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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549

FORM 10-Q

(Mark One)

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2010

OR

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number: 333-115186

RIVER ROCK ENTERTAINMENT AUTHORITY

(Exact name of registrant as specified in its charter)

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  x   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o  Yes   o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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RIVER ROCK ENTERTAINMENT AUTHORITY

INDEX TO FORM 10-Q

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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 (the “Exchange Act”).  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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

RIVER ROCK ENTERTAINMENT AUTHORITY

(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

CONDENSED BALANCE SHEETS

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

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RIVER ROCK ENTERTAINMENT AUTHORITY

(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)

(Unaudited)

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

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RIVER ROCK ENTERTAINMENT AUTHORITY

(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

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RIVER ROCK ENTERTAINMENT AUTHORITY

(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

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NOTES TO UNAUDITED CONDENSED 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 of 1988, as amended) 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 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’s 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 the Authority only and do not purport to represent the financial position and activity of the Tribe.

2.                          BASIS OF PRESENTATION, UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited condensed financial statements of the Authority, presented herein are presented on the same basis and can be compared to the audited financial statements reported in the Authority’s annual information in the Authority’s 2009 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“the SEC”). The accompanying condensed balance sheet as of December 31, 2009 has been derived from the audited financial statements included in the Authority’s Annual Report on Form 10-K for the year ended December 31, 2009.

River Rock Entertainment Authority has made its disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, but condensed or omitted certain information and disclosures normally included in notes to financial statements in accordance with the SEC’s rules and regulations. The unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto in River Rock Entertainment Authority’s Annual Report on Form 10-K for the year ended December 31, 2009.

In the opinion of the Authority’s management, the accompanying unaudited interim condensed financial statements contain all adjustments (consisting of normal recurring adjustments) to fairly present the Authority’s condensed financial position as of June 30, 2010 and the condensed statements of revenues, expenses and changes in net assets (deficit) for the three and six month periods ended June 30, 2010 and 2009, and condensed statements of cash flows for the six months ended June 30, 2010 and 2009, as applicable. The condensed statements of revenues, expenses and changes in net assets (deficit) and condensed cash flows for all periods presented are not necessarily indicative of the results of operations or cash flows expected for the year or any other period.

3.                          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 (“GAAP”) applicable to State and local government agencies and, as such, the Authority is accounted for as a proprietary fund. The financial statements presented are prepared on the accrual basis of accounting from the accounts and financial transactions of the Authority. GAAP requires the Authority to apply all applicable pronouncements of the Governmental Accounting Standards Board (“GASB”). The Authority is also required to follow the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”) for topics issued on or before November 30, 1989, unless those topics conflict with or contradict GASB pronouncements.  The Authority is given the option whether to apply the FASB topics issued after November 30, 1989, except for those that conflict

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with or contradict GASB pronouncements. Accordingly, the Authority has elected to implement non-conflicting FASB topics issued after November 30, 1989.

There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with the FASB Codification. The statements of revenues, expenses and changes in net assets (deficit) are a combined statement under GASB pronouncements. The FASB Codification allows 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.  The amount shown as income before distributions to Tribe would be the most comparable amount to net income computed under the FASB Codification.  The Authority is a separate enterprise fund of the Tribe, a governmental entity, and as such there is no owners’ or shareholders’ equity (deficit) as traditionally represented under the FASB Codification.  The most comparable measure of owners’ equity (deficit) is presented on the Authority’s balance sheet as net assets (deficit).

During the third quarter of 2009, the Authority adopted the new Accounting Standards Codification (“ASC”) as issued by the FASB.  The ASC has become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  The ASC is not intended to change or alter existing GAAP.  The adoption of the ASC did not have a material impact on the Authority’s financial statements.

FASB has issued Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.” This ASU requires certain new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require: (A) A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and (B) In the reconciliation for fair value measurements using significant unobservable inputs, Level 3, a reporting entity should present separately information about purchases, sales, issuances, and settlements.  In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures: (A) For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and (B) A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. As this update is only “disclosure-related,” it does not have an impact on the Authority’s financial position and results of revenues, expenses and changes in net assets (deficit).

