pursuant to theDevelopment Agreement are subordinated to our senior debt, including theOutstanding Notes. If all or any part of our assets, or the proceeds from thesale of our assets, are subject to any distribution, division or application toour creditors, then any payment shall be paid or delivered directly to thetrustee for the Notes for application to senior debt. If any payment,distribution or security is received by DCC with respect to the CreditEnhancement Fee in violation of the Intercreditor Agreement, DCC must deliverthe same to the trustee for the benefit of the holders of our senior debt,including the Outstanding Notes.

 

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

 

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**Item 1A. Risk Factors**

 

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

 

**RisksRelated to Our Business**

 

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

 

As of December 31, 2005, we had approximately$198.3 million of indebtedness outstanding, which includes$198.0 million of debt on the Outstanding Notes. Our substantial indebtednesscould have important consequences and significant effects on our business andfuture operations. For example, it could:

 

•      increase our vulnerability to general adverseeconomic 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 substantial portionof our cash flow from operations to repay our outstanding indebtedness, therebyreducing the availability of our cash flow to fund working capital, capitalexpenditures, 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 additional funds.

 

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

 

***We will require a significant amountof cash to service our indebtedness and fund our gaming operations. Our abilityto generate cash depends on many factors beyond our control.***

 

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

 

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

 

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

 

•      a decline in the economies of the local areaswhere our guests are located or a decline in the number of gaming guests fromthese areas for any reason;

 

•      a downturn in regional or local economicconditions;

 

•      an increase in competition in the local areaswhere our guests reside;

 

•      inaccessibility due to road construction orclosures of primary access routes; and

 

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

 

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

 

***We have experienced landslides andmay not be insured against damage resulting from landslides.***

 

Although we maintain insurance customary in ourindustry, including earthquake insurance, our insurance coverage may not beadequate to cover all the risks to which our business and assets may besubject. Although we have experienced two landslides since our operationsbegan, our landslide-related insurance is limited to events incident to earthquakes.Although neither landslide disrupted our operations, and our current expansionproject, including the excavation, retaining wall and parking structures, isintended to prevent future landslides, a landslide could occur in the futurethat could materially disrupt our operations and materially affect ourfinancial condition.

 

***Recent highway and bridge construction projects mayimpact the length of travel to our Casino by certain customers.***

 

One of the main routes to the Casino, fromthe Geyserville exit off Highway 101, has been closed since December 31, 2005,due to damage to the Geyserville Bridge in Geyserville, California, as a resultof the flooding of the Russian River. We have been notified by Caltrans, theCalifornia State Agency responsible for roads and bridges, that the damage tothe Geyserville Bridge was so significant that a new bridge will need to bebuilt.  Construction of the new bridge is expected to be completed duringthe later part of 2006.  Patrons using Highway 101 are being notified thataccess to the Casino from the Geyserville exit is temporarily closed, but thatthe Lytton Springs exit remains open and provides full and convenient access tothe Casino. In addition to the access roads from Lytton Springs Road andGeyserville exits off Highway 101, there is also access to the Casino fromChalk Hill road from Santa Rosa, which takes patrons through the vineyards ofthe Alexander Valley and Highway 128 through the Napa Valley, which extends toSacramento and the East Bay.

 

We have, through radio and print advertisingand our website, sought to fully inform our customer base of alternate routesto the Casino. In addition, the Casino has posted signage in strategic roadwaylocations which details the alternate route from Highway 101.

 

In addition, in March 2006, Caltrans beganconstruction on a 2-mile stretch of Highway 101 in the downtown section ofSanta Rosa, California, approximately 20 miles south of our Casino.  Theproject is intended to widen Highway 101 resulting in an additional third lanein each direction.  The project requires the closure of one lane ofHighway 101 in both directions from 11 p.m. to 5 a.m. Mondays through Thursdaysand midnight to 5 a.m. on Fridays.  All lanes will be open during daylighthours and weekends. The project will also involve the closure of certainfreeway entrance and exit ramps and some local streets in Santa Rosa.  Thelane widening project is expected to be completed in 30 months. We have not yetevaluated the potential impact of this project on our operations.

 

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***We face competition from otherCalifornia Indian casinos, casinos located in Nevada and elsewhere and otherforms of gaming.***

 

The gaming industry is very competitive. We face orwill face competition from existing and proposed Indian gaming facilities inthe surrounding area and elsewhere in California and with casino gaming inNevada and elsewhere, including gaming facilities that could be located closerto the San Francisco Bay area than our gaming facility. We also compete withcard rooms located in the surrounding area; 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 may increasein the future. Many of our competitors have substantially greater resources andname recognition than our Casino. In addition, we may also face competitionfrom new facilities in our market that may be built by other Indian tribes inthe future.

 

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

 

Unlikemost of our competitors, we do not currently hold a license to sell alcohol onour gaming facility premises. To obtain a liquor license, the Tribe’s liquorlicense application must be approved by the Department of Alcohol BeverageControl (“ABC”). The ABC decided to recommend the denial of our alcohol licenseapplication based upon a finding by the California State Fire Marshal thatalthough the Casino was in compliance with applicable building codes, ifalcohol were served in the Casino, it would fall out of compliance. We believethat we are in compliance with all applicable safety codes required to obtainan alcohol license for the Casino.

 

On September 13, 2004, the Department of AlcoholicBeverage Control (“ABC”) denied the Tribe’s application for a liquor licensebased on the State Fire Marshal’s interpretation of the Uniform Building Code. InMay 2005, an Administrative Law Judge heard the Tribe’s appeal of the ABC’sdenial and recommended that the ABC reverse itself and approve the license. On August 25, 2005, the ABC announced that,effective October 11, 2005; it would adopt the Administrative Law Judge’sdecision to approve the license transfer pending a hearing on protests filed bycitizens and government officials. The ABC has received over 65 protestsagainst the license from citizens and government officials. The ABC held ahearing on the protests on March 9, 2006. The administrative law judge willmake his decision after all post hearing briefs are received. All briefs mustbe filed by early May 2006. The judge must make his decision within 30 daysafter receipt of the final brief. The decision to approve or deny the licensetransfer application may be appealed by any parties to the proceeding so longas the appeal is filed within forty (40) days of the ABC’s decision. The firstappeal is to the ABC Appeals Board, and its decision may be appealed to theCalifornia State court system.

 

Wemay not be successful in obtaining either a temporary or a final license andeven if we are successful in obtaining a liquor license, we cannot predict thetiming thereof. Failure to obtain a liquor license could be a competitivedisadvantage and, therefore, could materially and adversely affect our abilityto attract guests to our gaming facility.

 

***We could face difficulties inattracting and retaining qualified employees, and are currently conducting asearch for a new Chief Executive Officer and General Manager.***

 

The continued operation of our gaming facilityrequires qualified executives, managers and a number of skilled employees withgaming and hospitality industry experience and qualifications. There is ashortage of skilled labor in the gaming industry and in our geographic region.Such shortages may intensify as additional gaming facilities open in thesurrounding area. We may not be able to continue to recruit, train and retain asufficient number of qualified employees, particularly due to the very smallnumber of workers skilled in the gaming industry who reside in the immediatevicinity of our gaming facility. We are currently conducting a search for aChief Executive Officer and General Manager to replace Douglas Searle, ourformer Chief Executive Officer and General Manager, who resigned in November2005.

 

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***Restrictive covenants in theIndenture may limit our ability to expand our operations and to pursue ourbusiness strategies.***

 

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

 

***Risks related to environmentalmatters could have an adverse effect on us.***

 

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

 

Pursuant to and in accordance with the Compact, theTribe adopted an ordinance providing for the preparation, circulation andconsideration by the Tribe of an environmental study concerning potentialoff-reservation environmental impacts of any renovation, modification,construction or development project relating to or associated with the gamingfacility. Among other things, the Compact requires that in fashioning theordinance, the Tribe must make a good faith effort to incorporate the policiesand purposes of the National Environmental Policy Act and the CaliforniaEnvironmental Quality Act consistent with the Tribe’s governmental interests.The Compact’s environmental provisions are identical to such provisions incompacts for all other California tribes that entered into compacts in oraround 1999. The Tribe believes it has complied, and intends to continue tocomply, with all applicable requirements in its environmental ordinance, butthe County of Sonoma has taken issue with the Tribe’s position and claims thatthe Compact’s environmental requirements are not being fulfilled. The Statecould claim the Tribe is in breach of the Compact and seek to have the Compactterminated.

 

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

 

We are an unincorporated instrumentality of theTribe, formed pursuant to a law of the Tribe. This tribal law also providesthat our obligations and other liabilities are not those of the Tribe and thatthe obligations and liabilities of the Tribe are not ours. This law is untestedand generally has no direct counterpart in other areas of the law. If this lawshould prove to be ineffective at limiting our liability, our business and assetscould become subject to claims asserted against the Tribe or its assets.Similarly, we would be liable for such claims if the Tribe waived its sovereignimmunity (with respect to which we have no control) to an extent that allowedenforcement of such claims against our business or assets.

 

**RisksRelating to the Indian Gaming Industry**

 

***Our gaming operations areextensively regulated by federal laws and the Compact, and non-compliance withthese laws or the Compact by us or the Tribe, as well as changes in the laws orfuture interpretations of the laws or the Compact, could have a materialadverse effect on our gaming operations.***

 

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

 

Changes in applicable laws or regulations, or futureinterpretation of these laws or regulations could limit or materially affectthe types of gaming that we may offer and, consequently, our revenue. Congresshas regulatory authority over Indian affairs and can establish and change theterms upon which Indian tribes may conduct gaming.

 

18

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Currently, the operation ofall gaming on Indian lands is subject to IGRA. For the past several years,legislation has been introduced in Congress designed to amend IGRA, includingproposed legislation limiting the scope of gaming that can be offered and theconditions under which gaming may be offered. While none of the substantiveproposed amendments to IGRA have proceeded very far in the legislative process,we cannot predict the ramifications of future congressional legislative acts.It is possible that future legislation may result in a material adverse effecton our operations.

 

***Tribal-state compacts arerenegotiable and the outcome of any renegotiation may negatively impact ourcompetitive position or otherwise adversely affect our financial condition,results of operations or cash flows.***

 

In March, 2003, the State of California requestedrenegotiations with the Tribe and other tribes with respect to matters relatedto the number of slot machines permitted at tribal casinos under tribal-stategaming compacts with the State, the way in which slot machine licenses areallocated within the state under those compacts, and the fees charged for slotmachine licenses. We did not renegotiate the terms of our Compact, althoughsome other tribes in California have done so. Those renegotiations, plus theaddition of new compacts the State may be entering into with tribes in ourmarket area that were not previously engaged in gaming, may have negativeeffects on our competitive position, and our results of operations could bematerially and adversely affected. Even if our negotiations with the State ofCalifornia were to result in an increase in the number of slot machines wecould operate, the State has indicated that any increase could result in higherlicense fees being imposed, which, in light of possible other competition,could result in lower revenues. In addition, the state’s willingness torenegotiate over slot machine limits has been tied to its imposition of furtherregulations on Indian gaming, particularly on the subject of greater Countyinvolvement, provisions favoring negotiating opportunities for organized labor,and other non-economic issues. The effect of the State’s injection of thoseissues into the renegotiation process, and the resistance of some tribes torenegotiate because of those issues, could have a negative impact on the public’sview of Indian gaming, the effect of which we cannot predict. Finally, anyamendment to our compact or any other compact in the State requires theapproval of the tribe, the Governor, the California legislature and the U.S.Secretary of the Interior. Some renegotiated (and new) compacts have beenapproved through that process, but the public debate that has surrounded thoserenegotiations and the approval process could have a negative impact on Indiangaming generally within the State and on a national level, the likelihood orextent of which cannot be predicted.

 

***A change in our current non-taxablestatus could have a material adverse effect on our cash flow and ability tofulfill our obligations under the Outstanding Notes.***

 

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

 

Efforts have been made in Congress over the pastseveral years to tax the income of tribal business enterprises. These haveincluded a House of Representatives bill that would have taxed gaming incomeearned by Indian tribes as business income subject to corporate tax rates.Although such legislation was not enacted, similar legislation could be passedin the future. Future legislation in this area could materially adverselyaffect our ability to fulfill our obligations under the Outstanding Notes.

 

**Item 2.Properties.**

 

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

 

We made a distribution to the Tribe from the netproceeds of the Notes Offering to enable the Tribe to acquire and develop anapproximately 18-acre parcel of land adjacent to the reservation (the “DuganProperty”). Title to the parcel will initially be held by the Tribe, althoughthe Tribe is seeking to have the parcel taken into trust for the Tribe’sbenefit. The Tribe has granted us access to any benefits the property may havefor our Casino, including road access and water rights. As of December 31, 2005,we had $4.5 million remaining in an improvements account which was fundedfrom proceeds from the Notes Offering to be used primarily to build anadditional access road to the Tribe’s reservation through the Dugan Property.The Dugan Property may be subject to certain zoning, use, environmental andother restrictions, permits and processes under county and state law, includingbut not limited to certain agreements that have been made relative to the DuganProperty regarding agricultural use limitations and related property taxbenefits. We have completed the initial planning on the road from the DuganProperty to the Tribe’s reservation.

 

19

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**Item 3. Legal Proceedings.**

 

*Sonoma County Fire Marshal Inspection Case*

 

OnOctober 7, 2002, the Sonoma County Fire Chief (the “County Fire Chief”) filedan *ex parte* application for an inspectionwarrant in the Superior Court of the State of California for the County ofSonoma, seeking to inspect the casino. The Tribe believes that there is nobasis for the County’s Fire Chief to assert jurisdiction over the Tribe’slands, which are governed by tribal and federal law and the Compact. On October9, 2002, the Tribe removed the case to the United States District Court for theNorthern District of California The County Fire Chief moved to remand and movedfor summary judgment and the Tribe moved to dismiss under Federal Rules ofCivil procedure 12(b)(6) and 12(b)(7). On December 9, 2004, the Court issued anorder granting in part and denying in part the Tribe’s 12(b) (6) motion anddenying the County Fire Chief’s summary judgment motion. The order reaffirmedthe Court’s prior ruling denying the remand of that Public Law 280 does notauthorize the County Fire Chief the inspect the casino. On March 1, 2005 theCourt issued an order granting in part and denying in part the Tribe’s 12(b)(7) motion. On March 4, 2005, the Tribe moved for summary judgment, and onApril 29, 2005, the Court granted the Tribe’s motion. The County Fire Chieffiled a Notice of Appeal on May 26, 2005, at the Ninth Circuit Court of Appeals.Briefing was completed at the Ninth Circuit on November 8, 2005. The case hasnot yet been set for oral argument.

 

*California Department of Alcoholic Beverage Control*

 

On September 13, 2004, the Department of AlcoholicBeverage Control (“ABC”) denied the Tribe’s application for a liquor licensebased on the State Fire Marshal’s interpretation of the Uniform Building Code. InMay 2005, an Administrative Law Judge heard the Tribe’s appeal of the ABC’sdenial and recommended that the ABC reverse itself and approve the license. On August 25, 2005, the ABC announced that,effective October 11, 2005; it would adopt the Administrative Law Judge’sdecision to approve the license transfer pending a hearing on protests filed bycitizens and government officials. The ABC has received over 65 protestsagainst the license from citizens and government officials. The ABC held ahearing on the protests on March 9, 2006. The administrative law judge willmake his decision after all post hearing briefs are received. All briefs mustbe filed by early May 2006. The judge must make his decision within 30 daysafter receipt of the final brief. The decision to approve or deny the licensetransfer application may be appealed by any parties to the proceeding so longas the appeal is filed within forty (40) days of the ABC’s decision. The firstappeal is to the ABC Appeals Board, and its decision may be appealed to theCalifornia State court system.

 

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

 

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

 

None.

 

20

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**PART II**

 

**Item 5. Market for Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities.**

 

We have not issued or sold any equity securities.

