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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

_____________________________________

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
  For the quarterly period ended March 31, 2005
  OR
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
  For the transition period from ____ to ____

Commission File Number: 333-115186

RIVER ROCK ENTERTAINMENT AUTHORITY
(Exact name of registrant as specified in its charter)

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

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

Yes         No     

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

Yes         No      

 

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RIVER ROCK ENTERTAINMENT AUTHORITY
INDEX TO FORM 10-Q

               
Item     Description     Page  
               
      PART I – FINANCIAL INFORMATION        
               
1.    
Financial Statements (unaudited)
        
     
Balance Sheets-
March 31, 2005 and December 31, 2004
     1  
     
Statements of Revenues, Expenses and Changes in Fund Deficit-
Three-Months ended March 31, 2005 and 2004
    2  
     
Statements of Cash Flows-
Three-Months ended March 31, 2005 and 2004
     3  
     
Notes to unaudited Financial Statements
     4  
2.    
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
    13  
3.    
Quantitative and Qualitative Disclosures About Market Risk
     19  
4.    
Controls and Procedures
     19  
               
      PART II – OTHER INFORMATION        
               
1.    
Legal Proceedings
     20  
6.    
Exhibits and Reports on Form 8-K
     20  
               
Signature     21  
         
Exhibit Index     22  
         

 

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CAUTIONARY STATEMENT

     Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based upon current expectations that involve risks and uncertainties and include declarations regarding the intent, belief or current expectations of us and our management and may be signified by the words “believes”, “anticipates”, “plans”, “expects”, “intends” and similar expressions. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise. All discussion in this report should be read in conjunction with our financial statements and the accompanying notes contained in this report.

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

     Our key risks are described in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2005.

 

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RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

BALANCE SHEETS
 (Unaudited)

March 31, 2005   December 31, 2004
 
 
ASSETS              
               
CURRENT ASSETS:              
   Cash and cash equivalents $ 15,457,486   $ 18,618,826  
   Restricted cash-current 1,895,614     11,516,316  
   Accounts receivable 45,250     53,796  
   Inventories 383,194     383,411  
   Prepaid expenses and other current assets 762,121     773,831  
 
 
 
               
      Total current assets 18,543,665     31,346,180  
 
 
 
               
RESTRICTED CASH-Net of Current 8,408,090     4,685,405  
 
 
 
               
PROPERTY AND EQUIPMENT:              
   Buildings, land and building improvements 124,082,974     118,941,344  
   Furniture, fixtures and equipment     23,720,778     22,946,294  
   
 
 
      147,803,752     141,887,638  
               
Accumulated depreciation     (13,491,629 )   (10,952,816 )
Construction in progress     423,077     379,576  
   
 
 
               
      Property and equipment-net     134,735,200     131,314,398  
   
 
 
               
DEPOSITS AND OTHER ASSETS     7,282,510     7,466,553  
   
 
 
               
TOTAL ASSETS $ 168,969,465   $ 174,812,536  
 
 
 
               
LIABILITIES AND FUND DEFICIT              
               
CURRENT LIABILITIES:              
   Accounts payable:              
      Trade   $ 2,225,157   $ 3,398,174  
      Construction     1,895,614     4,091,862  
   Accrued liabilities     11,721,355     6,579,878  
   Current maturities of long-term debt     350,244     10,441,139  
   
 
 
               
         Total current liabilities     16,192,370     24,511,053  
               
LONG-TERM DEBT - net of current maturities     197,913,337     197,822,725  
   
 
 
               
Total long term liabilities     197,913,337     197,822,725  
               
FUND DEFICIT              
Invested in capital assets-net of related debt     (63,528,381 )   (77,373,777 )
Restricted for capital projects     10,303,704     16,201,721  
Unrestricted     8,088,435     13,650,814  
   
 
 
               
Total Fund Deficit     (45,136,242 )   (47,521,242 )
   
   
 
               
TOTAL LIABILITIES AND FUND DEFICIT   $ 168,969,465   $ 174,812,536  
   
 
 

The accompanying notes are an integral part of these unaudited financial statements.