FASB has issued ASU No. 2010-16, “Entertainment — Casinos (Topic 924) — Accruals for Casino Jackpot Liabilities.”  This ASU addresses the accounting for casino base jackpot liabilities, specifically, whether an entity accrues liabilities for a base jackpot before it is won if the entity is not required to award the base jackpot.  This ASU clarifies that an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won if the entity can avoid paying that jackpot.  Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot.  This guidance applies to both base and progressive jackpots.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this new standard is not expected to have any effect on the Authority’s financial position or result of operations.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include legal and other contingencies, obligations under players’ club programs and useful lives and recoverability of long-lived assets. Actual results could differ from these 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.

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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 $250,000 of the cash on deposit at an FDIC member bank. The Authority believes that there is little risk of loss regarding the uninsured amounts of cash and cash equivalents on deposit with the banks.

Restricted Cash— Restricted cash consists of net proceeds from the Notes Offering and investment earnings thereon set aside in construction financing accounts, for construction costs for related infrastructure improvements and construction contingencies. It also includes funds that are reserved for construction contingencies and the funds for the development of the Dugan Property, an approximately 18-acre parcel of land adjacent to the Tribe’s reservation. The restricted cash is held in escrow accounts that can only be used for authorized construction disbursements until the related projects are completed.  These escrow accounts are invested in money market accounts, which generate interest on a monthly basis. The FDIC has insured $250,000 of this balance. The Authority believes that there is little risk of loss regarding the uninsured amounts of restricted cash held in the escrow accounts. Restricted cash was $7,101,172 and $7,097,526 at June 30, 2010 and December 31, 2009, respectively.  As of June 30, 2010, restricted cash includes amounts available for construction of $2,773,500 and land development funds of $4,327,672.  On July 30, 2010, U.S. Bank National Association, as trustee and collateral agent for the Senior Notes, transferred $2,682,699 from restricted accounts held by U.S. Bank to the Authority’s unrestricted operating account. The transferred amount represents the remaining balances of proceeds from the sale of the Senior Notes and investment earnings thereon that had been held by U.S. Bank in a restricted construction financing account and a construction escrow account less all fees and expenses owed to U.S. Bank to date.  The remaining balance of restricted cash relates to the emergency access road which will be used to further develop either the Dugan Road or an alternate access road and will remain restricted for such purposes.

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

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

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized.

Major outlays of capital assets and improvements are capitalized as construction-in-progress as projects are constructed.

Evaluation of Long-Lived Assets — Accounting pronouncement GASB No. 42, “Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries,” established accounting and financial reporting standards for impairment of capital assets.  The Authority’s capital assets include building and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstances is outside the normal life cycle of the capital asset.  The Authority is required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred.  Common indicators of impairment include evidence of physical damage where restoration efforts are needed to restore service utility, enactment or approval of laws or regulations setting standards that the capital asset would not be able to meet, technological development or evidence of obsolescence, a change in the manner or expected duration of use of a capital asset or construction stoppage.  This Statement will require the Authority to report the effects of capital asset impairment in its financial statements when they occur, rather than as part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset, and to account for insurance recoveries in the same manner.  The Authority’s management has determined that no impairment of capital assets currently exists.

Capitalized interest — The interest cost associated with major development and construction projects is capitalized and included in the cost of the asset.  Capitalization of interest ceases when the project is substantially complete or when

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development activity is suspended.  The Authority did not capitalize any interest for the six months ended June 30, 2010 and 2009.

Prepaid Expenses and Other Current Assets — Prepaid expenses and other current assets were $1,376,636 and $1,379,133 as of June 30 2010 and December 31, 2009, respectively, which includes prepaid insurance, prepaid uniforms and prepaid supplies.

Deposits and Other Assets — As of June 30, 2010 and December 31, 2009, respectively, deposits and other assets mainly represent $1,364,601 and $1,875,448 in unamortized legal fees and other issuance costs related to the issuance of the Authority’s 9 ¾% Senior Notes due 2011 (the “Senior Notes”) under the Indenture, dated November 7, 2003 (the “Indenture”) and $182,994 in costs incurred in connection with the potential offering of new notes.