 

**Item 6. Selected Financial Data**.

 

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

 

The following table presents summary historicalstatements of revenues and expenses, balance sheet and other data for theperiods presented and should be read in conjunction with Item 7 – “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andour financial statements and the related notes thereto, all included elsewherein this Form 10-K. The historical financial data for the years ended December31, 2005, 2004 and 2003 have been derived from our audited historical financialstatements included elsewhere in this report. The following table sets forthour statement of operations for the years ended December 31, 2005, 2004 and2003.

 

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| ** **                                          | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003 (a)** | ** ** | **Year Ended  December 31,  2002 (b)** | ** ** |
|-----------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **(Dollars in Thousands)**         | ** ** |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| **Statement of Revenue and  Expenses:**             |       |                               |       |                               |       |                                   |       |                                   |       |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Revenues                                            |       |                               |       |                               |       |                                   |       |                                   |       |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Casino                                              |       | $                                  | 135,638    |                               | $          | 104,024                                |       | $                                      | 67,127     |   | $ | 4,615 |   |
| Food, beverage & retail                         |       | 7,522                              |       | 5,381                              |       | 2,927                                  |       | —                                 |       |
| Other                                               |       | 663                                |       | 575                                |       | 380                                    |       | 21                                     |       |
| Gross revenues                                      |       | 143,823                            |       | 109,980                            |       | 70,434                                 |       | 4,636                                  |       |
| Promotional  allowance                              |       | (4,628                             | )          | (2,434                             | )          | (1,141                                 | )          | —                                 |       |
| Net revenues                                        |       | 139,195                            |       | 107,546                            |       | 69,293                                 |       | 4,636                                  |       |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Operating  Expenses                                 |       |                               |       |                               |       |                                   |       |                                   |       |
| Casino                                              |       | 21,754                             |       | 19,499                             |       | 12,753                                 |       | 657                                    |       |
| Food, beverage & retail                         |       | 6,491                              |       | 4,704                              |       | 3,263                                  |       | 63                                     |       |
| Selling, general and administrative                 |       | 49,064                             |       | 39,268                             |       | 28,046                                 |       | 3,147                                  |       |
| Depreciation                                        |       | 11,012                             |       | 6,390                              |       | 4,391                                  |       | 219                                    |       |
| Preopening costs                                    |       | —                             |       | —                             |       | —                                 |       | 1,899                                  |       |
| Credit enhancement fee                              |       | 7,669                              |       | 5,112                              |       | 2,249                                  |       | —                                 |       |
| Gaming commission and surveillance expense  (c)     |       | 2,773                              |       | 1,780                              |       | 1,435                                  |       | 422                                    |       |
| Compact revenue sharing trust fund                  |       | 1,335                              |       | 1,335                              |       | 1,335                                  |       | 1,335                                  |       |
| Total Operating expenses                            |       | 100,098                            |       | 78,088                             |       | 53,472                                 |       | 7,742                                  |       |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Income  (loss) from operations                      |       | 39,097                             |       | 29,458                             |       | 15,821                                 |       | (3,106                                 | )          |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Interest expense, net                               |       | (21,047                            | )          | (17,446                            | )          | (7,064                                 | )          | (69                                    | )          |
| Interest income                                     |       | 332                                |       | 499                                |       | 109                                    |       | —                                 |       |
| Loss on sale of assets                              |       | (104                               | )          | (63                                | )          | —                                 |       | —                                 |       |
| Other expense                                       |       | (2                                 | )          | (1                                 | )          | (1                                     | )          | —                                 |       |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Other expense-net                                   |       | (20,821                            | )          | (17,011                            | )          | (6,956                                 | )          | (69                                    | )          |
|                                                |       |                               |       |                               |       |                                   |       |                                   |       |
| Income  (loss) before distribution to the Tribe (d) |       | $                                  | 18,276     |                               | $          | 12,447                                 |       | $                                      | 8,865      |   | $ | (3,175 | ) |

 

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| ** **                                                     | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003 (a)** | ** ** | **Year Ended  December 31,  2002 (b)** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                     | ** ** | **(Dollars in Thousands)**         | ** ** |
| **Other Financial Data:**                                      |       |                                         |       |                                         |       |                                                  |       |                                                  |       |
| Net cash provided by operating activities                      |       | $                                            | 56,081     |                                         | $          | 38,626                                                |       | $                                                     | 26,742     |   | $ | 190 |   |
| Net cash provided by capital and related financing  activities |       | $                                            | (45,870    | )                                            | $          | (29,292                                               | )          | $                                                     | 44,167     |   | $ | 1,643 |   |
| Net cash used in non-capital financing  activities             |       | $                                            | (11,180    | )                                            | $          | (7,613                                                | )          | $                                                     | (54,883    | ) | $ | (960 | ) |
| EBITDA (e)                                                     |       | $                                            | 50,335     |                                         | $          | 36,283                                                |       | $                                                     | 20,409     |   | $ | (2,887 | ) |
| Capital expenditures                                           |       | $                                            | 14,767     |                                         | $          | 63,444                                                |       | $                                                     | 42,165     |   | $ | 36,659 |   |
| Ratio of earnings to fixed charges                             |       | 1.83                                         | X          | 1.37                                         | X          | 1.87                                                  | X          | $                                                     | —     |   |
| Total Assets                                                   |       | $                                            | 167,678    |                                         | $          | 174,813                                               |       | $                                                     | 170,180    |   | $ | 39,946 |   |
| Long term liabilities                                          |       | $                                            | 198,243    |                                         | $          | 197,823                                               |       | $                                                     | 197,410    |   | $ | 31,919 |   |
| Distributions to Tribe                                         |       | $                                            | 11,180     |                                         | $          | 7,613                                                 |       | $                                                     | 54,883     |   | $ | 960 |   |

 

The following table reconcilesEBITDA and net cash provided by operating activities for the periods indicated:

 
| ** **                                               | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | **2005**                     | ** ** | **2004**                     | ** ** | **2003 (a)**                 | ** ** | **2002 (b)** | ** ** |
| ** **                                               | ** ** | **(Dollars in Thousands)**   | ** ** |
| ** **                                               | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Net cash  provided by operating activities               |       | $                            | 56,081     |                         | $          | 38,626                       |       | $ | 26,742 |   | $ | 190 |   |
| Increase  (decrease) in accounts receivable              |       | 39                           |       | (53                          | )          | 96                           |       | 10 |   |
| (Decrease)  increase in inventories                      |       | (224                         | )          | 233                          |       | 145                          |       | 5 |   |
| Increase  (decrease) in prepaid and other current assets |       | 654                          |       | (109                         | )          | 853                          |       | 29 |   |
| (Increase)  decrease in accounts payable trade credit    |       | 1,220                        |       | 2,787                        |       | (4,378                       | )          | (1,807 | ) |
| Increase  (decrease) in accrued liabilities              |       | 338                          |       | (27                          | )          | (800                         | )          | (1,314 | ) |
| Loss on sale  of fixed assets                            |       | (104                         | )          | (62                          | )          | —                       |       | — |   |
| Credit  enhancement fee                                  |       | (7,669                       | )          | (5,112                       | )          | (2,249                       | )          | — |   |
|                                                     |       |                         |       |                         |       |                         |       |   |   |
| **EBITDA**                                               |       | $                            | 50,335     |                         | $          | 36,283                       |       | $ | 20,409 |   | $ | (2,887 | ) |

 

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(a)River Rock Casino commenced full-scale operations on April 1, 2003 andincreased its number of gaming devices to reach 1,600 on June 18, 2003.

 

(b)River Rock Casino commenced partial operations on September 14, 2002.

 

 (c)The Authority paid for various expenses for the Tribal Gaming Commission andsurveillance in 2005, 2004 and 2003. Prior to July 1, 2005, Tribal GamingCommission and surveillance costs were billed and reimbursed as incurred.Tribal Gaming Commission expenses were reported as Gaming Commission expensesand surveillance costs were reported in Selling, General and AdministrativeExpenses on the Statement of Revenues, Expenses and Change in Fund Balance.Surveillance costs for the years ended December 31, 2004 and 2003 of $828,625and $781,166 respectively, are included in Selling, General and AdministrativeExpenses to Gaming Commission Expenses. Surveillance costs for the six monthsended June 30, 2005 of $475,696, previously reported in Selling, General andAdministrative Expenses, which have been reclassified into Gaming Commissionand Surveillance Expenses. Effective July 1, 2005, the Tribal Gaming Commissionadopted a regulation on payments of regulatory fees from us. For fiscal year2005, Tribal Gaming Commission and surveillance expenses are being recorded inGaming Commission and surveillance expenses on the Statement of Revenues,Expenses and Changes in Fund Balance. Gaming Commission and surveillanceexpenses for the twelve months ended December 31, 2005, 2004 and 2003 were$2,773,369, $1,780,194 and $1,434,835, respectively.

 

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(d)Our financial statements are prepared in accordance with GovernmentalAccounting Standards Board (“GASB”) pronouncements. There are differencesbetween financial statements prepared in accordance with GASB pronouncementsand those prepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statements of revenues, expenses and change 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.

 

(e)“EBITDA” is income (loss) before distributions to Tribe plus interest, taxes,depreciation and amortization. EBITDA does not represent and should not beconsidered an alternative to net income or cash flow from operations, asdetermined by Generally Accepted Accounting Principals. Moreover, ourmethodologies and practices in determining EBITDA may not be comparable tothose used by other companies. EBITDA is included in this Form 10-K because itis a basis upon which we assess our liquidity and because certain covenants inthe Indenture are tied to similar measures. EBITDA is also included in thisForm 10-K because we believe that it presents useful information regarding ourability to service and incur indebtedness. EBITDA does not take into accountour debt service requirements and, accordingly, is not necessarily indicativeof amounts that may be available for debt service.

 

**Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

The following discussion and analysis of ourfinancial condition and results of operations should be read in conjunctionwith the accompanying financial statements and related notes beginning on page45 of this Annual Report on Form 10-K, “Item 6.”Selected Financial Data” and “PartI. Item 1. “Business.”

 

**Overview**

 

*General*

 

We have historically operated as a separate wholly-ownedoperating property of the Tribe. We were formed as an unincorporatedgovernmental instrumentality of the Tribe to own and operate the River RockCasino. Upon the issuance of our Notes, the Tribe reorganized so that itsgaming business became owned and operated by us. This reorganization wasaccounted for as a reorganization of entities under common control. Inaccordance with Statement of Financial Accounting Standards “141, BusinessCombinations”, the assets and liabilities of the Casino are presented by us ona historical cost basis.

 

We offer Class III slot and video poker gamingmachines, house banked table games (including blackjack, three card poker, mini-baccaratand Pai Gow poker), Poker, featuring Texan Hold ‘em, comprehensive food and non-alcoholicbeverage offerings, and goods for sale in our gift shop.

 

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

 

•      On September 14, 2002, we commencedoperations with approximately 66 gaming devices located in a portion of ourcurrent gaming facility.

 

•      Between September 14, 2002 and March 31,2003, we periodically installed and removed a number of our gaming devices inpreparation for the opening of our entire gaming facility. During such period,the number of gaming devices operated increased to 242.

 

•      On April 1, 2003, we opened the remainder ofour 62,000 square-foot gaming facility, including our food and beveragefacilities, our Players Club, 16 table games and an additional 302 gamingdevices.

 

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•      Between April 1, 2003 and June 18, 2003, wegradually increased the number of gaming devices from 544 to our current totalof 1,600.

 

•      In February 2005 we increased the number ofour table games from 16 to 24.

 

•      On December 2, 2005, we removed 3 table gamesand added 5 Poker tables featuring Texas Hold’em.

 

We commenced operations with one parking lot locateddirectly adjacent to our gaming facility, designed to accommodate 225 customervehicles or up to approximately 325 customer vehicles when operated by a valetservice during peak demand periods. On March 23, 2003, we completed theconstruction of our second parking lot, designed to accommodate 80 customervehicles or up to approximately 100 customer vehicles when operated by a valetservice. On April 20, 2003, we completed the construction of our third parkinglot, designed to accommodate 70 customer vehicles or up to approximately 75customer vehicles when operated by a valet service.

 

On November 7, 2003, we issued the Notes. A portionof the net proceeds from the sale of the Notes was used to fund our expansionproject, which includes 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 ourinfrastructure projects, including the excavation of a hillside and theconstruction of retaining walls. In April 2003, we began the design process forthe three new parking structures. The parking structures portion of theexpansion project was completed in two phases and our existing gaming facilityremained open during construction. On October 29, 2004, we obtained a temporarycertificate of occupancy to open the entire first parking structure for selfand valet parking. On December 1, 2004, we received a certificate ofsubstantial completion on the first parking structure. The second phase, whichincluded our second and third new parking structures with approximately 445 andapproximately 470 spaces, respectively, opened on December 29, 2004. As ofDecember 31, 2005, we have parking spaces available to accommodate a total ofapproximately 1,642 customer parked vehicles (decreasing from 1,735 due toconstruction of a retention basin in lot B) and 2,100 vehicles when operated bya valet service.

 

**Critical Accounting Policies and Estimates**

 

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

 

•      Casino Revenues – In accordance with industrypractice, casino revenue is recognized as the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots.

 

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•      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 forimpairment in accordance with the Financial Accounting Standards Board’sStatement of Financial Accounting Standards No. “144, “Accounting for theImpairment or Disposal of Long-Lived Assets”. When events or circumstancesindicate that an asset should be reviewed for impairment, we compare theundiscounted cash flow derived from the asset or asset group to the netcarrying value. If an impairment is indicated, the impairment loss is measuredby the amount in which the carrying value of the asset or asset group exceedsits fair value. Fair value is measured by comparable sales, solicited offers ordiscounted cash flow models.

 

•       Accrued Progressive Slot Jackpots–Accrued progressive slot jackpots consist of estimates for prizes relating tovarious games that have accumulated jackpots. We have recorded the cost ofthese anticipated payouts as a reduction of casino revenues and the cost isincluded as a component of accrued liabilities.

 

•      Contingencies –We assess our exposure to losscontingencies, including legal matters, and provide for an exposure if it isjudged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of December 31, 2005, we have determined that no accruals forclaims and legal actions are required. If circumstances surrounding claims andlegal actions change, the addition of accruals for such items in future periodsmay be required, which accruals may be material.

 

There are differencesbetween financial statements prepared in accordance with Governmental AccountingStandards Board (“GASB”) pronouncements and those prepared in accordance withFinancial Accounting Standards Board (“FASB”) pronouncements. The statement ofrevenues, expenses and fund deficit is a combined statement under GASBpronouncements. FASB pronouncements allow a statement of income or operationsand a statement of owners’ or shareholders’ (deficit) equity, which is wheredistributions to owners would be presented under FASB pronouncements. Theamount shown on our statement of revenues, expenses and fund deficit as incomebefore distributions to the Tribe would not be different if we followed allFASB pronouncements to determine net income and would be the most comparableamount to net income computed under FASB pronouncements. We are an unincorporatedinstrumentality created by tribal law and accounted for as a separate fund ofthe Tribe; as such there is no owners’ or shareholders’ (deficit) equity astraditionally represented under FASB pronouncements. The most comparablemeasure of owners’ (deficit) equity presented on our balance sheet would beFund Deficit.

 

**Results of Operations**

 

**Quarterly Results of Operations**

 

The following table sets forth unaudited quarterlyoperations data for each full quarter since we commenced full-scale operationswith 1,600 gaming devices on June 12, 2003. In our opinion, this data reflectsall adjustments, consisting only of normal recurring adjustments, necessary fora fair presentation of the data. The results of operations for any quarter arenot necessarily indicative of the results of operations for a full year or anyfuture period. Certain amounts from prior quarters have been reclassified to beconsistent with our current presentation, i.e. surveillance costs are nowincluded in Gaming commission expense. We expect our quarterly operatingresults to vary significantly in future periods.