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RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT
(Unaudited)

 
Three-Month
Period Ended
  March 31,
 
2005
2004
   
 
 
REVENUES:              
               
   Casino   $ 31,726,625   $ 24,736,819  
   Food, beverage & retail     1,566,240     1,220,583  
   Other     181,320     121,723  
   
 
 
               
Gross revenues
    33,474,185     26,079,125  
               
Promotional allowance     (792,476 )   (523,761 )
   
 
 
               
Net revenues
     32,681,709     25,555,364  
               
OPERATING EXPENSES:              
   Casino     5,372,268     4,425,095  
   Food, beverage & retail     1,446,610     1,354,751  
   Selling, general and administrative     10,509,868     8,535,024  
   Depreciation     2,633,958     1,524,037  
   Credit enhancement fee     1,942,849     1,390,237  
   Gaming commission expense     536,613     437,223  
   Compact revenue sharing trust fund     333,750     333,750  
   
 
 
               
Total Operating expenses
     22,775,916     18,000,117  
   
 
 
               
INCOME FROM OPERATIONS     9,905,793     7,555,247  
   
 
 
               
OTHER EXPENSE-Net              
   Interest expense     (5,346,799 )   (4,115,302 )
   Interest income     40,424     157,769  
   Loss on sale of assets     (33,977 )   —  
   Other expense     (441 )   (166 )
   
 
 
               
Other expense-net
     (5,340,793 )   (3,957,699 )
   
 
 
               
INCOME BEFORE DISTRIBUTIONS TO TRIBE     4,565,000     3,597,548  
DISTRIBUTIONS TO TRIBE     (2,180,000 )   (1,525,000 )
   
 
 
               
NET INCOME AFTER DISTRIBUTIONS TO TRIBE     2,385,000     2,072,548  
FUND DEFICIT-Beginning of period     (47,521,242 )   (52,354,774 )
   
 
 
               
FUND DEFICIT-End of period   $ (45,136,242 ) $ (50,282,226 )
   
 
 
               

The accompanying notes are an integral part of these unaudited financial statements.

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RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

STATEMENTS OF CASH FLOWS
(Unaudited)

  Three-Month
Period Ended
March 31,		  
 
 
  2005   2004  
CASH FLOWS FROM OPERATING ACTIVITIES:  
 
 
   Cash received from gaming winnings and concessions   $ 32,862,413   $ 25,485,484  
   Cash paid for salaries and benefits     (7,734,218 )   (5,225,637 )
   Cash paid to suppliers     (11,544,610 )   (12,401,487 )
   Cash paid for compact revenue sharing trust fund     (333,750 )   (333,750 )
   
 
 
               
         Net cash provided by operating activities     13,249,835     7,524,610  
               
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:              
   Proceeds from long-term financing     —     20,566  
   Payments of long-term debt     (10,113,853 )   (4,525 )
   Purchases of property and equipment     (8,040,229 )   (11,115,371 )
   Change in restricted cash     5,898,017     13,589,989  
   Interest paid     (190,815 )   (150,644 )
   Credit enhancement fee     (1,714,915 )   (1,291,183 )
   Proceeds from sale of assets     2,000     —  
   Other     (71,380 )   —  
   
 
 
         Net cash provided by (used in) capital and related financing activities     (14,231,175 )   1,048,832  
               
CASH FLOW FROM NON-CAPITAL FINANCING ACTIVITIES              
      DISTRIBUTIONS TO TRIBE     (2,180,000 )   (1,525,000 )
   
 
 
               
CHANGE IN CASH AND CASH EQUIVALENTS     (3,161,340 )   7,048,442  
               
CASH AND CASH EQUIVALENTS, Beginning of the period     18,618,826     16,897,644  
   
 
 
               
CASH AND CASH EQUIVALENTS, End of the period   $ 15,457,486   $ 23,946,086  
   
 
 
               
RECONCILIATION OF INCOME BEFORE DISTRIBUTIONS TO TRIBE              
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:              
Income before Distributions to Tribe   $ 4,565,000   $ 3,597,548  
   
 
 
               
Adjustments to reconcile operating income to net cash              
   provided by operating activities:              
   Depreciation     2,633,958     1,524,037  
   Interest expense, net     5,346,799     4,115,302  
   Credit enhancement fee     1,942,849     1,390,237  
   Loss on sale of assets     33,977     —  
   Changes in operating assets and liabilities:              
      Accounts receivable     8,546     (69,880 )
      Inventories     217     (111,790 )
      Prepaid expenses and other current assets     11,710     61,142  
      Accounts payable-trade     (1,173,014 )   (3,581,692 )
      Accrued liabilities     (120,207 )   599,706  
   
 
 
         Total adjustments     8,684,835     3,927,062  
   
 
 
               
NET CASH PROVIDED BY OPERATING ACTIVITIES   $ 13,249,835   $ 7,524,610  
   
 
 
SUPPLEMENTARY SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES:              
               
Acquisition of property and equipment through third party financing   $ 246,757   $ 20,566  
Acquisition of property and equipment through accounts payable construction     1,895,614     3,358,902  
Capitalized interest included in purchases of property and equipment paid with notes     —     1,359,291  
Trade in allowance on purchase of property and equipment     63,100     —  

The accompanying notes are an integral part of these unaudited financial statements.