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

Progressive Jackpots Liabilities —The Casino has a number of progressive jackpot slot machines.  As coins are played, the amount available to win increases and will be paid out when the appropriate winning combination occurs.  The Casino has recorded the progressive jackpots as a liability, with a corresponding charge against gaming revenue, of $1,544,872 and $1,587,748 as of June 30, 2010 and December 31, 2009, respectively.  Also, the Casino has available for customer play wide area progressive slot machines that are interlinked with other unrelated casinos.  These machines are monitored and maintained by the vendor and the Casino is required to remit a percentage of coin-in to the respective vendor.  The Casino records a charge against revenue for the portion of the fee applied to the wide area progressive jackpots.  Amounts recorded against revenue for the portion of the fee applied to the wide area progressive jackpots were approximately $273,912 and $351,226 for the three months ended June 30, 2010 and 2009, respectively; and approximately $492,130 and $701,970 for the six months ended June 30, 2010 and 2009.  All other administrative charges are recorded in operating expenses.

Accrued Slot Players Club — The Authority has recorded a liability related to free play, prizes and cash incentives earned by the members of our Players Club. The Authority has recorded the estimated redemption of the liability as contra-revenue in the accompanying statements of revenues, expenses and changes in net assets (deficit).

Contingencies — The Authority assesses its exposure to loss contingencies, including legal matters, and provides for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be materially impacted. As of June 30, 2010, management determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal actions change materially, the addition of accruals for such items in future periods may be required.

Authority net assets — Investments in capital assets, net of related debt, consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets.  Invested in capital assets, net of related debt, excludes unspent debt proceeds.  Restricted net assets represent amounts that are appropriated or are legally segregated for a specific purpose.  The Authority’s net assets are reported as restricted when there are limitations imposed on its use, either through the enabling legislation adopted by the Authority or through external restrictions imposed by creditors, grantors, laws or regulations of other governments.

Casino Revenues—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 and certain player incentives, when earned by the customer.

Food, Beverage and Retail Revenues — The Authority recognizes as food, beverage and retail revenues the proceeds from its food, beverage and gift shop sales. The Authority continues to distribute non-alcoholic beverages without cost in the gaming area for playing guests.  In December 2009, the Authority replaced the gift shop with vending machines.  The vending machines are owned and operated by a third party.  The Authority receives a commission from the vending machine sales and such commission are recorded as Other Revenues.

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

Promotional Allowances — The retail value of food and beverages provided to customers without charge or at a discount is included in food, beverage and retail revenues and then deducted as promotional allowances. Such amounts that are included in food, beverage, and retail revenues for the three months ended June 30, 2010 and 2009 were $440,010 and $468,386, respectively.  The amounts included in food, beverage and retail revenues for the six months ended June 30, 2010 and 2009 were $818,925 and $688,297, respectively.

Food and Beverage Expenses — Food and beverage expenses include cost of goods sold related to providing food and beverage to our customers. The estimated costs of providing complimentary products and services are reflected in Casino expenses.

Advertising Costs — Advertising costs are expensed as incurred or when an advertisement is first aired or circulated. Advertising costs included in selling, general and administrative expenses for the three months ended June 30, 2010 and 2009 were $1,452,753 and $1,226,723, respectively.  Advertising costs for the six months ended June 30, 2010 and 2009 were $2,975,629 and $2,068,699, respectively.

Gaming Commission and Surveillance Expenses — The Authority pays for various expenses for the Tribal Gaming Commission and Surveillance.  Such expenses include salaries and wages and related benefits for Regulatory, Surveillance and office staff, training, audit fees, background checks and licensing.

Income Taxes —As a governmental instrumentality of the Tribe, the Authority is a non-taxable entity for purposes of federal and state income taxes.

Distributions to Tribe — Distributions to Tribe are made up of permitted and service payments under the covenants of the Indenture.  They are included in the statements of Revenues, Expenses and Changes in Net Assets (deficit) as distributions to Tribe allowed pursuant to the Indenture.  Total distributions to the Tribe for the three months ended June 30, 2010 and 2009 were $3,397,979 and $3,324,980, respectively.  Total distributions to the Tribe for the six month ended June 30, 2010 and 2009 were $6,795,958 and $6,649,959, respectively.

Reclassifications — Certain prior period balances in the Statements of Cash Flows, have been reclassified to be consistent with current period presentation with no impact on cash provided by operating activities, cash used in capital and related financing activities, cash provided by investing activities or cash used in non-capital financing activities. In addition, $295,656 and $469,825 of promotional allowances for the three and six month periods ended June 30, 2009 was reclassified from selling, general and administrative expenses to promotional allowances with no impact on income from operations.