 

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| ** **                               | ** ** | **Quarters  Ended**         | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **December  31,**           | ** ** | **September  30** | ** ** | **June 30,** | ** ** | **March  31,** | ** ** | **December  31,** | ** ** | **September  30,** | ** ** | **June 30,** | ** ** | **March  31,** | ** ** | **December  31,** | ** ** | **September  30,** | ** ** | **June 30,** | ** ** |
| ** **                               | ** ** | **2005**                    | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** | **2004** | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** | **2003** | ** ** |
| ** **                               |       | **(dollars  in thousands)** |       |
| **Statement  of Revenues and Expenses:** |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                   |       | $                           | 34,281     |   | $ | 34,788 |   | $ | 34,842 |   | $ | 31,727 |   | $ | 27,562 |   | $ | 27,177 |   | $ | 24,549 |   | $ | 24,736 |   | $ | 22,028 |   | $ | 21,391 |   | $ | 18,421 |   |
| Food, beverage  and retail               |       | 2,009                       |       | 2,109 |   | 1,838 |   | 1,566 |   | 1,469 |   | 1,514 |   | 1,177 |   | 1,221 |   | 1,523 |   |   | 697 |   | 707 |   |
| Other                                    |       | 155                         |       | 159 |   | 168 |   | 181 |   | 153 |   | 152 |   | 148 |   | 122 |   | 135 |   | 113 |   | 76 |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross revenues                           |       | 36,445                      |       | 37,056 |   | 36,848 |   | 33,474 |   | 29,184 |   | 28,843 |   | 25,874 |   | 26,079 |   | 23,686 |   | 22,201 |   | 19,204 |   |
| Promotional  allowances                  |       | (1,303                      | )          | (1,477 | ) | (1,056 | ) | (792 | ) | (693 | ) | (710 | ) | (507 | ) | (524 | ) | (854 | ) | (287 | ) | — |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenues                             |       | 35,142                      |       | 35,579 |   | 35,792 |   | 32,682 |   | 28,491 |   | 28,133 |   | 25,367 |   | 25,555 |   | 22,832 |   | 21,914 |   | 19,204 |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                       |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                   |       | 5,557                       |       | 5,604 |   | 5,221 |   | 5,372 |   | 5,175 |   | 5,180 |   | 4,719 |   | 4,425 |   | 3,898 |   | 4,222 |   | 3,839 |   |
| Food, beverage  and retail               |       | 1,679                       |       | 1,748 |   | 1,617 |   | 1,447 |   | 998 |   | 1,245 |   | 1,106 |   | 1,355 |   | 922 |   | 873 |   | 1,391 |   |
| Selling, general  and administrative     |       | 12,138                      |       | 13,269 |   | 13,383 |   | 10,274 |   | 11,669 |   | 10,384 |   | 8,680 |   | 8,535 |   | 10,283 |   | 8,505 |   | 6,497 |   |
| Depreciation                             |       | 2,822                       |       | 2,798 |   | 2,758 |   | 2,634 |   | 1,731 |   | 1,589 |   | 1,546 |   | 1,524 |   | 1,496 |   | 1,439 |   | 1,282 |   |
| Credit  enhancement fee                  |       | 2,007                       |       | 1,862 |   | 1,857 |   | 1,943 |   | 1,305 |   | 1,062 |   | 1,355 |   | 1,390 |   | 729 |   | 1,220 |   | 300 |   |
| Gaming commission  expense               |       | 781                         |       | 623 |   | 596 |   | 773 |   | 465 |   | 418 |   | 460 |   | 437 |   | 383 |   | 391 |   | 369 |   |
| Compact revenue  sharing trust fund      |       | 334                         |       | 334 |   | 334 |   | 333 |   | 333 |   | 334 |   | 334 |   | 334 |   | 333 |   | 334 |   | 334 |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating  expenses                |       | 25,318                      |       | 26,238 |   | 25,766 |   | 22,776 |   | 21,676 |   | 20,212 |   | 18,200 |   | 18,000 |   | 18,044 |   | 16,984 |   | 14,012 |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from  operations                  |       | 9,824                       |       | 9,341 |   | 10,026 |   | 9,906 |   | 6,815 |   | 7,921 |   | 7,167 |   | 7,555 |   | 4,788 |   | 4,930 |   | 5,192 |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other expense -  Net                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                         |       | (5,225                      | )          | (5,230 | ) | (5,245 | ) | (5,347 | ) | (3,598 | ) | (4,267 | ) | (5,466 | ) | (4,115 | ) | (3,924 | ) | (1,397 | ) | (1,700 | ) |
| Interest income                          |       | 132                         |       | 108 |   | 51 |   | 40 |   | 101 |   | 114 |   | 126 |   | 158 |   | 109 |   | — |   | — |   |
| Loss on sale of  assets                  |       | —                      |       | (70 | ) | — |   | (34 | ) | (3 | ) | (5 | ) | (55 | ) | — |   | — |   | — |   | — |   |
| Other expense                            |       | —                      |       | (1 | ) | — |   | — |   | (1 | ) | — |   | — |   | — |   | (1 | ) | — |   | — |   |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Expense,  Net                      |       | (5,093                      | )          | (5,193 | ) | (5,194 | ) | (5,341 | ) | (3,501 | ) | (4,158 | ) | (5,395 | ) | (3,957 | ) | (3,816 | ) | (1,397 | ) | (1,700 | ) |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  distribution to the Tribe |       | $                           | 4,731      |   | $ | 4,148 |   | $ | 4,832 |   | $ | 4,565 |   | $ | 3,314 |   | $ | 3,763 |   | $ | 1,772 |   | $ | 3,598 |   | $ | 972 |   | $ | 3,533 |   | $ | 3,492 |   |

 

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**Results of Operations – Fiscal Years ended December31, 2005 and 2004**

 

*Net Revenues*. Our net revenues for the fiscal year endedDecember 31, 2005 (“FY 2005”) increased by $31.6 million to $139.2 million from$107.5 million for the fiscal year ended December 31, 2004 (“FY2004”). Theincrease is attributed to our increased parking capacity which generated morefrequent and longer visits from guests and our expanded bus program.Approximately 97.4% of our net revenues was from our gaming activities in theyear ended December 31, 2005. We generated $121.0 million, or 86.9% of our netrevenues, from gaming devices and $14.5 million, or 10.4% of our net revenuesfrom table games for FY 2005 compared to $93.8 million from gaming devices, or87.3% of our net revenues, and $10.2 million, or 9.5% of our net revenues, fromtable games for FY 2004. Our win per slot machine per day increased to $209 inFY 2005 from $158 in FY 2004, due primarily to the increase in number of guestsfrom drive-ups, expansion of our bus program and increased promotionalactivities.

 

We started our food, beverage and retail operationson April 1, 2003. For FY 2005, we generated $7.5 million in sales compared to$5.4 million in sales for 2004. This increase is due to our increasedrestaurant promotions. The retail value of our food and beverage provided tocustomers without charge is included in gross revenues and then deducted aspromotional allowances. Such allowances were $4.6 million and $2.4 million forFY 2005 and FY 2004, respectively.

 

*Operating expenses*. Operating expenses for FY 2005 were $100.1million, or 71.9% of net revenues, compared to $78.1 million, or 72.6% of netrevenues, for FY 2004. The increase in operating expenses is attributable tothe Casino’s increased operational activities for the entire year of 2005.Operating expense as a percentage of net revenues decreased due to economies ofscale relating to our Casino operations and the increase in our gamingrevenues.

 

Casino expense includes costs associated with ourgaming operations only. Casino expense includes an allocation of food andbeverage expense in the amount of $3.6 million related to the costs ofcomplimentary activities. Casino expense for FY 2005 increased to $21.8million, or 16.0% of Casino revenues, from $19.5 million, or 18.7% of Casinorevenues, for FY 2004. The increase in Casino expense is attributable toincreased operational activities as we increased the parking spaces andexpanded our bus program.

 

Food, beverage and retail expense for FY 2005 was$6.5 million, or 86.3% of food, beverage and retail revenue, increasing from$4.7 million, or 87.4% of food, beverage and retail revenue for FY 2004. Ourfood and beverage expense ratio is still significantly higher than what weexpect it to be in the future as we have used our food and beverage services asa promotional opportunity to draw customers to our gaming facility and buildcustomer loyalty rather than as a source of income.

 

Selling, general and administrative expense for FY2005 increased by $9.8 million to $49.1 million, or 35.2% of net revenues, from$39.3 million, or 36.5% of net revenues, for FY 2004. The increase in selling,general and administrative expense from 2004 to 2005 is attributable toincreased marketing efforts and facility costs related to attaining increasedparking capacity in 2005. Selling, general and administrative expense as apercentage of net revenues decreased in 2005 compared to 2004 as a result ofincreased labor efficiencies, leveraging certain fixed costs over increased revenuesand due to the substantial increase in our revenues driven by new customersable to utilize our expanded parking capacity in 2005.

 

Depreciation expense for FY 2005 was $11.0 millioncompared to $6.4 million for FY 2004. Depreciation expense was computed usingthe straight-line method over the useful lives of property, plant andequipment. The increase in depreciation expense is due to the addition ofdepreciable assets. On December 1, 2004, we obtained a certificate ofsubstantial completion on the first of our three new parking structures andcapitalized $22.6 million in related construction costs. We started todepreciate the first of our three new parking structures in December 2004. Theremaining structures were substantially complete on December 29, 2004.Depreciation on the remaining structures began January 1, 2005.

 

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We began paying the credit enhancement fee to DCC inJune 2003. The credit enhancement fee was $7.7 million, or 5.5% of net revenuesfor FY 2005 compared to $5.1 million or 4.8% of net revenues for FY 2004. Theincrease is attributable to our greater net income.

 

Gaming Commission and surveillance expense for FY2005 increased by $1.0 million to $2.8 million from $1.8 million for FY2004. This is attributable to adding surveillance costs to Gaming Commissionexpenses in 2005 and an increase in regulatory staffing. Surveillance costs forthe FY 2004 and 2003 were $858,625 and $781,166, respectively, and are includedin selling, general and administrative expense. The gaming commission andsurveillance expense consists of our reimbursement of the tribal gaming agency,known as the Dry Creek Gaming Commission’s (‘TGA”), costs in connection withthe 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, issuing gaming licenses in accordance with the tribalgaming ordinance and the compact, the payment of the salaries of the gamingcommissioners and other employees of the TGA, surveillance costs and thepayment of auditors fees.

 

TheAuthority paid for various expenses for the TGA and surveillance in 2005 and2004. Tribal Gaming Commission expenses were reported as Gaming Commissionexpenses and surveillance costs were reported in Selling General andAdministrative Expenses on the Statement of Revenues, Expenses and Change inFund Balance prior to July 1, 2005. Effective July 1, 2005, the TGA adopted aregulation on payments of regulatory fees from the Authority. For fiscal year2005, TGA and surveillance expenses are being recorded in Gaming Commission andsurveillance expenses on the Statement of Revenues, Expenses and Changes inFund Balance. Commission and surveillance expenses for the twelve months endedDecember 31, 2005, 2004 and 2003 are $2,773,369, $1,780,194 and $1,434,835,respectively. Surveillance costs not included in the above amounts for the yearsended December 31, 2004 and 2003 were $858,625 and $781,166, respectively.

 

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

 

*Income from operations.* Income from operations for FY 2005 was $39.1million, or 28.1% of net revenues, compared to $29.8 million, or 27.7% of netrevenues for FY 2004. Our increased income from operations is attributable tothe Casino attaining increased operational activities from our expanded parkingcapacity in 2005.

 

*Other expense, net.* Other expense, net for FY 2005 increased to$20.8 million, or 15.0% of net revenues, from $17.0 million, or 16.1% of netrevenues, for FY 2004. Other expense, net included $21.0 million of interestexpense for FY 2005, compared to $17.4 million of interest expense for FY 2004(net of capitalized interest of $4.4 million). No interest costs werecapitalized in 2005.

 

*Income before distributions to theTribe*. Income beforedistributions to the Tribe for FY 2005 increased by $5.8 million to $18.3million, or 13.1% of net revenues, from $12.4 million, or 11.6% of netrevenues, for FY 2004.

 

**Results of Operations – Fiscal Years ended December31, 2004 and 2003**

 

*Net Revenues*. Our net revenues for (FY 2004) increased by$38.3 million to $107.5 million from $69.3 million for the fiscal year endedDecember 31, 2003 (“FY2003”). The increase is attributed to the Casino’sfull-scale operation during all twelve months of the year ended December 31,2004, compared to full-scale Casino operation for only nine months of 2003, andfrom more frequent

 

29

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and longer visits fromguests due to our increased parking capacity and our expanded bus program.Approximately 96.7% of our net revenues were from our gaming activities in theyear ended December 31, 2004. We generated $93.8 million, or 87.3% of our netrevenues, from gaming devices and $10.2 million, or 9.5% of our net revenues,from table games for FY 2004 compared to $60.1 million from gaming devices, or86.7% of our net revenues, and $7.0 million, or 10.1% of our net revenues, fromtable games for FY 2003. Our win per slot machine per day increased to $158 inFY 2004 from $140 in FY 2003, due primarily to the increase in number of guestsfrom drive-ups, expansion of our bus program and increased promotionalactivities.

 

Westarted our food, beverage and retail operations on April 1, 2003. For FY 2004,we generated $5.4 million in sales compared to $2.9 million in sales for 2003.This increase is due to our increased restaurant promotions and is attributableto the Casino attaining full-scale operations for the entire year of 2004. Theretail value of our food and beverage provided to customers without charge isincluded in gross revenues and then deducted as promotional allowances. Suchallowances were $2.4 million and $1.1 million for FY 2004 and FY 2003,respectively.

 

*Operating expenses*. Operating expenses for FY 2004 were $78.1 million, or 72.6% of netrevenues, compared to $53.5 million, or 77.2% of net revenues, for FY 2003. Theincrease in operating expenses is attributable to the Casino’s full-scaleoperation for the entire year of 2004. The operating expense as a percentage ofnet revenues decreased due to economies of scale relating to our Casinooperations and the increase in our gaming revenues.

 

Casinoexpense includes costs associated with our gaming operations only. Casinoexpense includes an allocation of food, beverage and retail expense in theamount of $3.6 million related to the costs of complimentary activities. Casinoexpense for FY 2004 increased to $19.5 million, or 18.1% of Casino revenues,from $12.8 million, or 18.4% of casino revenues, for FY 2003. The increase inCasino expense is attributable to attaining full-scale operation in 2004 andincreased operational activities as we increased the parking spaces andexpanded our bus programs.

 

Food,beverage and retail expense for FY 2004 was $4.7 million, or 87.4% of food,beverage and retail revenue, increasing from $3.3 million, or 111.4% of food,beverage and retail revenue for FY 2003. Our food, beverage and retail expenseratio is still significantly higher than what we expect it to be in the futureas we have used our food and beverage services as a promotional opportunity todraw customers to our Casino and build customer loyalty rather than as a sourceof income.

 

Selling, general and administrative expense for FY 2004 increased by$11.2 million to $38.4 million, or 36.5% of net revenues, from $27.3 million,or 40.5% of net revenues, for FY 2003. The increase in selling, general andadministrative expense from 2003 to 2004 is attributable to increased marketingefforts and facility costs related to attaining full year, full-scaleoperations in 2004 compared to nine months full-scale operation in 2003.Selling, general and administrative expense as a percentage of net revenuesdecreased in 2004 compared to 2003 as a result of increased labor efficiencies,leveraging certain fixed costs over increased revenues and due to thesubstantial increase in our revenues from full-scale operations in 2004.

 

Depreciationexpense for FY 2004 was $6.4 million compared to $4.4 million for FY 2003.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. On December 1, 2004, weobtained a certificate of substantial completion on the first of our three newparking structures and capitalized $22.6 million in related construction costs.We started to depreciate the first of our three new parking structures inDecember 2004. The remaining structures were substantially complete on December29, 2004. Depreciation on the remaining structures began on January 1, 2005.

 

Webegan paying the credit enhancement fee to DCC in June 2003. The creditenhancement fee was $5.1 million, or 4.8% of net revenues, for FY 2004 comparedto $2.2 million or 3.2% of net revenues for FY 2003.