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RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

1.      DESCRIPTION OF BUSINESS

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

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

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

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

     Income before distributions to Tribe was $4,565,000 for the three-months ended March 31, 2005 and $3,597,548 for the three-months ended March 31, 2004. A fund deficit of $45,136,242 exists as of March 31, 2005. The Authority’s current assets exceeded its current liabilities by $2,351,295. On November 7, 2003, the Authority issued $200,000,000 in 9¾% Senior Notes, due 2011 (the “Notes”), and used a portion of the proceeds to reduce current payables, accruals and debt. The Authority’s ability to fund future debt service payments is dependent upon the success of the Casino. Management believes that the Casino will attract sufficient patronage levels and continue to produce sufficient cash flow to repay its indebtedness. On December 29, 2004, the Authority reached its substantial completion of the construction of the enhanced parking structures.

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Accounting Standards—The Authority prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). The financial statements presented are prepared on the accrual basis of accounting from the accounts and financial transactions of the Authority. Generally accepted accounting principles require the Authority to apply all applicable pronouncements of the Governmental Accounting Standards Board (“GASB”). The Authority is also required to follow Financial Accounting Standards Board (“FASB”) Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The Authority is given the option whether to apply all FASB Statements 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 FASB Statements and Interpretations issued after November 30, 1989.

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     There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with FASB pronouncements. The statements of revenues, expenses and changes in fund deficit is a combined statement under GASB pronouncements, FASB pronouncements allow a statement of income or operations and a separate statement of owners’ or shareholders’ equity deficit, which is where distributions to owners would be presented under FASB pronouncements. The amount shown as income before distributions to Tribe would not be different if the Authority followed all FASB pronouncements to determine net income and would be the most comparable amount to net income computed under FASB pronouncements. The Authority is a separate fund of the Tribe, a governmental entity, and as such there is no owners’ or shareholders’ equity deficit as traditionally represented under FASB pronouncements. The most comparable measure of owners’ equity deficit is presented on the Authority’s balance sheet as fund deficit.

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

     In November 2003, GASB issued Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, effective for periods beginning after December 15, 2004. This statement establishes accounting and financial reporting standards for impairment of capital assets. This statement also clarifies and establishes accounting requirements for insurance recoveries. The adoption of this statement did not have a material impact on the financial statements of the Authority.

     Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

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

     Restricted Cash—Restricted cash consists of estimated construction expenses for three parking structures, related infrastructure improvements and construction contingencies. It also includes funds that are reserved for additional construction contingencies and the funds necessary to develop an approximately 18-acre parcel of land adjacent to the Tribe’s reservation, which is expected to be used primarily to build an additional access road to the Tribe’s reservation. These funds are held in escrow accounts which are restricted for authorized construction disbursements. These escrow accounts are invested in Certificates of Deposit, which generate interest on a monthly basis. The FDIC has insured $100,000 of this balance. The Authority believes that there is little risk of loss regarding the uninsured amounts of restricted cash held in the escrow account. Restricted cash was $10,303,704 and $16,201,721 at March 31, 2005 and December 31, 2004, respectively. As of March 31, 2005, restricted cash includes amounts available for construction of $5,625,091 and land development funds of $4,678,613.

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

  Building and Improvements 10-39 years
  Furniture, fixtures and equipment 5-7 years

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

     Capitalized Interest—The interest cost associated with major development and construction projects is capitalized and included in the cost of the Authority. Capitalization of interest ceases when the project is substantially complete or development activity is suspended. Capitalized interest for the three-months ended March 31, 2005 and 2004 was $0 and $1,359,291, respectively.

     Deposits and Other Assets— As of March 31, 2005 and December 31, 2004, deposits and other assets include $6,728,498 and $6,983,920 in unamortized loan costs related to the issuance of the Notes. Deferred loan costs are amortized to interest expense over the term of the related financial arrangement.

     Accrued Liabilities—Accrued liabilities consist of accrued interest, accrued payroll, accrued credit enhancement fee, capital leases payable and other accrued liabilities.

     Accrued Progressive Slot Jackpots—Accrued progressive slot jackpots consist of estimates for prizes relating to various games that have accumulated jackpots. The Authority has recorded the cost of these anticipated payouts as a reduction of casino revenues, and the cost is included as a component of accrued liabilities.