4.                          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.

5.                          RELATED PARTIES

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

The Authority pays for various expenses for the following departments operated by the Tribe:  Tribal Gaming Commission including surveillance, and plant operations and human resources.  These departmental expenses include but are not limited to payroll and related expenses, legal, and other operational expenses.  The Tribe had been operating the warehouse, however, in April 2010, the Authority began operating the warehouse department.

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Total amounts billed by the Tribe to the Casino for these departments, excluding Tribal Gaming Commission and surveillance, for the three months ended June 30, 2010 and 2009 were $944,218 and $978,798 respectively.  These amounts are recorded as a component of selling, general and administrative expenses.  The expenses for these departments for the six months ending June 30, 2010 and 2009 were $1,930,283 and $1,858,713, respectively.

The Authority pays for various expenses for the Tribal Gaming Commission and surveillance. Tribal Gaming Commission and surveillance expenses are recorded in Gaming Commission and surveillance expenses on the Statements of Revenues, Expenses and Changes in Net Assets (deficit).  Gaming Commission and surveillance expenses for the three months ended June 30, 2010 and 2009 were $767,474 and $1,050,373, respectively.  Gaming Commission and surveillance expenses for the six months ended June 30, 2010 were $1,535,447 and $1,915,874.

The Tribe incurred approximately $67 million in total expenses on the Authority’s behalf for master planning of the proposed resort and infrastructure improvements on the reservation that benefits the Casino, of which almost all of such expenditures were incurred prior to 2009 before the construction was suspended.  The Authority reimbursed the Tribe approximately $52.4 million through 2009.  On January 8, 2010, the Authority’s Board of Directors authorized the reimbursement of the Tribe in an amount not to exceed approximately $14.9 million of construction costs.  The approval included a payment reimbursement schedule to the Tribe of $2,700,000 on January 18, 2010, $400,000 from February 1, 2010 through April 1, 2010 and $700,000 monthly thereafter without exceeding $14.9 million.  The Authority reimbursed the Tribe $1.8 million for the three months ended June 30, 2010 and $5.3 million for the six months ended June 30, 2010.  The Authority accrued a remaining $9.3 million, which is included in Payable to Tribe in the Condensed Balance Sheet at June 30, 2010.  When the reimbursement payments are made or accrued, the related amounts are capitalized and reflected in construction-in-progress. The reimbursed costs consist of engineering and design costs related to the proposed master plan development, including electrical, HVAC, landscaping, interior design services and consulting fees for legal, branding, feasibility, and public relations services, as well as the construction costs of the lower Acorn Road.

The Tribe incurred expenses related to the reinforcement of the slope on the northwest side of the Reservation near the Casino.  On May 19, 2010, the Authority’s Board of Directors authorized the reimbursement to the Tribe in an amount not to exceed $911,000 of construction costs incurred by the Tribe for this project.  The Authority accrued this amount which is included in Payable to Tribe in the Condensed Balance Sheet at June 30, 2010.  Subsequently, on August 4, 2010, the Authority’s Board of Directors authorized the reimbursement to the Tribe in an amount of $0.9 million for additional related construction costs.  We currently expect that the cost of this project will be approximately $3.0 million.

The Authority reserved 50 recreational vehicle spaces and 10 campsite spaces at Alexander RV Park and Campground for casino guests.  Alexander RV Park and Campground is a wholly owned subsidiary of the Tribe.  The cost of reserving the parking spaces and campsite spaces was $69,458 and $66,150 for the three months ended June 30, 2010 and 2009, respectively.  The cost of reserving the parking spaces and campsite spaces was $138,916 and $132,300 for the six months ended June 30, 2010 and 2009, respectively.

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6.                          CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents and restricted cash consisted of the following as of June 30, 2010 and December 31, 2009:

*Represents level 1 fair value measurement, quoted prices in active markets for identical items.

Deposits — Custodial credit risk is the risk that in the event of a bank failure, the Authority’s deposits (cash in checking, sweep, and money market accounts held with its third-party administrator) may not be returned to it.  The Authority does not have a deposit policy for custodial credit risk.  As of June 30, 2010 and December 31, 2009, approximately $37,376,509 and $34,009,525, respectively, of the Authority’s bank balance for deposits of $37,876,509 and $34,580,666, respectively, were exposed to custodial credit risk, as it was uninsured and uncollateralized.