 

GamingCommission and surveillance expense for FY 2004 increased by $0.4 million to$1.8 million from $1.4 million for FY 2003. This is attributable to anincrease in regulatory staffing. The gaming commission and surveillance expenseconsists of our reimbursement of the TGA’s costs in connection with theinspection of all gaming operations within the Tribe’s reservation

 

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boundaries, enforcement ofall provisions of the tribal gaming ordinance, investigation of all allegationsof violations of the tribal gaming ordinance, conducting or arranging forbackground investigations of all applicants for tribal gaming licenses, issuinggaming licenses in accordance with the tribal gaming ordinance and the compact,the payment of the salaries of the gaming commissioners and other employees ofthe TGA, surveillance costs and the payment of our auditor’s fees.

 

Compactrevenue sharing trust fund expense remained the same at $1.3 million for FY2004 and 2003. Compact revenue sharing trust fund expense includes paymentsassociated with operating 1,600 gaming devices. These fees became payable bythe Tribe when 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 CGCC on aquarterly basis for inclusion in the RSTF. The RSTF is for the benefit oftribes that have no or limited gaming. We pay these fees on behalf of theTribe.

 

*Income from operations.* Income from operations for FY 2004 was $29.5million, or 27.4% of net revenues, compared to $15.8 million, or 22.8% of netrevenues for FY 2003. Our increased income from operations is attributable tothe casino attaining full-scale operations with 1,600 gaming devices on June18, 2003, and improved parking capacity as we added spaces during 2004.

 

*Other expense, net.* Other expense, net for FY 2004 increased to $17.0 million, or 15.8% ofnet revenues, from $7.0 million, or 10.0% of net revenues, for FY 2003. Otherexpense, net included $17.4 million of interest expense (net of capitalizedinterest of $4.4 million) for FY 2004, compared to $7.1 million of interestexpense for FY 2003. Interest expense increased due to our issuance of theNotes.

 

*Income before distributions to the Tribe*. Income before distributions to the Tribefor FY 2004 increased by $3.6 million to $12.4 million, or 11.6% of netrevenues, from $8.9 million, or 12.8% of net revenues, for FY 2003.

 

**Liquidity and Capital Resources**

 

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

 

Constructionof our Casino and infrastructure improvements commenced on April 1, 2002. Thefirst portion of our gaming facility was completed in September 2002. As ofDecember 31, 2005, we had spent approximately $68.4 million on the planning,development and construction of our gaming facility, infrastructure andfurniture, fixtures and equipment excluding the expansion project. We financedthe development with borrowings and development advances.

 

Weoriginally expected completion of our expansion project to cost approximately$64.6 million, which we planned to fund with $61.4 million from the net proceedsof the Notes Offering and $3.2 million from an advance from the Tribe. From theproceeds from the Notes Offering, we had also placed an additional $10.0million in a construction escrow account to be available to fund additionalconstruction contingencies. The original expansion budget included $35.4million for the three parking structures, $24.1 million for infrastructureimprovements and a $5.1 million construction contingency.

 

Duringthe spring of 2004, we revised our budget for the expansion project toapproximately $73.7 million. We have spent $75.8 million as of September 30,2005 on design and construction, which was funded through our restricted cashand cash from operations. The excess expenditure of $2.1 million is due to theout of scope work related to our infrastructure portion of the project, whichwas funded by our operating cash flow. Our final budget estimate is comprisedof $39.4 million for the three parking structures, which is $0.5 million morethan our original budget, and $34.3 million for infrastructure improvements,which is $8.6 million more than our original estimate. The budget for theexpansion project was greater than original estimates because in an effort toexpedite construction, we commenced construction before all design documentswere finalized, which resulted in inefficiencies and modifications that causedactual construction costs to exceed budgeted amounts. In addition, theinfrastructure improvements

 

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portion of our expansionproject resulted in higher than expected costs due to weather delays and tounforeseeable soil conditions, which required us to substantially increase thescope of the work and quantity of the construction material.

 

As of December 31, 2005, we spent $0.8 million onthe development of an approximately 18-acre parcel of land adjacent to theTribe’s reservation (referred to as the “Dugan property development”) which isexpected to include an additional access road to our Casino. We have $4.5 millionremaining in a restricted account funded from the proceeds of our NotesOffering for the development of the Dugan property.

 

Our capital expenditures for FY 2005 and 2004 were$14.7 million and $63.7 million, respectively. This decrease in 2005 is primarilyattributable to the completion of our expansion project and infrastructureimprovements.

 

As of December 31, 2005, we had cash and cashequivalents net of restricted cash of $17.6 million, as compared to $18.6million as of December 31, 2004. As of December 31, 2005, we had restrictedcash of $7.4 million, as compared to $16.2 million as of December 31, 2004. Ourprincipal source of liquidity for uses other than our expansion project duringFY 2005 consisted of cash flow from operating activities. Net cash provided byoperating activities for FY 2005 was $56.1 million, an increase of $17.5million from $38.6 million for FY 2004. The increase in our net cash providedby operations is a result of increased operations in FY 2005. Net cash providedby operating activities for FY 2004 increased by $11.9 million from $26.7million for the year ended December 31, 2003. Such increase is due to ourlimited operations in FY 2003.

 

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

 

Net cash used for capital and related financingactivities for FY 2005 was $45.9 million, compared to $29.3 million net cashused in capital and related financing activities for FY 2004. Cash flow used incapital and related financing activities was primarily for repayment of thesubordinated loans from DCC, purchase of property and equipment and interestpaid on the Notes. Cash flow used in non-capital financing activities for FY2005 was $11.2 million, an increase of $3.6 million from $7.6 million for FY2004. Cash flow used in non-capital financing activities consisted ofdistributions to the Tribe. On April 1, 2005, our payments to the Tribe wereallowed to increase from $0.5 million per month to $1.0 million under theIndenture. Net cash used for capital and related financing activities for FY2004 was $29.3 million, compared to $44.2 million net cash provided byfinancing activities for the year ended December 31, 2003. Cash flow used innon-capital financing activities for FY 2004 decreased $47.3 million from $54.9million for FY 2003 reflecting the use of proceeds from our Notes Offering tosettle litigation relating to our Casino.

 

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

 

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**Contractual Obligations as of December 31, 2005**

 

The following table summarizes our contractualobligations and commitments as of December 31, 2005:

 
| ** **                     | ** ** | **Total** | ** **  | **< 1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
|--------------------------------|------------|-----------|-------------|----------------------|------------|--------------------|------------|--------------------|------------|
| Long-term debt obligations (a) |       | $         | 200,051,939 |                 | $          | 18,120             |       | $                  | 32,356     |   | $ | 200,001,463 |   |
| Operating lease obligations    |       | 739,406   |        | 463,313              |       | 276,093            |       | —             |       |
| Capital lease obligations      |       | 262,108   |        | 85,426               |       | 176,682            |       | —             |       |
|                           |       |      |        |                 |       |               |       |               |       |
| Total obligations (b)          |       | $         | 201,053,453 |                 | $          | 566,859            |       | $                  | 485,131    |   | $ | 200,001,463 |   |

 

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

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

 

**Regulation and Taxes**

 

We are subject to extensive regulation by the TGA,the CGCC and the NIGC. Changes in applicable laws or regulations could have asignificant impact on our operations.

 

We had initially applied for a liquor license forour Casino in 2002. OnSeptember 13, 2004, the Department of Alcoholic Beverage Control (“ABC”) deniedthe Tribe’s application for a liquor license based on the State Fire Marshal’sinterpretation of the Uniform Building Code. In May 2005, an Administrative LawJudge heard the Tribe’s appeal of the ABC’s denial and recommended that the ABCreverse itself and approve the license. On August 25, 2005, the ABC announced that, effective October 11, 2005;it would adopt the Administrative Law Judge’s decision to approve the licensetransfer pending a hearing on protests filed by citizens and governmentofficials. The ABC has received over 65 protests against the license fromcitizens and government officials. The ABC held a hearing on the protests onMarch 9, 2006. The administrative law judge will make his decision after allpost hearing briefs are received. All briefs must be filed by early May 2006. Thejudge must make his decision within 30 days after receipt of the final brief.The decision to approve or deny the license transfer application may beappealed by any parties to the proceeding so long as the appeal is filed withinforty (40) days of the ABC’s decision. The first appeal is to the ABC AppealsBoard, and its decision may be appealed to the California State court system.

 

Since we are an unincorporated governmentalinstrumentality of the Tribe located on reservation land held in trust by theUnited States of America, we are not subject to federal or state income taxes.Various efforts have been made in Congress over the past several years to enactlegislation that would subject the income of tribal governmental businessentities, such as us, to federal income tax. Although no such legislation hasbeen enacted, similar legislation could be passed in the future. It is notpossible to determine with certainty the likelihood of possible changes in taxlaw or in the administration of such law. Such changes, if adopted, could havea material adverse effect on our operating results and cash flow fromoperations.

 

**Impact of Inflation**

 

Absent changes in competitive and economicconditions or in specific prices affecting the casino industry, we do notexpect that inflation will have a significant impact on our gaming facilityoperations. Changes in specific prices, such as fuel and transportation prices,relative to the general rate of inflation may have a material adverse effect onthe casino industry in general.

 

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**Seasonality**

 

We have a limited operating history. We anticipatethat activity at our gaming facility may be modestly seasonal with strongerresults expected during the summer due in part to the relatively higher levelsof tourism 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 the risk of loss arising from adversechanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices.

 

Through December 31, 2005, we had not invested inderivative or foreign currency-based financial instruments. Additionally, weprimarily have fixed rate debt. As such, we do not believe we have materialexposure to market risk.

 

**Item 8. Financial Statements and Supplementary Data.**

 

Our financial statements and notes thereto, referredto in Item 15(A) (1) of this Form 10-K, are filed as part of this report andappear in this Form 10-K beginning on page 40.

 

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

 

None.

 

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

 

**Evaluation of Disclosure Controls and Procedures**

 

We maintain disclosure controls and procedures thatare designed to ensure that the information required to be disclosed in ourreports filed with, or furnished to, the SEC, pursuant to the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules,regulations and forms, and that such information is accumulated andcommunicated to our management, including our acting Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure based on the definition of “disclosure controlsand procedures” in Rule 13a-15(e) and 15d-15(e) of the Exchange Act.

 

Our acting Chief Executive Officer and our ChiefFinancial Officer have reviewed and evaluated the effectiveness of our “disclosurecontrols and procedures” as of December 31, 2005. Based on that evaluation,each has concluded that our disclosure controls and procedures as of the end ofthe period covered by this report are effective. There have been no changes toour disclosure controls during the year ended December 31, 2005. Our disclosurecontrols and procedures are designed to provide reasonable assurances ofachieving these objectives and our acting Chief Executive Officer and our ChiefFinancial Officer have concluded that our disclosure controls and proceduresare effective in reaching that level of reasonable assurance.

 

**Item 9B. Other Information.**

 

None.

 

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**PART III**

 

**Item 10. Directors and Executive Officers of the Registrant.**

 

We were formed in 2003 as an unincorporatedinstrumentality of the Tribe. We are governed by a five-member Board ofDirectors consisting of the same five members as those of the Tribe’s Board ofDirectors. The Tribe’s Board of Directors is elected biennially by the TribalCouncil (the approximately 490 voting members of the Tribe), and includes aChairperson, a Vice Chairperson, a Secretary-Treasurer and two members atlarge. Our next election will take place in November 2006. The members of ourBoard of Directors will serve in the same office and for so long as they serveon the Tribe’s Board of Directors. Any change in the composition of the Tribe’sBoard of Directors will result in a corresponding change in our Board ofDirectors.

 

**Our Board of Directors**

 

The table below sets forth information about thecurrent members of our Board of Directors:

 
| **Name**                      | ** ** | **Age** | ** ** | **Position(s)  Held**    |
|-------------------------------|------------|---------|------------|--------------------------|
|                          |       |    |       |                     |
| Harvey  Hopkins               |       | 57      |       | Chairperson              |
| Betty  Arterberry             |       | 59      |       | Vice Chairperson         |
| Margie  Rojes                 |       | 59      |       | Secretary–Treasurer |
| Augusto  “Gus” Pina |       | 62      |       | Member                   |
| Bruce  Smith                  |       | 49      |       | Member                   |

 

*Harvey Hopkins*has served as Chairperson of our Board of Directors since November 20, 2004.Chairman Hopkins has been a licensed excavating contractor for 28 years. He grew up in Santa Rosa, California, and has been a lifelong member of the DryCreek Rancheria. Chairman Hopkins began a professional career in constructionin 1970. Soon after, he became a licensed excavating contractor. He and hiswife have also been in the trucking business for the last 15 years andcurrently own American Indian Management Inc. Trucking Company. Additionally,Chairman Hopkins worked for the past 14 years for American Civil ConstructorsWest Coast.

 

*Betty Arterberry*has served as Vice Chairperson of our Boardof Directors since our inception. Ms. Arterberry has also served as theVice Chairperson of the Tribe’s Board of Directors since September 9,2001. Prior thereto, Ms. Arterberry previously served as the Tribe’sSecretary/Treasurer for three consecutive two-year terms. Ms. Arterberryis currently employed at Sonoma County Indian Health Project as Deputy Directorwhere she has worked since 1977. Ms. Arterberry is a member of theNational Congress of American Indians and the California Nations Indian GamingAssociation and serves on various other national, state and tribalassociations. In addition, Ms. Arterberry serves as Chairperson of thePersonnel Committee and is a member of the Legislative Committee for the Tribe.

 

*Margie Rojes*has served as Secretary-Treasurer of ourBoard of Directors since our inception. Ms. Rojes has also served as the Secretary-Treasurerof the Tribe’s Board of Directors since September 9, 2001. Ms. Rojesserved as member of the Board of Directors for the Tribe for the last fourterms since 1994. Ms. Rojes recently retired from the Windsor ElementarySchool District after 20 years of service. Ms. Rojes is a member of theNational Congress of American Indians and the California Nations Indian GamingAssociation and is the tribal delegate for Indian Child and Family PreservationProgram. She also serves as a member of the Enrollment, Finance and LegislativeCommittees for the Tribe.

 

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

 

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*Bruce Smith* has served as a member of our Board ofDirectors since November 20, 2004. Mr. Smith has been involved in a number ofTribal projects and efforts for many years, including serving as the Tribe’srepresentative to the California Nations Indian Gaming Association and as atribal member representative to the 1999 tribal-state compact negotiations. Mr.Smith has been employed in the automotive and electronics industries for thelast thirty years. Mr. Smith is currently semi-retired and also owns and manageshis own automotive business, Bruce Smith’s Hotrod Machine Shop. Mr. Smith wasborn and raised and has lived in Sonoma County, California his entire life.

 

**Executive Officers**

 

The table below sets forth information about certainkey executive officers as of 12/31/05

 
| **Name**                | ** ** | **Age** | ** ** | **Position(s)  Held**                                     |
|-------------------------|------------|---------|------------|-----------------------------------------------------------|
| Norman  Runyan          |       | 52      |       | Acting ChiefExecutive Officerand Chief Operations Officer |
| Yuan  Fang (Yvonne) Mao |       | 31      |       | Chief Financial Officer                                   |
| Anthony  Jay Averitt    |       | 49      |       | Marketing Manager                                         |
| William  Carnahan       |       | 61      |       | Slot Manager                                              |
| Greg  Bye               |       | 53      |       | Food and Beverage Manager                                 |
| Robin  Waters           |       | 43      |       | Table Games Manager                                       |

 

Setforth below is a brief description of the business experience of our keyexecutive officers. The following descriptions for our officers includeemployment by River Rock Casino as our predecessor.

 

*Norman Runyan*has been our acting Chief Executive Officerand General Manager since November 8, 2005, following the resignation ofDouglas Searle, our former Chief Executive Officer, in November 2005. Mr.Runyan has also been our Chief Operations Officer since June 2002.Mr. Runyan has been involved in numerous projects over the past 20 yearsworking on the development and operation of hospitality and gaming relatedenterprises. He manages the day-to-day operation of our gaming facility andassists in many facets of the development and operation of our gaming facility.Prior to his employment at our gaming facility, Mr. Runyan served as ChiefOperations Officer of Casino Arizona in Scottsdale, Arizona from 1998 to 2002 wherehe assisted in the design, development, opening and oversight of constructionand operations of their casino facility. From 1995 through 1998,Mr. Runyan served as Director of Operations and assisted in thedevelopment of the Apache Gold Casino and Resort, including a casino, showroom,300 room hotel and spa, conference center, RV park and 18-hole golf course.