     Accrued Slot Players Club—In accordance with Emerging Issues Task Force Issue No. 00-22, Accounting for “Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offers and Offers for Free Products or Services to be Delivered in the Future, the Authority has recorded a liability related to prizes and cash incentives earned by the members of the players club. The Authority has recorded the cost of the estimated redemption of the liability related to prizes as an operating expense and the estimated redemption of the liability related to cash as promotional allowance in the accompanying statements of revenues, expenses and changes in fund deficit.

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

     Food, Beverage and Retail—The Authority recognizes as food, beverage and retail revenues the proceeds from its food, beverage and gift shop sales. The Authority distributes beverages freely in the gaming area and such amounts are included as a component of promotional allowances.

     Other Revenues—Other revenues are comprised of commissions on ATM, vending machine transactions and license revenues.

     Promotional Allowances—The retail value of food and beverages provided to customers without charge is included in gross revenues and then deducted as promotional allowances. The redemption of cash incentives earned by the player’s club members is also recorded as promotional allowances. The estimated costs of providing complimentary services are recorded as casino expenses. The costs of such services for the three-months ended March 31, 2005 and 2004 were $939,149 and $587,500, respectively.

     Food and Beverage Costs—Food and beverage costs include costs associated with food and beverage operations excluding amounts classified as casino expenses.

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     Advertising Costs—Advertising costs are expensed the first time advertising takes place. Advertising costs included in selling, general and administrative expenses were $1,081,442 and $862,739 for the three-months ended March 31, 2005 and 2004, respectively.

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

     Distributions to Tribe—Distributions to Tribe are made up of a stated draw amount and permitted payments. They are included in the statement of revenues, expenses and changes in fund deficit as distributions to Tribe. The Tribal draw was $500,000 per month for the three months ended March 31, 2005. The Authority also distributed $680,000 to the Tribe as part of reimbursement for construction costs incurred by the Tribe prior to the formation of the Authority. As of March 31, 2005, there is $1,960,000 remaining to be reimbursed to the Tribe for construction costs incurred prior to the formation of the Authority. The total distributions to the Tribe were $2,180,000 and $1,525,000 for the three-months ended March 31, 2005 and 2004, respectively.

3. CERTAIN RISKS AND UNCERTAINTIES

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

4. RELATED PARTIES

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

     Starting January 1, 2004, the Authority paid for various expenses for the following departments operated by the Tribe: Tribal Gaming Commission and surveillance, plant operations, human resources, purchasing and warehousing. On January 1, 2005, the Authority started to operate purchasing and warehousing but continued to pay for expenses for the other departments operated by the Tribe. These departmental expenses include, but are not limited to, payroll and related expenses, legal and other operational expenses. Total amounts billed by the Tribe for these departments, excluding Tribal Gaming Commission and surveillance, were $524,838 and $661,051 for the three months ended March 31, 2005 and 2004, respectively, and are recorded as a component of selling, general and administrative expenses. The Authority paid for various expenses for the Tribal Gaming Commission and surveillance in 2005 and 2004. These expenses were $536,613 and $437,223 for the three months ended March 31, 2005 and 2004, respectively, and are presented in our Statement of Revenues, Expenses and Changes in Fund Deficit as “Gaming commission expense”.

5. DEVELOPMENT AND LOAN AGREEMENT

     The Tribe entered into a Development and Loan Agreement with Dry Creek Casino, LLC (“DCC”) on August 26, 2001, which has been amended from time to time (as amended, the “Development Agreement”). On November 7, 2003, the Authority refinanced $22,600,000 of the $32,600,000 principal amount of the development loan due to DCC under the Development Agreement. As of March 31, 2005, the outstanding debt related to the Development Agreement was fully repaid.

     In addition to its obligations to repay the loan and advances specified in the Development Agreement, in consideration of DCC’s providing credit enhancement and other services under the Development Agreement, the Tribe is obligated to pay DCC the Credit Enhancement Fee. The Credit Enhancement Fee is defined as 20% of the Authority’s net income before distributions to the Tribe plus depreciation and amortization plus annual interest on $25.0 million principal 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 five years commencing on June 1, 2003. The Credit Enhancement Fee for the three months ended March 31, 2005 and 2004 were $1,942,849 and $1,390,237, respectively.

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     The Authority has the right to terminate the Development Agreement by exercising a buy-out option on or after June 1, 2006 (the “Buy-Out Option”). If exercised, the Authority is obligated to pay all amounts outstanding with respect to financing, including outstanding development advances and accrued interest plus an amount determined by multiplying the average monthly credit enhancement fee earned during the 12-month period immediately preceding the month the Buy-Out Option is exercised, by the number of months remaining in the five-year term (the “Remaining Term”). The buy-out fee is required to be paid in equal monthly installments of principal plus interest at the rate of 12% per annum, on the 15th day of each month over a period equal to the Remaining Term.

6. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

     Cash and cash equivalents and restricted cash consisted of the following as of March 31, 2005 and December 31, 2004:

  March 31, 2005   December 31, 2004  
 
 
 
Operating accounts   $ 12,576,274   $ 10,411,029  
Short term investments     309,383     4,999,800  
Cash on hand     2,571,829     3,207,997  
     
   
 
Cash and cash equivalents   $ 15,457,486   $ 18,618,826  
Restricted cash     10,303,704     16,201,721  
     
   
 
Total cash, cash equivalents and              
   Restricted cash   $ 25,761,190   $ 34,820,547  
   
 
 

     The Authority’s cash in banks and cash equivalents (the “investments”) are categorized by level of credit risk assumed by the Authority. Category 1 includes investments that are insured or registered or for which the investments are held by the Authority or its agent in the Authority’s name. Category 2 includes uninsured and unregistered investments for which the investments are held by the counterparty’s trust department or agent in the Authority’s name. Category 3 includes uninsured and unregistered investments for which the investments are held by the counterparty’s agent but not in the Authority’s name. At March 31, 2005, the Authority has $300,000 in Category 1 investments, $12,276,274 cash in bank and $309,383 in short term investments which are Category 2 investments and $10,203,704 restricted cash in bank over the FDIC insurance limits, which are Category 3 investments. Amounts in Category 2 and Category 3 investments are invested in short term, highly liquid cash equivalents and investments. As of March 31, 2005, these amounts are composed entirely of money market accounts.

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7.      PROPERTY AND EQUIPMENT

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

    Balance,
January 1, 2005		   Additions   Dispositions   Balance,
March 31, 2005		  
   
 
 
 
 
Buildings and                          
   improvements   $ 118,941,344   $ 5,141,630   $ —   $ 124,082,974  
Furniture, fixtures                          
   and equipment     22,946,294     968,706     (194,222 )   23,720,778  
Less accumulated                          
   depreciation     (10,952,816 )   (2,633,958 )   95,145     (13,491,629 )
   
 
 
 
 
      130,934,822     3,476,378     (99,077 )   134,312,123  
Construction in                          
   progress     379,576     43,501     —     423,077  
   
 
 
 
 
Property and                          
   equipment—net   $ 131,314,398   $ 3,519,879   $ (99,077 ) $ 134,735,200  
   
 
 
 
 

     Construction in progress consists of payments to various vendors related to the Authority’s master plan development and land improvements. Substantially all of the Authority’s personal property is pledged as collateral to secure its debt. The Authority has $670,000 in capital lease assets with related accumulated depreciation of $78,167 as of March 31, 2005.

8. ACCRUED LIABILITIES

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

    March 31, 2005   December 31, 2004  
   
 
 
Accrued in-house progressive slot jackpots   $ 1,047,375   $ 1,031,468  
Accrued payroll and related benefits     1,526,473     1,620,177  
Accrued interest     8,141,250     3,325,000  
Accrued credit enhancement fees     617,205     389,271  
Accrued other expenses     389,052     213,962  
   
 
 
               
    $ 11,721,355   $ 6,579,878  
   
 
 

 

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9. LONG-TERM DEBT

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

    March 31, 2005   December 31, 2004  
     
 
 
9 3/4% Senior Notes, net of original issue discount, due 2011   $ 197,779,775   $ 197,695,461  
DCC Subordinated Note     —     10,000,000  
Vehicle Note     72,258     63,768  
Capital leases payable     411,548     504,635  
   
 
 
               
Total long-term debt     198,263,581     208,263,864  
Less current portion     (350,244 )   (10,441,139 )
   
 
 
               
Total long-term debt - net of current maturities   $ 197,913,337   $ 197,822,725  
   
 
 

On November 7, 2003, the Authority issued the Notes. The proceeds were utilized to fund an expansion project, which includes three parking structures and related infrastructure improvement, repayment of various debt, and advances and fund payment of various accruals and payables, as well as to increase cash on hand. The proceeds were also utilized to fund a land purchase and settle litigation. The Notes were secured by a first priority pledge of the Authority’s revenue and substantially all of the existing and future tangible and intangible personal property. Before November 1, 2007, the Authority may redeem the Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make-whole premium and accrued and unpaid interest. On or after November 1, 2007, the Authority may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) plus accrued and unpaid interest.

On April 29, 2002, the Tribe borrowed $15,000,000 from