7.                          CAPITAL ASSETS

Capital Assets at June 30, 2010 and December 31, 2009 consisted of the following:

Construction in progress consists of payments to the Tribe and 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.

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8.                          ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of June 30, 2010 and December 31, 2009:

9.         LONG-TERM DEBT

Long-term debt consisted of the following as of June 30, 2010 and December 31, 2009:

On November 7, 2003, the Authority issued the Senior Notes. The proceeds were utilized to fund an expansion project, which included three parking structures, related infrastructure improvements, 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 Senior Notes are collateralized by a first priority pledge of the Authority’s revenue and substantially all of the existing and future tangible and intangible personal property. The Authority may redeem the Senior Notes, in whole or in part, at a redemption price that is at a premium to the principal amount of the Senior Notes (expressed as percentages of principal amount), plus accrued and unpaid interest.  Interest on the Senior Notes is due semi-annually in May and November.

The Authority’s long-term debt is recorded at an amortized historical cost basis.  The fair value of the Senior Notes was approximately $194.0 million as of June 30, 2010 based on level one inputs, quoted prices in active markets.

10.                   EMPLOYEE BENEFIT PLAN

The Authority participates in a 401(k) Plan, a retirement plan (the “Plan”), which is qualified under Section 401(k) of the Internal Revenue Code.  The Plan is a defined contribution plan administered by an insurance company and is available to all eligible employees of the Casino who have attained age 21 and have at least three months of eligible service as defined in the Plan.  The Plan participants may contribute up to 50 percent of their eligible pretax compensation, subject to legal

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limitations.  The Authority at its discretion, will make matching contributions.  Any forfeiture due to employee terminations reduces future Casino contributions.  Participants become vested in employer contributions, as well as any earnings thereon, over a three-year period at the rate of 30 percent, 60 percent and 100 percent at the end of each year, respectively.  Employee contributions to the Plan were $136,495 and $180,082 for the three months ended June 30, 2010, and 2009, respectively; and $263,908 and $321,233 for the six months ended June 30, 2010 and 2009, respectively.  The Casino made matching contributions to the Plan of $66,775 and $82 during the three months ended June 30, 2010, and 2009, respectively; and $78,743 and $41,719 for the six months ended June 30, 2010 and 2009, respectively.  The Casino temporarily suspended its matching contribution in January 2009 and reinstated it in March 2010.

11.                    RISK MANAGEMENT

The Casino is exposed to various risks of loss related to worker’s compensation and torts; theft of, damage to or destruction of assets; and errors or omissions.  The Casino has purchased commercial insurance policies for said risks.  There has been no significant reduction of insurance coverage, and settlements have not exceeded coverage in the past three years.  The Casino retains the risk of dental claims subject to individual limits of $1,500 per enrolled employee and covered dependent.

12.                   LEASES

The Authority extended its operating lease of the sprung structure that houses the Casino operations.  The amended lease expires on June 17, 2012.  The agreement calls for monthly payments of $25,395.  Total rental expense was $76,185 and $97,855 for the three months ended June 30, 2010 and 2009, respectively.  Total rental expense was $152,307 and $206,545 for the six months ended June 30, 2010 and 2009, respectively.

Other operating leases include leases for office spaces and copiers.

13.                   LEGAL MATTERS

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

14.                   COMPACT REVENUE SHARING TRUST FUND

Under the Compact as entered into with the State of California in September 1999, the Tribe must pay annual license fees of $900-$4,350 per Class III gaming device, based on the number of gaming device licenses approved by the state gaming commission.  The Compact does not require a license for the first 350 Class III gaming devices in use and does not require a license fee for an additional 350 machines.  Payments are due on a quarterly basis and are remitted into a state revenue sharing trust fund.  License fees expense totaled $333,750 for each of the three months ended June 30, 2010 and 2009.  License fees expense totaled $667,500 for each of the six months ended June 30, 2010 and 2009.