 

*Yuan Fang (Yvonne) Mao*served as our Controller from February 2003to June 2003 and has served as Chief Financial Officer of River Rock Casinosince June 2003. Ms. Mao was appointed our Chief Financial Officer in February2004. Ms. Mao was the Supervisory Public Accountant Chief FinancialOfficer of M.C. Coughlan Accountancy Corporation from 2001 to 2003,specializing in the financial planning and advising of corporations andnon-profit organizations. From April to November of 2001, Ms. Mao workedas a Senior Financial Analyst at On-Site Sourcing, in Arlington, Virginia.Ms. Mao worked as an accountant for Beers and Cutler, a Washington, D.C.based local business advisory and CPA firm from 2000 to 2001. Shortly afterreceiving her B.S. in accounting from George Mason University, Ms. Maoobtained her CPA license in Virginia. Ms. Mao is also a member of AICPAand the California Society of CPAs.

 

*Anthony Jay Averitt*has served as our Marketing Manager sinceAugust 2002 and is responsible for the establishment and development of ourgaming facility’s marketing department and all our gaming facility’s marketingpolicies and procedures. Prior to his employment at the River Rock Casino,Mr. Averitt was the Marketing Director for Casino Arizona, in Scottsdale,Arizona from 1998 through 2002 where he helped develop three casinos for theSalt River Pima – Maricopa Indian community, and formulated and managed themarketing and advertisement departments.

 

*William Carnahan* hasbeen our Slot Manager since September 2002. With over 26 years of slotexperience, Mr. Carnahan has helped design slot floor layouts and been incharge of slot installation. Prior to his employment at our gaming facility,Mr. Carnahan served as Director of Slot Operations for Casino of the Sunand Casino Del Sol in Tucson, Arizona, where he was responsible

 

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for the dailyoperation of both casino floors. Mr. Carnahan helped design the slot floorlayout of Casino Del Sol and was responsible for the slot tracking system andthe installation of progressive gaming systems, a phase of the development ofCasino Del Sol. Mr. Carnahan was employed at Cliff Castle Casino in CampVerde, Arizona as slot repair supervisor from 1995 to 1996 and slot managerfrom 1996 to 2000

 

*Greg Bye* has beenour Food and Beverage manager since April 2005.  He is a veteran in thehospitality industry including eighteen years with Hyatt Hotels and Resorts,serving in food and beverage management at seven Hyatt Hotels. His lastposition with Hyatt was at the Hyatt Regency Embarcadero, San Francisco whichhe saw through the extensive renovation and reopening in 1993.  Mr. Byejoined Starwood Hotels and Resorts in 1997 as Area Director of Food andBeverage with responsibilities in hotels from Seattle to San Diego and east tothe Mississippi.  This was a major growth phase for Starwood, and Mr. Byeparticipated in several hotel conversions and brand changes.  As the WHotel brand for Starwood developed, Mr. Bye became Director of Operations in1999 at the new build 424 room W San Francisco.  He became General Managerof the W Silicon Valley and opened that property in 2000.  Subsequently,Mr. Bye assisted in opening the Hotel Healdsburg as its General Manager. His interest in hotel openings brought him to Higgins Purchasing Group in 2002as Managing Director where he was responsible for the on-line sales ofoperating supplies and equipment to W Hotels.

 

*Robin Waters* started with River Rock Casino inMay 2004 as Table Games Trainer and was promoted to Table Games Manager inJanuary 2005. She has 17 years experience in the gaming industry. Prior to heremployment at River Rock Casino, Ms. Waters was employed at Harrah’sEntertainment, Inc. for 11 years. She worked at several Harrah’s Property whichincluded Harrah’s Joliet in Missouri where she was a key member of the openingteam at Harrah’s first river boat expansion. Shortly after that, in December1994, Ms. Waters helped open Harrah’s Phoenix Ak-Chin in Phoenix, Arizona whichwas the Harrah’s first Native American Casino. Since then Ms. Waters has workedfor other Harrah’s properties which include Harrah’s Topeka,  Harrah’s Iowa, and Harrah’s in San Diegowhere she was the Casino Manager at all of these property from 1997 to 2003.

 

**Code of Ethics**

 

We have adopted a code of ethics that applies to allof our executive officers, including our principal executive officer andprincipal financial officer. Our code of ethics is available on our website at *www.riverrockcasino.com* under “ContactUs/Investor Relations/Corporate Governance.”

 

**Item 11. Executive Compensation.**

 

**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 2004, we reimbursed the Tribe for 32% of the total compensation ofthe Board members reflecting an estimate of the total time allocable toAuthority Board matters. In 2005, 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 2005:

 
| Harvey Hopkins   |   | Chairperson         |   | $      | 37,500 |   |
|------------------|--------|---------------------|--------|--------|--------|--------|
| Betty Arterberry |   | Vice  Chairperson   |   |   | 30,000 |   |
| Margie Rojes     |   | Secretary/Treasurer |   |   | 25,000 |   |
| Bruce Smith      |   | Board Member        |   |   | 15,000 |   |
| Gus Pina         |   | Board Member        |   |   | 15,000 |   |

 

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**Executive Compensation**

 

The following table provides summary informationconcerning compensation of our Chief Executive Officer and our four most highlycompensated executive officers for each of our fiscal years ended December 31,2005, 2004 and 2003:

 
| **Name and Principal Position** | ** ** | **Year(a)** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Other  Compensation(b)** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-------------|------------|------------|------------|-----------|------------|----------------------------|------------|-----------|------------|
|                                           |       |        |       |       |       |      |       |                       |       |      |       |
| Douglas Searle,                                |       | 2005        |       | $          | 354,153    |      | $          | 75,000                     |       | —    |       | $ | 429,153 |   |
| Chief Executive Officer                        |       | 2004        |       | 272,231    |       | 81,000    |       | —                     |       | 353,231   |       |
|                                           |       | 2003        |       | 257,212    |       | 75,000    |       | —                     |       | 332,212   |       |
|                                           |       |        |       |       |       |      |       |                       |       |      |       |
| Norman Runyan,                                 |       | 2005        |       | $          | 240,973    |      | $          | 58,320                     |       | —    |       | $ | 299,293 |   |
| Chief Operations Officer                       |       | 2004        |       | 219,921    |       | 54,000    |       | —                     |       | 273,921   |       |
|                                           |       | 2003        |       | 211,697    |       | 50,000    |       | —                     |       | 261,697   |       |
|                                           |       |        |       |       |       |      |       |                       |       |      |       |
| Yuan Fang (Yvonne) Mao,                        |       | 2005        |       | $          | 176,936    |      | $          | 39,230                     |       | —    |       | $ | 216,166 |   |
| Chief Financial Officer (c)                    |       | 2004        |       | 147,089    |       | 21,996    |       | —                     |       | 169,085   |       |
|                                           |       | 2003        |       | 92,327     |       | 12,769    |       | —                     |       | 105,096   |       |
|                                           |       |        |       |       |       |      |       |                       |       |      |       |
| Anthony Jay Averitt,                           |       | 2005        |       | $          | 160,267    |      | $          | 23,751                     |       | —    |       | $ | 184,018 |   |
| Marketing Manager                              |       | 2004        |       | 154,295    |       | 22,728    |       | —                     |       | 177,023   |       |
|                                           |       | 2003        |       | 146,394    |       | 16,314    |       | —                     |       | 162,708   |       |
|                                           |       |        |       |       |       |      |       |                       |       |      |       |
| William Carnahan,                              |       | 2005        |       | $          | 136,875    |      | $          | 20,304                     |       | —    |       | $ | 157,179 |   |
| Slot Manager                                   |       | 2004        |       | 131,537    |       | 19,500    |       | —                     |       | 151,037   |       |
|                                           |       | 2003        |       | 125,000    |       | 17,670    |       | —                     |       | 142,670   |       |
|                                           |       |        |       |       |       |      |       |                       |       |      |       |
| Robin Waters (d)                               |       | 2005        |       | 92,500     |       | 12,987    |       | —                     |       | $         | 105,487    |   |
| Table Games Manager                            |       | 2004        |       | 38,700     |       | —    |       | —                     |       | 38,700    |       |

 

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(a)               Dollar amounts for bonuses are not guaranteedand represent the maximum amount that the executive officer may receive.

(b)              No “Other Compensation” was paid to any of thenamed executive officers during 2005, 2004 or 2003 except for sell back of paidtime off.

(c)               Yuan Fang (Yvonne) Mao began serving as theChief Financial Officer of River Rock Casino in June 2003.

(d)              Robin Waters began serving as Table GamesManager in January, 2005.

 

**Employment Agreements**

 

The Authority renewed an employment agreement onDecember 24, 2004 with Mr. Douglas Searle as the Chief Executive Officer of theAuthority. This three year employment agreement provides for the payment to Mr.Searle of an initial annual base salary of $300,000, with 5% annual increases. Mr.Searle will also receive a fixed annual bonus equal to 15% of his annual basesalary. In addition, Mr. Searle will be entitled to an annual discretionarybonus of up to 25% of his annual base salary based on various subjectivecriteria. If Mr. Searle’s employment is terminated for reasons other thancause, including death or disability, Mr. Searle will be entitled to his salaryfor three months and a bonus equal to 25% of his prior year’s bonus. Eitherparty may terminate the agreement with a 90 day written notice.

 

Douglas Searle resigned as Chief Executive Officer effective November 7, 2005and his employment contract was terminated. Upon such termination, Mr. Searlereceived a severance payment of $95,250.

 

The Authority renewed an employment agreement withMr. Norman Runyan on November 8, 2005 to continue to serve as the ChiefOperations Officer of the Authority. This three year employment agreementcommenced on October 14, 2005 and provides Mr. Runyan an annual salary of$250,000 and a discretionary bonus, as determined by the Tribal Board, of notless than 7% and not more than 25% of his annual salary based on variouscriteria. If Mr. Runyan’s employment is terminated for other reasons set forthin the

 

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employmentagreement including death or disability, Mr. Runyan will be entitled to hissalary for three months. Either party may terminate the agreement with a 90 daywritten notice. Mr. Runyan is currently also our acting Chief Executive Officerand General Manger for no additional compensation.

 

**Item 12. Security Ownership of Certain Beneficial Owners andManagement.**

 

We have no outstanding equity securities.

 

**Item 13.****Certain Relationships and RelatedTransactions.**

 

Distributions to the Tribe were $11.2 million,$7.6 million and $54.9 million for the years ended December 31, 2005, 2004and 2003, respectively. Under the Indenture, we currently are permitted to makepayments of up to $1,000,000 per month to the Tribe as well as certain otherpayments which are also included within the definition of “Permitted Payments”.We are permitted by our Indenture and intend to increase “Permitted Payments”to the Tribe by $40,000, commencing April 1, 2006. In 2004 we distributed tothe Tribe as a Permitted Payment, $783,116 in an effort to purchase a parcel ofland for our use.

 

In May 2002, the Tribe entered into an agreementwith Swinerton Builders for the construction related to the Casino for aguaranteed maximum price of $27.0 million. The scope of that contract hassubsequently been amended by change order to include stabilization of the DryCreek Rancheria hillside located above the completed River Rock Casino project,construction of new roadways and improvements to existing roadways on the DryCreek Rancheria which provide access to the Casino, other tribal improvementson the Dry Creek Rancheria and construction of infrastructure improvements onthe Dry Creek Rancheria. The guaranteed maximum price of the contract has beenamended to be approximately $39.4 million. Pursuant to the contract, wehave made payments on behalf of the Tribe to Swinerton Builders ofapproximately $30.3 million through December 31, 2005.

 

Prior to the Notes Offering, the Tribe incurred $3.5million of construction costs, primarily consisting of payments to Swinerton.We have agreed to reimburse those costs to the Tribe. Through December 31,2005, we reimbursed $1.5 million of this amount and plan to reimburse thebalance to the Tribe. The timing of this additional reimbursement has not beendetermined and it may be paid in installments rather than paid as a lump sum.

 

The Tribe has, or currently intends to, enter intocontracts with various design, engineering and testing consultants to performgeotechnical engineering, geological services, civil engineering, trafficplanning and engineering services, wastewater disposal evaluation andgeotechnical investigation services, land surveying and civil engineeringdesign services, landscape architectural design services, construction testingand inspecting services that will benefit the Casino. We intend to makepayments under these contracts on behalf of the Tribe. Through December 31,2005, we have made payments of approximately $6.1 million pursuant to suchdesign, engineering and testing contracts.

 

The Tribe enacted a tribal gaming ordinance in April1997 which, among other matters, created and established the TGA as agovernmental subdivision of the Tribe. The TGA is responsible for theregulation of all gaming activities conducted by the Tribe or us on triballands. We pay for various expenses of the TGA (Gaming Commission expense),surveillance, plant operations and human resources. These departments areoperated by the Tribe. These expenses include but are not limited to payrolland related expenses, legal and other operational expenses. These expenses were$4.0 million for FY 2005 and $4.9 million for FY 2004.

 

The Tribe is obligated to remit certain fees to theCGCC on a quarterly basis for inclusion in the RSTF. The RSTF is for thebenefit of tribes in California that have no or limited gaming. We pay thesefees on behalf of the Tribe. Compact revenue sharing trust fund expenseremained the same at $1.3 million for FY 2005 and FY 2004. Compact revenuesharing trust fund expense includes payments associated with operating 1,600gaming devices. These fees became payable by the Tribe when we commencedoperations in September 2002 and are based on the number of our gaming devicelicenses. Compact revenue sharing trust fund expense includes payments to theRSTF as required by our Compact with the State of California.

 

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We have pledged on behalf of the Tribe to make acash gift to the Geyserville Unified School District in the amount of$1.2 million to be provided in equal parts during each of the 2003 through2007 school years. The cash donation to the school district is a gift and notpart of any revenue sharing agreement with state or local government. ThroughDecember 31, 2005, we have paid $0.8 million of this gift.

 

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

 

The following table sets forth the aggregate feesbilled for professional services rendered by Deloitte & Touche LLP for theaudit of our annual financial statements for FY 2005 and FY 2004 and theaggregate fees billed for audit-related services and all other servicesrendered by Deloitte & Touche LLP for FY 2005 and FY 2004.

 

| ** **         | ** ** | **Fiscal Year  2005** | ** ** | **Fiscal Year  2004** | ** ** |
|--------------------|------------|----------------------------|------------|----------------------------|------------|
|               |       |                       |       |                       |       |
| Audit Fees         |       | $                          | 190,000    |                       | $          | 217,000 |   |
| Audit-Related Fees |       | —                     |       | —                     |       |
| All Other Fees     |       | $                          | 21,500     |                       | $          | 23,445 |   |

 

The category of “Audit fees” includes fees for ourannual audit, quarterly reviews and services rendered in connection withstatutory and regulatory filings or engagements for those fiscal years.

 

The category of “Audit-related fees” includesaggregate fees billed in each of the last two fiscal years for assurance andrelated services by the principal accountant that are reasonably related to theperformance of the audit or review of the Authority’s financial statements.

 

The category of “All Other Fees” includes aggregatefees billed in each of the last two fiscal years which are not covered by theabove categories.

 

All above audit services were pre-approved by theTGA, which, under the Compact, has responsibility for ensuring that the auditis performed. The TGA concluded that the provision of such services by Deloitte& Touche LLP was compatible with the maintenance of that firm’sindependence in the conduct of auditing functions. The TGA’s outside auditorindependence policy provides for pre-approval of all services performed by theoutside auditors.

 

**PART IV**

 

**Item 15. Exhibits, Financial Statement Schedules.**

 

**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 pages43 through 60 of this Form 10-K and are incorporated by reference in Part II,Item 8:

 
| Report  of Independent Registered Public Accounting Firm                                                            |
|---------------------------------------------------------------------------------------------------------------------|
|                                                                                                                |
| Balance Sheets of the  River Rock Entertainment Authority as of December 31, 2005 and 2004                          |
|                                                                                                                |
| Statements  of Revenues, Expenses and Changes in Fund Deficit for the Years Ended  December 31, 2005, 2004 and 2003 |

 

40

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| Statements of  Cash Flows for the Years Ended December 31, 2005, 2004 and 2003      |
|-------------------------------------------------------------------------------------|
|                                                                                |
| Notes  to Financial Statements for the Years Ended December 31, 2005, 2004 and 2003 |

 

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 (c) below.

 

(b)*Reports on Form 8-K.*Thefollowing current reports were filed on Form 8-K for the year ended December31, 2005:

 

CurrentReport on Form 8-K filed on September 2, 2005

 

CurrentReport on Form 8-K filed on November 14, 2005.

 

**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)                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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                                                                                                                                                                                          |

 

41

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|   |   | 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 to the Form S-4,  and incorporated by reference herein)                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.8   |   | Development  and Loan Agreement, dated as of August 26, 2001, by and between the Tribe and  Dry Creek Casino, LLC (filed as Exhibit 10.8 to the Form S-4, and  incorporated by reference herein)                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.9   |   | First  Amendment to the Development and Loan Agreement, dated as of April 29, 2002,  by and between the Tribe and Dry Creek Casino, LLC (filed as Exhibit 10.9 to  the Form S-4, and incorporated by reference herein)                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.10  |   | Second  Amendment to Development and Loan Agreement, dated as of February 19, 2003,  by and between the Tribe and Dry Creek Casino, LLC (filed as Exhibit 10.10 to  the Form S-4, and incorporated by reference herein)                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.11  |   | Third  Amendment to Development and Loan Agreement, dated as of May 29, 2003, by and  between the Tribe and Dry Creek Casino, LLC (filed as Exhibit 10.11 to the  Form S-4, and incorporated by reference herein)                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12  |   | Fourth  Amendment to Development and Loan Agreement, dated as of October 9, 2003, by  and between the Tribe and Dry Creek Casino, LLC (filed as Exhibit 10.12 to  the Form S-4, and incorporated by reference herein)                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.13  |   | Fifth  Amendment to Development and Loan Agreement, dated as of October 9, 2003 by  and between the Tribe and Dry Creek Casino, LLC (filed as Exhibit 10.13 to  the Form S-4, and incorporated by reference herein)                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.14  |   | Sixth  Amendment to Development and Loan Agreement, dated as of November 7, 2003, by  and between the Authority and Dry Creek Casino, LLC (filed as Exhibit 10.14  to the Form S-4, and incorporated by reference herein)                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.15  |   | Employment  Agreement, dated as of December 9, 2004, by and between the Tribe and Douglas  Searle (filed as Exhibit 10.1 to the Form 8-K filed with the SEC on December  15, 2004, and incorporated by reference herein)                                                                                                                                                                            |

 

42

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| 10.16  |   | Employment  Agreement, dated as of October 14, 2002, by and between the Tribe and Norman  Runyan (filed as Exhibit 10.16 to the Form S-4, and incorporated by reference  herein)                                                             |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                         |
| 10.17  |   | Agreement,  dated as of May 28, 2003, by and between the Tribe and FFKR  Architects/Planners II (filed as Exhibit 10.17 to the Form S-4, and  incorporated by reference herein)                                                              |
|   |   |                                                                                                                                                                                                                                         |
| 10.18  |   | Agreement,  dated as of October 2, 2003, by and between the Tribe and FFKR  Architects/Planners II (filed as Exhibit 10.18 the Form S-4, and incorporated  by reference herein)                                                              |
|   |   |                                                                                                                                                                                                                                         |
| 10.19  |   | 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)                                                                  |
|   |   |                                                                                                                                                                                                                                         |
| 10.20  |   | 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)                                                    |
|   |   |                                                                                                                                                                                                                                         |
| 10.21  |   | 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)                            |
|   |   |                                                                                                                                                                                                                                         |
| 10.22  |   | Dry  Creek Casino, LLC Amended and Restated Limited Recourse Promissory Note,  dated November 7, 2003, by and among the Authority and Dry Creek Casino, LLC  (filed as Exhibit 10.22 to the Form S-4, and incorporated by reference  herein) |
|   |   |                                                                                                                                                                                                                                         |
| 14.1   |   | Code  of Ethics (filed herewith)                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                         |
| 31.1   |   | Certification  by Norman Runyan, acting Chief Executive Officer, pursuant to Exchange Act  Rules 13a-14(a) and 15d-14(a) (filed herewith)                                                                                                    |
|   |   |                                                                                                                                                                                                                                         |
| 31.2   |   | Certification  by Yuan Fang (Yvonne) Mao, Chief Financial Officer, pursuant to Exchange Act  Rules 13a-14(a) and 15d-14(a) (filed herewith)                                                                                                  |
|   |   |                                                                                                                                                                                                                                         |
| 32.1*  |   | Certification  by Norman Runyan, acting Chief Executive Officer, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (furnished herewith)                                             |
|   |   |                                                                                                                                                                                                                                         |
| 32.2*  |   | Certification  by Yuan Fang (Yvonne) Mao, 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 ReportsFiled Pursuant 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.

 

43

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

TheBoard of Directors of River Rock Entertainment Authority

 

Wehave audited the accompanying balance sheets of the River Rock EntertainmentAuthority (the “Authority”), a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians (the “Tribe”) as of December 31, 2005 and 2004,and the related statements of revenue, expenses and changes in fund deficit andof cash flows for each of the three years in the period ended December 31, 2005.These financial statements are the responsibility of the Authority’smanagement. Our responsibility is to express an opinion on the financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Authority is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances but not for the purpose of expressing anopinion on the effectiveness of the Authority’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, such financial statements present fairly, in all materialrespects, the financial position of the River Rock Entertainment Authority asof December 31, 2005 and 2004, and the revenue and expenditures and changes infund deficit and the cash flows for each of the three years in the period endedDecember 31, 2005 in conformity with accounting principles generally acceptedin the United States of America.

 

RiverRock Entertainment Authority is an unincorporated instrumentality of the Tribeand is not a separate legal entity. These financial statements reflect thefinancial position of the River Rock Entertainment Authority, its revenues andexpenditures and changes in net assets and its cash flows and do not purport torepresent the financial position and activity of the Tribe as a whole.

 

/s/ Deloitte Touche LLP

SanFrancisco, CAMarch 30, 2006

 

44

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**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

**BALANCE SHEETS**

**DECEMBER31, 2005 AND 2004**

 
| ** **                                      | ** ** | **December 31, 2005** | ** **  | **December 31, 2004** | ** ** |
|-------------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| **ASSETS**                                      |       |                            |        |                            |       |
| ** **                                      |       |                            |        |                            |       |
| CURRENT ASSETS:                                 |       |                            |        |                            |       |
| Cash and cash equivalents                       |       | $                               | 17,649,658  |                            | $          | 18,618,826 |   |
| Restricted cash-current                         |       | 666,517                         |        | 11,516,316                      |       |
| Accounts receivable                             |       | 93,252                          |        | 53,796                          |       |
| Inventories                                     |       | 159,434                         |        | 383,411                         |       |
| Prepaid expenses and other current assets       |       | 1,427,906                       |        | 773,831                         |       |
| Total current assets                            |       | 19,996,767                      |        | 31,346,180                      |       |
| RESTRICTED CASH - net of current                |       | 6,706,964                       |        | 4,685,405                       |       |
|                                            |       |                            |        |                            |       |
| PROPERTY AND EQUIPMENT:                         |       |                            |        |                            |       |
| Buildings and building improvements             |       | 128,858,771                     |        | 118,941,344                     |       |
| Furniture, fixtures and equipment               |       | 26,015,944                      |        | 22,946,294                      |       |
|                                            |       |                            |        |                            |       |
| Accumulated depreciation                        |       | (21,801,767                     | )           | (10,952,816                     | )          |
| Construction in progress                        |       | 1,819,271                       |        | 379,576                         |       |
| Property and equipment-net                      |       | 134,892,219                     |        | 131,314,398                     |       |
| DEPOSITS AND OTHER ASSETS                       |       | 6,081,955                       |        | 7,466,553                       |       |
|                                            |       |                            |        |                            |       |
| TOTAL ASSETS                                    |       | $                               | 167,677,905 |                            | $          | 174,812,536 |   |
|                                            |       |                            |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                |       |                            |        |                            |       |
|                                            |       |                            |        |                            |       |
| CURRENT LIABILITIES:                            |       |                            |        |                            |       |
| Accounts payable:                               |       |                            |        |                            |       |
| Trade                                           |       | $                               | 2,178,031   |                            | $          | 3,398,174 |   |
| Construction                                    |       | 1,114,618                       |        | 4,091,862                       |       |
| Accrued liabilities                             |       | 6,463,556                       |        | 6,579,878                       |       |
| Current maturities of long-term debt            |       | 103,545                         |        | 10,441,139                      |       |
| Total current liabilities                       |       | 9,859,750                       |        | 24,511,053                      |       |
| LONG-TERM DEBT - net of current maturities      |       | 198,243,209                     |        | 197,822,725                     |       |
| Total long-term liabilities                     |       | 198,243,209                     |        | 197,822,725                     |       |
|                                            |       |                            |        |                            |       |
| FUND DEFICIT:                                   |       |                            |        |                            |       |
| Invested in capital assets-net of related  debt |       | (63,454,535                     | )           | (77,373,777                     | )          |
| Restricted for capital projects                 |       | 7,373,481                       |        | 16,201,721                      |       |
| Unrestricted                                    |       | 15,656,000                      |        | 13,650,814                      |       |
|                                            |       |                            |        |                            |       |
| Total fund deficit                              |       | (40,425,054                     | )           | (47,521,242                     | )          |
|                                            |       |                            |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT              |       | $                               | 167,677,905 |                            | $          | 174,812,536 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

45

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**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

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

**YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

 
| ** **                                      | ** ** | **2005**    | ** **  | **2004**    | ** ** | **2003**    | ** ** |
|-------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| REVENUES:                                       |       |        |        |        |       |        |       |
| Casino                                          |       | $           | 135,638,394 |        | $          | 104,024,121 |       | $ | 67,127,442 |   |
| Food, beverage & retail                     |       | 7,522,001   |        | 5,380,719   |       | 2,927,235   |       |
| Other                                           |       | 662,894     |        | 575,527     |       | 379,637     |       |
| Gross revenues                                  |       | 143,823,289 |        | 109,980,367 |       | 70,434,314  |       |
| Promotional allowances                          |       | (4,627,950  | )           | (2,434,245  | )          | (1,140,934  | )          |
|                                            |       |        |        |        |       |        |       |
| Net revenues                                    |       | 139,195,339 |        | 107,546,122 |       | 69,293,380  |       |
| OPERATING EXPENSES:                             |       |        |        |        |       |        |       |
| Casino                                          |       | 21,753,839  |        | 19,499,256  |       | 12,753,144  |       |
| Food, beverage & retail                     |       | 6,491,402   |        | 4,704,482   |       | 3,262,026   |       |
| Selling, general and administrative             |       | 49,063,678  |        | 39,267,392  |       | 28,046,357  |       |
| Depreciation                                    |       | 11,012,094  |        | 6,390,396   |       | 4,391,461   |       |
| Credit enhancement fee                          |       | 7,669,147   |        | 5,111,747   |       | 2,249,349   |       |
| Gaming commission and surveillance expense      |       | 2,773,369   |        | 1,780,194   |       | 1,434,835   |       |
| Compact revenue sharing trust fund              |       | 1,335,000   |        | 1,335,000   |       | 1,335,000   |       |
|                                            |       |        |        |        |       |        |       |
| Total Operating expenses                        |       | 100,098,529 |        | 78,088,467  |       | 53,472,172  |       |
| INCOME FROM OPERATIONS                          |       | 39,096,810  |        | 29,457,655  |       | 15,821,208  |       |
| OTHER EXPENSE-Net:                              |       |        |        |        |       |        |       |
| Interest expense                                |       | (21,046,944 | )           | (17,446,237 | )          | (7,063,781  | )          |
| Interest income                                 |       | 332,122     |        | 498,905     |       | 108,417     |       |
| Loss on sale of assets                          |       | (104,117    | )           | (62,577     | )          | —      |       |
| Other expense                                   |       | (1,683      | )           | (1,098      | )          | (1,078      | )          |
| Other expense-net                               |       | (20,820,622 | )           | (17,011,007 | )          | (6,956,442  | )          |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE            |       | 18,276,188  |        | 12,446,648  |       | 8,864,766   |       |
| DISTRIBUTIONS TO TRIBE:                         |       |        |        |        |       |        |       |
| Litigation Settlement                           |       | —      |        | —      |       | (50,000,000 | )          |
| Other                                           |       | (11,180,000 | )           | (7,613,116  | )          | (4,883,130  | )          |
| NET INCOME (LOSS) AFTER DISTRIBUTIONS TO  TRIBE |       | 7,096,188   |        | 4,833,532   |       | (46,018,364 | )          |
|                                            |       |        |        |        |       |        |       |
| FUND DEFICIT-Beginning of period                |       | (47,521,242 | )           | (52,354,774 | )          | (6,336,410  | )          |
|                                            |       |        |        |        |       |        |       |
| FUND DEFICIT-End of period                      |       | $           | (40,425,054 | )           | $          | (47,521,242 | )          | $ | (52,354,774 | ) |

 

The accompanying notes are an integral partof these financial statements.

 

46

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**RIVER ROCKENTERTAINMENT AUTHORITY**

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

 

**STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

 
| ** **                                                               | ** ** | **2005**    | ** **  | **2004**    | ** ** | **2003**    | ** ** |
|--------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                    |       |        |        |        |       |        |       |
| Cash received from gaming winnings and  concessions                      |       | $           | 139,172,573 |        | $          | 107,530,073 |       | $ | 69,196,821 |   |
| Cash paid for salaries and benefits                                      |       | (30,268,234 | )           | (26,769,492 | )          | (17,570,561 | )          |
| Cash paid to suppliers                                                   |       | (51,488,331 | )           | (40,799,089 | )          | (23,215,820 | )          |
| Cash paid for compact revenue sharing trust  fund                        |       | (1,335,000  | )           | (1,335,000  | )          | (1,668,750  | )          |
|                                                                     |       |        |        |        |       |        |       |
| Net cash provided by operating activities                                |       | 56,081,008  |        | 38,626,492  |       | 26,741,690  |       |
|                                                                     |       |        |        |        |       |        |       |
| CASH FLOWS FROM CAPITAL AND RELATED  FINANCING ACTIVITIES:               |       |        |        |        |       |        |       |
| Proceeds from long-term financing                                        |       | —      |        | —      |       | 213,161,513 |       |
| Payments of long-term debt                                               |       | (10,478,627 | )           | (192,757    | )          | (48,070,104 | )          |
| Payment for loan costs                                                   |       | —      |        | —      |       | (10,370,324 | )          |
| Purchases of property and equipment                                      |       | (17,456,371 | )           | (57,740,761 | )          | (35,511,251 | )          |
| Change in restricted cash                                                |       | 8,828,240   |        | 53,864,759  |       | (68,254,876 | )          |
| Interest paid                                                            |       | (19,763,000 | )           | (20,365,153 | )          | (4,178,849  | )          |
| Credit enhancement fee                                                   |       | (7,372,759  | )           | (4,633,756  | )          | (2,290,106  | )          |
| Proceeds from sale of fixed assets                                       |       | 9,500       |        | 122,580     |       | —      |       |
| Other                                                                    |       | 362,841     |        | (347,106    | )          | (319,087    | )          |
|                                                                     |       |        |        |        |       |        |       |
| Net cash (used in) provided by capital and  related financing activities |       | (45,870,176 | )           | (29,292,194 | )          | 44,166,916  |       |
|                                                                     |       |        |        |        |       |        |       |
| CASH FLOW FROM NON-CAPITAL FINANCING  ACTIVITIES:                        |       |        |        |        |       |        |       |
| Distributions to Tribe                                                   |       | (11,180,000 | )           | (7,613,116  | )          | (54,883,130 | )          |
|                                                                     |       |        |        |        |       |        |       |
| CHANGE IN CASH AND CASH EQUIVALENTS                                      |       | (969,168    | )           | 1,721,182   |       | 16,025,476  |       |
|                                                                     |       |        |        |        |       |        |       |
| CASH AND CASH EQUIVALENTS, Beginning of the  period                      |       | 18,618,826  |        | 16,897,644  |       | 872,168     |       |
|                                                                     |       |        |        |        |       |        |       |
| CASH AND CASH EQUIVALENTS, End of the  period                            |       | $           | 17,649,658  |        | $          | 18,618,826  |       | $ | 16,897,644 |   |