15.                   COMMITMENTS AND CONTINGENCIES

The Authority is an unincorporated instrumentality of the Tribe formed pursuant to an adopted law of the Tribe. While the Authority is not a separate corporation or other legal entity distinct from the Tribe, this tribal law allows the Authority to own and operate its business. This tribal law also provides that the Authority’s obligations and other liabilities are not those of the Tribe and that the obligations and liabilities of the Tribe are not those of the Authority. This law is untested and generally has no direct counterpart in other areas of the law. If this law should prove to be ineffective at limiting the Authority’s liability, the Authority’s business and assets could become subject to claims asserted against the Tribe or its assets.

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On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into a memorandum of agreement (“MOA”) which settled several long-standing legal disputes between Sonoma County (the “County”) and the Tribe and provides a binding framework for resolving future disputes.  Pursuant to the MOA, the Tribe has agreed to pay the County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to the County resulting from the Tribe’s various ongoing projects and is intended to support the services being provided by the County.   In addition to the mitigation fees, the Tribe will pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribe’s Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and services that serve to promote tourism in the County. Such in lieu fees could total as much as $25 million during the term of the MOA.  The Tribe has not made any determinations to seek reimbursement or direct payment from the Authority of amounts due to the County pursuant to the MOA.

A casino renovation was approved by management as part of ongoing efforts to improve the overall appearance and appeal of the Casino to meet customer requirements.  To additionally enhance the overall gaming experience and appeal to higher end players, management will be moving the Poker Table to a section of the Casino floor and converting the current poker room into a high-limit room offering high-limit slot machines and table games, comfortable seating, and a bar with food and beverage service.  The project is expected to be fully complete by late September 2010 and to remain within a $0.8 million budget.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed financial statements and related notes included in Item 1 of this report.

Overview

We are an unincorporated governmental instrumentality of the Tribe that owns and operates the Casino.  We offer Class III slot and video poker gaming machines, house banked table games (including Blackjack, Three card poker, Mini-baccarat and Pai Gow poker), Poker, featuring Texas Hold’em, and a wide range of food and beverage offerings.

Recent Operational Highlights

As part of the effort to enhance the overall appeal of our casino, we completed a reconfiguration of our gaming floor in April 2009.  This effort has resulted in the reduction of approximately 358 slot machines and four table games.  The Tribe will maintain our contractual rights under the Compact to operate a total of 1,600 slot machines in our casino.  We considered many factors such as peak period demand, per unit productivity and player comfort in our analysis to ensure that the reduction of gaming devices will not adversely impact our revenues.

A targeted, cost-efficient renovation was completed in our fiscal year ended December 31, 2009 (“FY 2009”) as part of an overall strategic operating plan for the casino.  In previous anticipation of building a new casino resort, the current facility had not been upgraded for several years.  In addition to the physical plant of the gaming operation, furniture, fixtures, equipment and gaming software was neither replaced nor repaired to adequately service the needs of the business. The overall appearance and appeal of the casino was insufficient to meet basic customer requirements.  Major components of the renovation project included upgrading slot accounting software, slot and table player tracking software, adding new carpeting, new slot chairs, interior and exterior signage and the replacement of paint and wallpaper.  To additionally enhance the overall gaming experience and appeal to a broader spectrum of potential gamers, two additional food amenities were constructed.  The 24-seat Fortune Café, which is open 24 hours, seven days per week, offers a quick service, cook-to-order Asian-themed menu and is designed to be a high-margin, high-volume, quick turn restaurant.  Additionally, the Center Stage Bar & Grill, with 64 seats, offers “bar top” video poker games, and was recently expanded to include a casual dining area and an upgraded stage and sound system that hosts live music and entertainment on the weekends.

A new casino renovation was approved by management as part of our ongoing efforts to improve the overall appearance and appeal of the Casino to meet customer requirements.  To additionally enhance the overall gaming experience and appeal to our higher end players, management will be moving our Poker Table to a section of the Casino floor and converting the current poker room into a high-limit room offering high-limit slot machines and table games, comfortable seating, and a bar with food and beverage service.  The project is expected to be fully complete by late September 2010 and to remain within a $0.8 million budget.

FASB Codification Discussion

Over the years, the Financial Accounting Standards Board (“FASB”) and other designated GAAP-setting bodies, have issued standards in the form of FASB Statements, Interpretations, FASB Staff Positions, EITF consensuses, AICPA Statements of Position, etc.  The FASB recognized the complexity of its standard-setting process and embarked on a revised process in 2004 resulting in the release of the FASB Accounting Standards Codification (the “ASC”) on July 1, 2009.  The ASC was effective for financial statements for interim or annual reporting periods ending after September 15, 2009.