 

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| ** **                                                                                            | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| RECONCILIATION OF INCOME BEFORE  DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |       |       |       |       |       |       |       |
| Income before Distributions to Tribe                                                                  |       | $          | 18,276,188 |       | $          | 12,446,648 |       | $ | 8,864,766 |   |
|                                                                                                  |       |       |       |       |       |       |       |
| Adjustments to reconcile operating income  to net cash provided by operating activities:              |       |       |       |       |       |       |       |
| Depreciation                                                                                          |       | 11,012,094 |       | 6,390,396  |       | 4,391,461  |       |
| Interest Expense, net                                                                                 |       | 21,046,944 |       | 17,447,237 |       | 7,063,781  |       |
| Credit enhancement fee                                                                                |       | 7,669,147  |       | 5,111,747  |       | 2,338,069  |       |
| Loss on sale of assets                                                                                |       | 104,117    |       | 62,577     |       | —     |       |
| Changes in operating assets and  liabilities:                                                         |       |       |       |       |       |       |       |
| Accounts receivable                                                                                   |       | (39,456    | )          | 52,952     |       | (96,559    | )          |
| Inventories                                                                                           |       | 223,977    |       | (234,010   | )          | (144,598   | )          |
| Prepaid expenses and other current assets                                                             |       | (654,075   | )          | 109,102    |       | (853,386   | )          |
| Accounts payable-trade                                                                                |       | (1,220,143 | )          | (2,787,179 | )          | 4,378,117  |       |
| Accrued liabilities                                                                                   |       | (337,785   | )          | 27,022     |       | 800,039    |       |
| Total adjustments                                                                                     |       | 37,810,935 |       | 26,179,844 |       | 17,876,924 |       |
|                                                                                                  |       |       |       |       |       |       |       |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                             |       | $          | 56,081,008 |       | $          | 38,626,492 |       | $ | 26,741,690 |   |

 
| SUPPLEMENTARY SCHEDULE OF NONCASH CAPITAL  AND  RELATED FINANCING ACTIVITIES:         |   |   |
|---------------------------------------------------------------------------------------|--------|--------|
| Acquisition of property and equipment  through third party financing                  |   | $      | 224,267 |   | $ | 690,566 |   | $ | 4,791,382 |   |
| Acquisition of property and equipment  through Accounts Payable Construction          |   | $      | 1,114,618 |   | $ | 4,091,862 |   | $ | 373,293 |   |
| Capitalized interest included in purchases  of property and equipment paid with notes |   | $      | — |   | $ | 4,442,608 |   | $ | 1,488,749 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

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**RIVERROCK ENTERTAINMENT AUTHORITY (A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)**

 

**1.**                            DESCRIPTION OF BUSINESS

** **

River Rock EntertainmentAuthority (the “Authority”) is a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians (the “Tribe”), a federally recognized Indiantribe. River Rock Casino (the “Casino”) is a governmental development projectof the Authority. The Casino offers Class III gaming (as defined by the IndianGaming Regulatory Act) on tribal land located in Geyserville, California. Thelegal authority for slot machines and table games is provided by the Tribe’sgaming compact with the State of California (the “Compact”), which was enteredinto in September 1999 and became effective upon approval by the Secretary ofInterior on May 5, 2000. The Compact expires on December 31, 2020.

 

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

 

The Authority was formed asan unincorporated instrumentality of the Tribe on November 5, 2003 pursuant toa reorganization whereby the Tribe’s gaming business became owned and operatedby the Authority. This reorganization was accounted for as a reorganization ofentities under common control. Accordingly, after the reorganization, theassets and liabilities of the Casino operating property were presented by theAuthority on a historical-cost basis.

 

The Authority operates as aseparate, wholly owned operating unit of the Tribe and is not a separate legalentity. These financial statements reflect the financial position and activityof only the Authority and do not purport to represent the financial positionand activity of the Tribe.

 

Income before distributionsto the Tribe was $18,276,188 and $12,446,648 for the twelve months endedDecember 31, 2005 and 2004, respectively. A fund deficit of $40,425,054 existsas of December 31, 2005. The Authority’s current assets exceeded its currentliabilities by $10,137,017 as of December 31, 2005. On November 7, 2003, theAuthority issued $200.0 million in its 93⁄4% Senior Notes, due 2011 (the “Notes”),and used a portion of the proceeds to reduce its current payables, accruals anddebt. The Authority’s ability to fund future debt service payments is dependentupon the success of the Casino. Management believes that the Casino willattract sufficient patronage levels to continue to provide sufficient cashflows and to repay its indebtedness. The Authority reached its substantialcompletion of the construction of the enhanced parking structure on December29, 2004. On September 13, 2005, the Authority received a certificate ofoccupancy on the parking structures. On October 1, 2005, the Authority’scertificate of occupancy for the parking structure was revoked and a temporaryoccupancy permit was issued due to some remaining construction issues. OnNovember 4, 2005, a full certificate of occupancy was issued to the Authorityfor the parking structures.

 

2.             SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

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

 

There are differencesbetween financial statements prepared in accordance with GASB pronouncementsand those prepared in accordance with FASB pronouncements. The statements ofrevenues, expenses and changes in fund deficit is a combined statement underGASB pronouncements, FASB pronouncements allow a statement of income oroperations and a separate statement of owners’ or shareholders’ (deficit)equity, which is where distributions to owners would be presented under FASBpronouncements. The

 

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amountshown as income before distributions to Tribe would not be different if theAuthority followed all FASB pronouncements to determine net income and would bethe most comparable amount to net income computed under FASB pronouncements.The Authority is a separate fund of the Tribe, a governmental entity, and assuch 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 Authority’s balance sheet as fund(deficit) equity.

 

New AccountingPronouncements—In March 2003, GASB issued Statement No. 40, Deposit andInvestment Risk Disclosures**—an amendment of GASB Statement No. 3**,which became effective for the Authority at January 1, 2005. This statementrequires state and local governments to communicate key information about depositand investment risks. The adoption of this statement did not have a materialimpact on the financial statements of the Authority.

 

In November 2003, GASBissued Statement No. 42, Accounting and Financial Reporting for Impairment ofCapital Assets and for Insurance Recoveries, effective for periods beginningafter December 15, 2004. This statement establishes accounting and financialreporting standards for impairment of capital assets. This statement alsoclarifies and establishes accounting requirements for insurance recoveries. Theadoption of this statement did not have a material impact on the financialstatements of the Authority.

 

Use of Estimates—Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from theseestimates.

 

Cash and CashEquivalents—The Authority considers all highly liquid investments with amaturity of three months or less at date of purchase as cash equivalents. Thecarrying amount of cash and cash equivalents approximates its fair value. Cashand cash equivalents include cash on hand, cash on deposit with banks andhighly liquid investments. The Federal Deposit Insurance Corporation (“FDIC”)has insured $100,000 of the cash on deposit with the banks. The Authoritybelieves that there is little risk of loss regarding the uninsured amounts ofcash and cash equivalents on deposit with the banks.

 

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

 

Restricted Cash—Restrictedcash consists of estimated construction expenses for three parking structures,related infrastructure improvements and construction contingencies. It alsoincludes funds that are reserved for additional construction contingencies andthe funds necessary to develop an approximately 18 acre parcel of land adjacentto the Tribe’s reservation. These funds are held in escrow accounts which arerestricted for authorized construction disbursements. These escrow accounts areinvested in CD markets, which generate interest on a monthly basis. The FDIChas insured $100,000 of this balance. The Authority believes that there islittle risk of loss regarding the uninsured amounts of restricted cash held inthe escrow account. Restricted cash was $7,373,481 and $16,201,721 at December31, 2005 and December 31, 2004, respectively. As of December 31, 2005,restricted cash includes amounts available for construction of $2,898,084 andland development funds of $4,475,397.

 

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

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

 

The Authority evaluates itsproperty and equipment for impairment in accordance with the FASB’s Statementof Financial Accounting Standards (“SFAS”) No. 144, Accounting for theImpairment or Disposal of Long-Lived Assets. When events or circumstancesindicate that an asset should be reviewed for impairment, the Authoritycompares the undiscounted cash flows derived from the asset or asset group tothe net carrying value. If impairment is indicated, the impairment loss ismeasured by the amount in which the carrying value of the asset or asset group exceedsits fair value. Fair value is measured by comparable sales, solicited offers ordiscounted cash flow models.

 

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Capitalized Interest—Theinterest cost associated with major development and construction projects iscapitalized and included in the cost of the Authority. Capitalization ofinterest ceases when the project is substantially complete or developmentactivity is suspended. Capitalized interest for the twelve months endedDecember 31, 2005 and 2004 were $0 and $4,439,849 respectively.

 

Deposits and Other Assets—Asof December 31, 2005 and December 31, 2004, deposits and other assets include$5,962,226 and $6,983,920 in unamortized bond spread, legal fees and otherissuance costs related to the issuance of the Notes, $78,618 and $429,941 ofequipment deposits, $4,200 and $4,200 of performance deposits and $36,911 and$48,492 of rental deposits. Deferred loan costs are amortized using theeffective interest method to interest expense over the term of the relatedfinancial arrangement.

 

Accrued Liabilities—Accruedliabilities consist of accrued interest, accrued payroll, accrued creditenhancement fee and other accrued liabilities.

 

Accrued Progressive SlotJackpots—Accrued progressive slot jackpots consist of estimates for prizesrelating to various games that have accumulated jackpots. The Authority hasrecorded the cost of these anticipated payouts as a reduction of Casinorevenues, and the cost is included as a component of accrued liabilities.

 

Accrued Slot Players Club—Inaccordance with Emerging Issues Task Force Issue No. 00-22, Accounting for“Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offersand Offers for Free Products or Services to be Delivered in the Future, the Authorityhas recorded 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—Inaccordance with industry practice, the Authority recognizes as casino revenuethe net win from gaming activities, which is the difference between gaming winsand losses. Casino revenues are net of accruals for anticipated payouts ofprogressive slot jackpots.

 

Food, Beverage andRetail—The Authority recognizes as food, beverage and retail revenues theproceeds from its food, beverage and gift shop sales. The Authority continuesto distribute beverages freely in the gaming area for playing guests.

 

Other Revenues—Other revenuesare comprised of commissions on ATM and vending machine transactions.

 

Promotional Allowances—Theretail value of food and beverages provided to playing customers without chargeis included in gross revenues and then deducted as promotional allowances. Theredemption of cash incentives earned by the Players Club members is alsorecorded as promotional allowances. The estimated costs of providingcomplimentary services are recorded as casino expenses. The costs of suchservices were $5,219,916 and $3,878,262 for the twelve months ended December31, 2005 and 2004 respectively.

 

Food and Beverage Costs—Foodand beverage costs include costs associated with food and beverage, excludingamounts classified as casino expenses.

 

AdvertisingCosts—Advertising costs are expensed the first time advertising takes place.Advertising costs included in selling, general and administrative expenses were$8,032,085, $4,972,275, and $2,101,504 for the twelve months ended December 31,2005, 2004 and 2003, respectively.

 

Gaming Commission and Surveillance Expenses—TheAuthority paid for various expenses for the Tribal Gaming Commission andsurveillance in 2005 and 2004. Tribal Gaming Commission expenses were reportedas Gaming Commission expenses and surveillance costs were reported in SellingGeneral and Administrative Expenses on the Statement of Revenues, Expenses andChange in Fund Balance. Effective July 1, 2005, the Tribal Gaming Commissionadopted a regulation on payments of regulatory fees from the Authority.  For fiscal year 2005, Tribal GamingCommission and surveillance expenses are being recorded in Gaming 

 

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Commission and surveillanceexpenses on the Statement of Revenues, Expenses and Changes in Fund Balance.Gaming Commission and surveillance expenses for the twelve months endedDecember 31, 2005, 2004 and 2003 are $2,773,369, $1,780,194 and $1,434,835,respectively. Surveillance costs not included in the above amounts for 2004 and2003 were $858,625 and $781,166, respectively and are recorded in Selling,General and Administrative expenses.

 

Income Taxes—As agovernmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians, afederally recognized Indian tribe, the Authority is a nontaxable entity forpurposes of federal and state income taxes.

 

Distributions toTribe—Distributions to Tribe are made up of a stated draw amount and permittedpayments under our Indenture for the Notes. They are included in the Statementof Revenues, Expenses and Changes in Fund Deficit as distributions to Tribe.From January 1, 2005 to March 31, 2005, the Tribal draw was $500,000 per month.Beginning April 1, 2005, the Tribal draw was $1,000,000 per month. The totaldistributions to the Tribe were $11,180,000 and $7,613,116 for the twelvemonths ended December 31, 2005 and 2004, respectively. During the twelve monthsended December 31, 2005 and 2004, the Authority also distributed $680,000 and$830,000, respectively, to the Tribe as part of reimbursements for constructioncosts incurred by the Tribe prior to the formation of the Authority. As ofDecember 31, 2005, there is $1,960,000 remaining to be reimbursed to the Tribefor construction costs incurred prior to the formation of the Authority.

 

**3.**                                       CERTAIN RISKS AND UNCERTAINTIES

** **

The Authority’s operationsare dependent on the continued licensing and qualification of the Authority bythe Tribal Gaming Commission. Such licensing and qualification are reviewedperiodically by the Tribal Gaming Commission and regulatory agencies of theState of California. The Authority believes that no events or circumstanceshave arisen that would have an adverse effect on the Casino’s ability tocontinue its licensing and qualification by the Tribal Gaming Commission orregulatory agencies of the State of California to operate the Authority.

 

**4.**                                       RELATED PARTIES

** **

The Authority has beenconstructed on federal land beneficially owned by the Tribe. The Authority doesnot pay the Tribe for the use of the land.

 

Starting January 1, 2004,the Authority paid for various expenses for the following departments operatedby the Tribe: Tribal Gaming Commission, surveillance, plant operations, humanresources, purchasing and warehousing. On January 1, 2005, the Authoritystarted to operate purchasing and warehousing but continued to pay for expensesfor the other departments operated by the Tribe. These departmental expensesinclude but are not limited to payroll and related expenses, legal and otheroperational expenses. Total amounts billed by the Tribe for these departments,excluding Tribal Gaming Commission and surveillance, were $1,260,294 and$1,912,905 for the twelve months ended December 31, 2005 and 2004,respectively. They are recorded as a component of selling, general andadministrative expenses.

 

 The Authority paid for various expenses forthe Tribal Gaming Commission and surveillance in 2005 and 2004. Effective July1, 2005, the Tribal Gaming Commission adopted a regulation on payments ofregulatory fees from the Authority. The Tribal Gaming Commission charges theAuthority to cover any operating expenses incurred by the Commission which aredirectly related and necessary to the regulation of the Casino. These expenses,recorded as Tribal Gaming Commission and surveillance expenses were $2,773,369,$1,780,194 and $1,434,835 for the twelve months ended December 31, 2005, 2004,and 2003, respectively. Surveillance costs of $858,625 and $781,166 are notincluded in Gaming Commission and surveillance expenses for 2004 and 2003. Theseexpenses were included in Selling, General and Administrative expenses.

 

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**5.**                            DEVELOPMENT AND LOAN AGREEMENT

** **

The Tribe entered into aDevelopment and Loan Agreement with Dry Creek Casino, LLC (“DCC”) onAugust 26, 2001, which has been amended from time to time (as amended, the“Development Agreement”). In consideration of DCC’s providing creditenhancement and other services under the Development Agreement, the Tribe isobligated to pay DCC the Credit Enhancement Fee. The Credit Enhancement Fee isdefined as 20% of the Authority’s net income before distributions to the Tribeplus depreciation and amortization plus annual interest on $25.0 millionprincipal amount of the notes less revenues from sales of alcoholic beverages.The Credit Enhancement Fee is required to be paid monthly for a period of fiveyears commencing on June 1, 2003. The Credit Enhancement Fee was$7,669,147, $5,111,747 and $2,249,349 for each of the twelve months endedDecember 31, 2005, 2004 and 2003, respectively.

 

The Authority has the rightto terminate the Development Agreement by exercising a buy-out option on orafter June 1, 2006. If exercised, the Authority is obligated to pay allamounts outstanding with respect to financing, including outstanding developmentadvances and accrued interest plus an amount determined by multiplying theaverage monthly credit enhancement fee earned during the 12-month periodimmediately preceding the month the buy-out option is exercised, by the numberof months remaining in the five-year term. The buy-out fee is required to bepaid in equal monthly installments of principal plus interest at the rate of12% per annum, on the 15th day of each month over a period equal to theremaining term of the Development Agreement.

 

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

** **

Cash and cash equivalents and restricted cash consisted of thefollowing as of December 31, 2005 and December 31, 2004:

 
| ** **                                           | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
|                                                 |       |                            |       |                            |       |
| Operating accounts                                   |       | $                               | 5,241,644  |                            | $          | 10,103,118 |   |
| Money Market Accounts                                |       | 62,420                          |       | 307,911                         |       |
| Short Term Investments                               |       | 8,988,622                       |       | 4,999,800                       |       |
| Cash on hand                                         |       | 3,356,972                       |       | 3,207,997                       |       |
|                                                 |       |                            |       |                            |       |
| Cash and cash equivalents                            |       | 17,649,658                      |       | 18,618,826                      |       |
| Restricted cash                                      |       | 7,373,481                       |       | 16,201,721                      |       |
|                                                 |       |                            |       |                            |       |
| Total cash and cash equivalents and  restricted cash |       | $                               | 25,023,139 |                            | $          | 34,820,547 |   |

 

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, 2005 the Authority had $200,000 in Category 1investments, $5,041,644 cash in banks, $62,419 in Money Market accounts and$8,988,622 in short term investments which are Category 2 investments and$7,273,481 restricted cash in bank over the FDIC insurance limits, which areCategory 3 investments. Amounts in Category 2 and Category 3 investmentsare invested in short term, highly liquid cash equivalents and investments. Asof December 31, 2005 and 2004, these amounts are composed of money marketaccounts in the amount of $62,419 and $307,911, respectively and A1/P1 bonds inthe amount of $8,988,622 and $4,999,800, respectively.

 

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**7.**                            PROPERTY AND EQUIPMENT

** **

Property and equipment at January 1, 2005 and December 31, 2005consisted of the following:

 
| ** **                        | ** ** | **Balance,  January 1,  2005** | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **Balance,  December 31,  2005** | ** ** |
|-----------------------------------|------------|-------------------------------------|-------------|---------------|------------|------------------|------------|---------------------------------------|------------|
|                              |       |                                |        |          |       |             |       |                                  |       |
| Buildings and improvements        |       | $                                   | 118,941,344 |          | $          | 9,917,427        |       | $                                     | —     |   | $ | 128,858,771 |   |
| Furniture, fixtures and equipment |       | 22,946,294                          |        | 3,409,448     |       | (339,798         | )          | 26,015,944                            |       |
| Less accumulated depreciation     |       | (10,952,816                         | )           | (11,012,094   | )          | 163,143          |       | (21,801,767                           | )          |
|                              |       | 130,934,822                         |        | 2,314,781     |       | (176,655         | )          | 133,072,948                           |       |
| Construction in progress          |       | 379,576                             |        | 1,439,695     |       | —           |       | 1,819,271                             |       |
| Property and equipment—net   |       | $                                   | 131,314,398 |          | $          | 3,754,476        |       | $                                     | (176,655   | ) | $ | 134,892,219 |   |

 

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 31,2005 and 2004, the Authority had $315,012 and $120,000 in capital lease assetswith related accumulated depreciation of $40,251 and $8,000.

 

**8.**                            ACCRUED LIABILITIES

** **

Accrued liabilities consisted of the following as of December 31, 2005and December 31, 2004:

 
| ** **                                 | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                       |       |                        |       |                        |       |
| Accrued in-house progressive slot jackpots |       | $                           | 495,588    |                        | $          | 1,031,468 |   |
| Accrued payroll and related benefits       |       | 1,677,290                   |       | 1,620,177                   |       |
| Accrued interest                           |       | 3,250,000                   |       | 3,325,000                   |       |
| Accrued credit enhancement fees            |       | 685,659                     |       | 389,271                     |       |
| Accrued other expenses                     |       | 355,019                     |       | 213,962                     |       |
| Total accrued liabilities                  |       | $                           | 6,463,556  |                        | $          | 6,579,878 |   |

 

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**9.**                            LONG-TERM DEBT

** **

Long-term debt consisted of the following as of December 31, 2005 andDecember 31, 2004:

 
| ** **                                                                                      | ** ** | **December 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
|                                                                                            |       |                        |        |                        |       |
| 9 3/4% Senior Notes, net of unamortized  issue discount of $1,967,289 and $2,304,539. Due 2011. |       | $                           | 198,032,711 |                        | $          | 197,695,461 |   |
| DCC Subordinated Note                                                                           |       | —                      |        | 10,000,000                  |       |
| Vehicles Notes                                                                                  |       | 51,937                      |        | 63,768                      |       |
| Capital leases obligations                                                                      |       | 262,106                     |        | 504,635                     |       |
| Total Long Term Debt                                                                            |       | 198,346,754                 |        | 208,263,864                 |       |
| Less: current portion                                                                           |       | (103,545                    | )           | (10,441,139                 | )          |
|                                                                                            |       |                        |        |                        |       |
| Total long-term debt - net of current maturities                                                |       | $                           | 198,243,209 |                        | $          | 197,822,725 |   |

 

Maturity schedule – Annualrequirements to retire long-term debt at December 31, 2005:

 
| ** ** | ** ** | **Principal** | ** **  | **Interest** | ** ** | **Total**   | ** ** |
|------------|------------|---------------|-------------|--------------|------------|-------------|------------|
| 2006       |       | $             | 103,150     |         | $          | 19,516,000  |       | $ | 19,619,150 |   |
| 2007       |       | 106,731       |        | 19,509,737   |       | 19,616,468  |       |
| 2008       |       | 78,579        |        | 19,503,370   |       | 19,581,949  |       |
| 2009       |       | 24,463        |        | 19,500,509   |       | 19,524,972  |       |
| 2010       |       | 1,460         |        | 19,500,000   |       | 19,501,460  |       |
| Thereafter |       | 200,000,000   |        | 19,500,000   |       | 219,500,000 |       |
|       |       | $             | 200,314,383 |         | $          | 117,029,616 |       | $ | 317,343,999 |   |

 

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

 

On April 29, 2002, theTribe borrowed $15,000,000 from DCC. The loan is evidenced by a promissory notebearing an interest rate of 12% per annum. In accordance with the DevelopmentAgreement, accrued interest on the promissory note was converted to principalthrough March 31, 2003. Payments on the promissory note commenced onJune 1, 2003. On February 19, 2003, the Development Agreement datedApril 29, 2002, the promissory note and the Authority Funding and LoanAgreement were amended to provide an additional advance of $8,000,000, bearingan interest rate of 12% per annum, with principal payments commencing onJune 1, 2003. On November 7, 2003, the Authority refinanced $22,600,000 ofthe $32,600,000 principal amount of the DCC Development Loan from the Notesproceeds. As of December 31, 2004, the outstanding debt related to theDevelopment Agreement was $10,000,000. The outstanding debt related to theDevelopment Agreement was fully repaid on March 13, 2005.

 

Fair Value—Our long-termdebt is recorded at an amortized historical cost basis. The fair value oflong-term debt approximates $216,750,000 at December 31, 2005.

 

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**10.**                      LEASES

** **

The Authority leases asprung structure, which is accounted for as an operating lease. Such leaseexpense was $482,355, $511,476, and $511,476 for the twelve months endedDecember 31, 2005, 2004 and 2003. The Authority renewed the lease agreement onAugust 17, 2005 for $36,230 per month for twenty four (24) months ending August17, 2007.

 

On October 1, 2003, theTribe entered into an operating lease agreement for office and warehouse spaceto replace existing facilities. The Authority uses a portion of the space andreimburses the Tribe lease fees allocated based on the square footage utilized.The Authority reimbursed the Tribe such lease fees in the amount of $439,133,$252,463, and $0 for the twelve months ended December 31, 2005, 2004 and 2003,respectively.

 

On September 1, 2004, theAuthority entered into a five year capital lease to purchase two licenses to operatethree-card poker tables in the amount of $120,000. The capital lease is at7.25% interest with monthly lease fees of $2,390 and a $1 buyout at the end ofthe lease term, expiring August 31, 2009.

 

On September 1, 2004, theAuthority entered into a twelve month capital lease to purchase two generatorsin the amount of $550,000. The capital lease is at 24.3% interest with monthlypayments of $56,975 and a $1 buyout at the end of the lease term, expiringAugust 31, 2005. On September 22, 2005, the Authority made the final leasepayment and exercised the buyout option.

 

On July 31, 2005, theAuthority entered into a thirty six month capital lease to purchase 13Multi-deck shufflers in the amount of $88,307. The capital lease is at 7.09%interest with monthly lease fees of $2,730 and a $1 buyout at the end of thelease term, expiring 07/31/08.

 

On July 31, 2005, theAuthority entered into a thirty six month capital lease to purchase 6 Kingshufflers in the amount of $61,422. The capital lease is at 7.09% interest withmonthly lease fees of $1,899 and a $1 buyout at the end of the lease term,expiring 07/31/08.

 

On July 31, 2005, theAuthority entered into a thirty six month capital lease to purchase 4 Aceshufflers in the amount of $45,283. The capital lease is at 7.09% interest withmonthly lease fees of $1,400 and a $1 buyout at the end of the lease term,expiring 07/31/08.

 

Lease expenses of $995,202,$1,333,664 and $1,635,115 for the twelve months ended December 31, 2005, 2004and 2003, respectively and are included in general and administrative expensesin the accompanying statement of revenues, expenses and changes in fund deficit.Expected remaining payments under operating leases are $463,313, $267,665,$7,215 and $1,213 for the years ending December 31, 2006, 2007, 2008 and 2009respectively.

 

11.    LEGAL MATTERS

 

SonomaCounty Fire Marshal Inspection Case

 

OnOctober 7, 2002, the Sonoma County Fire Chief filed an application in SonomaCounty Superior Court for an inspection warrant to allow him to inspect theTribe’s reservation, including the Casino. The Tribe removed the case tofederal court. The Tribe had argued that there was no basis for the County FireChief to assert jurisdiction over the Tribe’s lands, which are owned in trustby the United States of America for the Tribe’s benefit, and are governed bytribal and federal law and the Compact.

 

OnDecember 9, 2004, the Court entered an order granting in part and denying inpart the Tribe’s motion to dismiss for failure to state a claim and denying theCounty’s motion for summary judgment. The order reaffirmed the Court’s priorruling that Public Law 280 does not authorize the County Fire Chief to inspectthe Tribe’s reservation or Casino. On March 1, 2005, the Court issued an Ordergranting in part and denying in part the Tribe’s motion to dismiss for failureto join necessary and indispensable parties, holding that United States ofAmerica is an indispensable party as to the road that provides ingress andegress to the Tribe’s reservation from the public highway. On April 29, 2005,the Court entered its final order granting the Tribe’s motion for summaryjudgment on the remaining issue of whether exceptional circumstances existedthat supported the issuance of an inspection warrant for the Tribe’s casino,and entered judgment on the entire action in the Tribe’s favor. The SonomaCounty Fire Chief has appealed, and the briefing should be completed inNovember 2005.  No oral argument has been set yet by the Court.

 

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Alcohol and Beverage Control License

 

On September 13, 2004, the Department of Alcoholic Beverage Control (“ABC”)denied the Tribe’s application for a liquor license based on the State FireMarshal’s interpretation of the Uniform Building Code. In May 2005, anAdministrative Law Judge heard the Tribe’s appeal of the ABC’s denial andrecommended that the ABC reverse itself and approve the license. OnAugust 25, 2005, the ABC announced that, effective October 11, 2005, it wouldadopt the Administrative Law Judge’s decision to approve the license transferpending a hearing on protests filed by citizens and government officials. TheABC has received over 65 protests against the license from citizens andgovernment officials. The ABC held a hearing on the protests on March 9, 2006. Theadministrative law judge will make his decision after all post hearing briefsare received. All briefs must be filed by early May 2006. The judge must makehis decision within 30 days after receipt of the final brief. The decision toapprove or deny the license transfer application may be appealed by any partiesto the proceeding so long as the appeal is filed within forty (40) days of theABC’s decision. The first appeal is to the ABC Appeals Board, and its decision maybe appealed to the California State court system.

 

We are involved in other litigation and disputesfrom time to time in the ordinary course of business with vendors and patrons.We believe that the aggregate liability, if any, arising from such litigationor disputes will not have a material adverse effect on our results ofoperations, financial condition or cash 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 annually forthe years ended December 31, 2005, 2004, 2003 and 2002.

 

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.

 

The Authority renewed anemployment agreement with Mr. Norman Runyan on November 8, 2005 to continue toserve as the Chief Operations Officer of the Authority. This three yearemployment agreement commenced on October 14, 2005 and provides Mr. Runyan anannual salary of $250,000 and a discretionary bonus, as determined by theTribal Board, of not less than 7% and not more than 25% of his annual salarybased on various criteria. If Mr. Runyan’s employment is terminated for otherreasons set forth in the employment agreement including death or disability,Mr. Runyan will be entitled to his salary for three months. Either party mayterminate the agreement with a 90 day written notice.

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized, on March 30, 2006.

 
|   | RIVER  ROCK ENTERTAINMENT AUTHORITY |
|--------|-------------------------------------|
|   |                                |
|   | By:                                 | /s/  Harvey Hopkins |   |
|   |                                | Name:  Harvey Hopkins |
|   |                                | Title:  Chairperson |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of River Rock EntertainmentAuthority and in the capacities and on the dates indicated.

 
| By:    | /s/  Harvey Hopkins                                                          |   |
|--------|------------------------------------------------------------------------------|--------|
|   | Name:  Harvey Hopkins                                                        |
|   | Title:  Chairperson                                                          |
|   | Date:  March 30, 2006                                                        |
|   |                                                                         |
| By:    | /s/  Betty Arterberry                                                        |   |
|   | Name:  Betty Arterberry                                                      |
|   | Title:  Vice Chairperson                                                     |
|   | Date:  March 30, 2006                                                        |
|   |                                                                         |
| By:    | /s/  Margie Rojes                                                            |   |
|   | Name:  Margie Rojes                                                          |
|   | Title:  Secretary-Treasurer                                                  |
|   | Date:  March 30, 2006                                                        |
|   |                                                                         |
| By:    | /s/  Augusto (Gus) Pina                                                      |   |
|   | Name:  Augusto (Gus) Pina                                                    |
|   | Title:  Member                                                               |
|   | Date:  March 30, 2006                                                        |
|   |                                                                         |
| By:    | /s/  Bruce Smith                                                             |   |
|   | Name:  Bruce Smith                                                           |
|   | Title:  Member                                                               |
|   | Date:  March 30, 2006                                                        |
|   |                                                                         |
| By:    | /s/  Norman Runyan                                                           |   |
|   | Name:  Norman Runyan                                                         |
|   | Title:  Acting Chief Executive Officer (Principal Executive Officer)         |
|   | Date:  March 30, 2006                                                        |
|   |                                                                         |
| By:    | /s/  Yuan Fang (Yvonne) Mao                                                  |   |
|   | Name:  Yuan Fang (Yvonne) Mao                                                |
|   | Title:  Chief Financial Officer (Principal Financial and Accounting Officer) |
|   | Date:  March 30, 2006                                                        |
|        |                                                                              |        |  |  |  |  |

 

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