The ASC became the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, the ASC superseded all then-existing non-SEC accounting and reporting standards.  All

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other non-grandfathered non-SEC accounting literature not included in the ASC will become nonauthoritative. This Statement was effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Following the ASC, FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. FASB will not consider Accounting Standards Updates as authoritative in their own right.  Accounting Standards Updates will serve only to update the ASC, provide background information about the guidance, and provide the bases for conclusions on the change(s)  in the ASC.

The ASC does not change how we account for our transactions or the nature of related disclosures made.  However, when referring to guidance issued by the FASB, we will refer to topics in the ASC rather than FASB Statements, for example.  We have updated references to GAAP in this Form 10-Q to reflect the guidance in the ASC.

Critical Accounting Policies and Estimates

We have identified certain critical accounting policies and estimates that affect our more significant judgments and estimates used in the preparation of our financial statements. The preparation of our financial statements, in conformity with GAAP, requires that we make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to asset impairment, accruals for our promotional slot club, compensation and related benefits, revenue recognition, contingencies and litigation. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions. We believe that the following critical accounting policies affect significant judgments and estimates used in the preparation of our financial statements:

·                              Casino Revenues — Casino revenue is recognized as 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 and certain player incentives, when earned by the customer.

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

We evaluate our capital assets for impairment in accordance with the Accounting pronouncement GASB No. 42, “Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.”  This Statement establishes accounting and financial reporting standards for impairment of capital assets.  Our capital assets include building and improvements, furniture, fixtures and equipment.  A capital asset is considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstances is outside the normal life cycle of the capital asset.  We are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred.  Common indicators of impairment include evidence of physical damage where restoration efforts are needed to restore service utility, enactment or approval of laws or regulations setting standards that the capital asset would not be able to meet, technological development or evidence of obsolescence, a change in the manner or expected duration of use of a capital asset or construction stoppage.  This Statement requires us to report the effects of capital asset impairment in our financial statements when they occur, rather than as part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset, and to account for insurance recoveries in the same manner.

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·          Accrued Progressive Slot Jackpots — Accrued progressive slot jackpots consist of estimates for prizes relating to various games that have accumulated jackpots. We have recorded the anticipated payouts as a reduction of casino revenues and as a component of accrued liabilities.  We do not accrue for the base jackpot.

·          Contingencies — We assess our exposure to loss contingencies, including legal matters, and provide for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be materially impacted. As of June 30, 2010, we have determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal actions change materially, the addition of accruals for such items in future periods may be required.

Codification — There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with the Codification issued by the FASB. The statements of revenues, expenses and changes in net assets (deficit) are a combined statement under GASB pronouncements. The FASB Codification allows 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. The amount shown as income before distributions to the Tribe would be the most comparable amount to net income computed under the FASB Codification. We are a separate enterprise fund of the Tribe, a governmental entity, and as such there is no owners’ or shareholders’ equity (deficit) as traditionally represented under the FASB Codification.  The most comparable measure of owners’ equity (deficit) is presented on our balance sheet as net assets (deficit).

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RIVER ROCK ENTERTAINMENT AUTHORITY

(A governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)

RESULTS OF OPERATIONS

For the Three Months Ended June 30, 2010 and 2009

(Dollars in Millions)

Results of Operations

Comparison of the three months ended June 30, 2010 and 2009

Net revenues. Net revenues for the three months ended June 30, 2010 increased by $1.6 million to $32.4 million, from $30.8 million for the three months ended June 30, 2009.  We believe the increase in net revenues is attributable to an increase in customer satisfaction levels resulting from the casino renovation project.  Our renovation project has resulted in better customer retention, longer stays, and an increase in the number of visits.  Approximately 96.0% of our net revenues were from our gaming activities in the second quarter of 2010, as compared to 95.6% in the comparable prior year period.  We generated $28.4 million or 87.5% of our net revenues from gaming devices, and $2.7 million, or 8.5% of our net revenues from table games and poker for the three months ended June 30, 2010, compared to $26.4 million from gaming devices or 85.6% of our net revenues, and $3.1 million or 10.0% of net revenues from table games and poker for the three months ended

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June 30, 2009.  Our win per slot machine per day was $256 for the three months ended June 30, 2010, which increased by $47 from $209 for the three months ended June 30, 2009.  The increase in net win per machine per day is attributable to the the decrease in the daily average number of slot machines on the floor.  We have been reconfiguring our gaming floor in an effort to enhance our overall appeal.  As part of this effort, we reduced the average number of slot machines to 1,217 for the three months ended June 30, 2010, compared to 1,385 for the three months ended June 30, 2009.

We generated $1.0 million, net of promotional allowance of $0.4 million, in food, beverage and retail sales for the three months ended June 30, 2010, compared to $1.0 million, net of promotional allowances of $0.5 million, in food, beverage and retail sales for the three months ended June 30, 2009.

Promotional allowances. Promotional allowances for the three months ended June 30, 2010 were $0.4 million, or 1.4% of net revenues, compared to $0.5 million, or 1.5% of net revenues, for the three months ended June 30, 2009.

Operating expenses. Operating expenses for the three months ended June 30, 2010 were $19.3 million, or 59.6% of net revenues, compared to $19.2 million, or 62.2% of net revenues, for the three months ended June 30, 2009.

Casino expense includes costs associated with our gaming operations and the allocation of food and beverage expense related to the cost of complimentary activities.  Casino expense for the three months ended June 30, 2010 was $4.1 million compared to $3.9 million for the three months ended June 30, 2009.  Casino expense as a percentage of Casino revenues decreased to 13.0% from 13.3% for the three months ended June 30, 2009.

Food, beverage and retail expense for the three months ended June 30, 2010 was $1.7 million, or 163.0% of food, beverage and retail revenue, net of promotional allowances, compared to $1.7 million, or 168.1% of food, beverage and retail revenue, net of promotional allowances for the three months ended June 30, 2009.  Our food, beverage and retail expense ratio is significantly higher than the industry average because we have utilized these amenities as an opportunity to build customer loyalty rather than as a source of income.

Selling, general and administrative expense for the three months ended June 30, 2010 was $10.1 million, or 31.3% of net revenues, from $9.8 million, or 31.8% of net revenues, for the three months ended June 30, 2009.  The increase in selling, general and administrative expense is primarily due to an increase in advertising and contract services.

Depreciation expense for the three months ended June 30, 2010 was $2.3 million compared to $2.4 for the three months ended March 31, 2009.  Depreciation expense was computed using the straight-line method over the useful life of property, plant and equipment.

Gaming Commission and surveillance expense for the three months ended June 30, 2010 was $0.8 million compared to $1.1 million for the three months ended June 30, 2009.  The decrease in Gaming Commission and surveillance expense is primarily due to a decrease in payroll.

The Compact requires us to pay a quarterly fee to the State of California’s revenue sharing trust fund, based on the number of licensed gaming devices we are allowed to operate.  Revenue sharing trust fund fees assessed were $0.3 million for each of the three months ended June 30, 2010 and 2009.

Income from operations. Income from operations for the three months ended June 30, 2010 was $13.1 million, or 40.4% of net revenues, compared to $11.6 million, or 37.8% of net revenues, for the three months ended June 30, 2009.  The increase in income from operations is attributable to the increase in business volumes as a result of the Casino renovation project as well as the ongoing marketing efforts and the decrease in operating expenses from our cost saving measures.

Non-operating expense, net. Non-operating expense, net for the three months ended June 30, 2010 was $5.2 million, or 16.0% of net revenues, compared to $5.2 million or 16.8% of net revenues, for the three months ended June 30, 2009.  Non-operating expense, net, includes $5.2 million of interest expense for each of the three months ended June 30, 2010 and 2009.  No interest costs were capitalized in the three months ended June 30, 2010 and 2009.

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Income before distributions to Tribe. Income before distributions to the Tribe for the three months ended June 30, 2010 was $7.9 million, or 24.4% of net revenues, compared to $6.5 million, or 20.9% of net revenues, for the three months ended June 30, 2009.

Distributions to the Tribe. Distributions to the Tribe for the three months ended June 30, 2010 were $3.4 million, compared to $3.3 million for the three months ended June, 2009.

RESULTS OF OPERATIONS

For the Six Months Ended June 30, 2010 and 2009

(Dollars in Millions)