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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 September 30, 2011

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).  Yes  x   No  o

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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RIVER ROCK ENTERTAINMENT AUTHORITY

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

CONDENSED BALANCE SHEETS

(Dollars in Thousands)

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

(Dollars in Thousands)

(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)

(Dollars in Thousands)

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)

(Dollars in Thousands)

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 2010 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). The accompanying condensed balance sheet as of December 31, 2010 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, 2010.

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 the Authority’s Annual Report on Form 10-K for the year ended December 31, 2010.

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 September 30, 2011 and the condensed statements of revenues, expenses and changes in net assets for the three and nine month periods ended September 30, 2011 and 2010. The condensed statements of revenues, expenses and changes in net assets 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

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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 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 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, 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 as traditionally represented under the FASB Codification.  The most comparable measure of owners’ equity is presented on the Authority’s balance sheet as net assets.

FASB has issued Accounting Standards Update 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 statement did not have a material impact on the Authority’s financial position or results of operations.

In December 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Statement incorporates into GASB’s authoritative literature the applicable guidance previously presented in the following pronouncements issued before November 30, 1989:

·                  FASB Statements and Interpretation.

·                  Accounting Principles Board Opinions.

·                  Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure.

While the guidance included largely has been taken “as is” from the original FASB and AICPA pronouncements, it has been modified when appropriate to relate specifically to the governmental environment to increase its usefulness to this audience. By incorporating and maintaining this guidance in a single source, the Statement reduces the complexity of locating and using authoritative literature needed to prepare state and local government financial reports. It also eliminates the need for the financial statement preparers and auditors to determine which FASB and AICPA pronouncement provisions apply to state and local governments. The requirements of Statement No. 62 are effective for financial statements for periods beginning after December 15, 2011, which for the Authority will be the beginning of fiscal year 2012. We do not expect the adoption of this statement to have a material impact on the Authority’s financial statements.

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.

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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 $0.3 million of the cash on deposit at FDIC member banks. 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 accounts were established from 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. 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 insures $0.3 million 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 $4.3 million at September 30, 2011 and December 31, 2010.  At September 30, 2011, restricted cash includes funds available for land development, more specifically the emergency vehicle access road that will meet the requirement of the Memorandum of Agreement (“MOA”) with Sonoma County.   The Authority does not currently have the ability to withdraw from its restricted cash accounts and will not until it completes the restructuring of the Authority’s 9 ¾% Senior Notes due 2011 (the “Senior Notes”).

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 — We evaluate our capital assets for impairment in accordance with accounting pronouncement GASB No. 42, “Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.” The Authority’s capital assets consist of building and improvements, and furniture, fixtures and equipment, including slot machines.  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 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.  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.  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

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complete or when development activity is suspended.  The Authority capitalized interest of approximately $0.1 million for the nine months ended September 30, 2011 and none during the nine months ended September 30, 2010.

Prepaid Expenses and Other Current Assets — Prepaid expenses and other current assets were $3.7 million and $1.4 million as of September 30, 2011 and December 31, 2010, respectively, which includes prepaid insurance, prepaid supplies and prepaid service contracts.  In 2011 it also includes prepaid fees to Sonoma County in accordance with a Memorandum of Agreement (“MOA”) (see Note 5.).

Deposits and Other Assets — As of September 30, 2011 and December 31, 2010, respectively, deposits and other assets mainly represent $0.1 million and $0.9 million in remaining legal fees and other issuance costs related to the issuance of the the Senior Notes under the Indenture, dated November 7, 2003 (the “Indenture”), and $1.1 million and $0.7 million, respectively, of costs incurred in connection with efforts to refinance the Senior 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 bets are made, 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 $1.2 million and $1.5 million as of September 30, 2011 and December 31, 2010, 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 $0.2 million and $0.3 million for the three months ended September 30, 2011 and 2010, respectively; and approximately $0.7 million and $0.8 million for each of the nine months ended September 30, 2011 and 2010.  All other administrative charges are recorded in operating expenses.

Accrued Players Club — The Authority has recorded a liability related to free play and prizes 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.

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 September 30, 2011, management determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal actions change, the addition of accruals for such items in future periods may be required and such accruals may be material.

Authority Net Assets — Investments in capital assets, net of related debt, consist 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.  Investment 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 their use, either through the enabling legislation adopted by the Authority or through external restrictions imposed by creditors, 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.

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Food and Beverage Revenues — The Authority recognizes as food and beverage revenues the proceeds from its food and beverage venues. The Authority continues to distribute non-alcoholic beverages without cost in the gaming area for playing guests.

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

Promotional Allowances — The retail value of food and non-alcoholic beverages provided to customers without charge or at a discount is included in food and beverage revenues and then deducted as promotional allowances. Such amounts included in food and beverage revenues for the three months ended September 30, 2011 and 2010 were $0.7 million and $0.5 million, respectively.  These amounts included in food and beverage revenues for the nine months ended September 30, 2011 and 2010 totaled $1.8 million and $1.3 million, 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 September 30, 2011 and 2010 were $0.9 million and $1.1 million, respectively.  Advertising costs for the nine months ended September 30, 2011 and 2010 were $2.8 million and $4.1 million, 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. Starting in 2011, audit fees are paid directly by the Casino and are included in selling, general and administrative expenses.

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

Distributions and Transfers 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 as distributions to Tribe allowed pursuant to the Indenture. Total distributions to the Tribe for the three months ended September 30, 2011 and 2010 were $3.5 million and $3.4 million, respectively.  Total distributions to the Tribe for the nine months ended September 30, 2011 and 2010 were $10.4 million and $10.2 million, respectively.  On August 3, 2011, the Authority entered into a Grant of Temporary Emergency Vehicle Access Easement (the “Easement”) with a group of individuals and family trusts (the “Grantors”) that will allow the Authority to construct an emergency vehicle access road through the Proschold and Dugan properties. Such access road is required pursuant to the terms of the MOA. In a separate agreement, the Tribe acquired the Proschold Property from the Grantors. The Authority paid $9.0 million (the “Easement Acquisition Price”) to the Grantors pursuant to the Easement. The Easement is effective until July 31, 2016 (the “Easement Expiration Date”).  The Easement Acquisition Price was credited by the Grantors towards the purchase price for the Proschold Property and is being accounted for by the Authority as a transfer to the Tribe. In addition, during the three months ended September 30, 2011, the Authority transferred an aggregate of $0.8 million to the Tribe in connection with the acquisition of the Proschold Property to commence building of the emergency vehicle access road as required by the MOA with Sonoma County (see Note 5.).

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

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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 Authority’s ability to continue its licensing and qualification by the Tribal Gaming Commission or regulatory agencies of the State of California to operate the Casino.

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, plant operations and human resources. These departmental expenses include but are not limited to, payroll and related expenses, legal and other operational expenses. Total amounts billed by the Tribe to the Casino for these departments, excluding Tribal Gaming Commission and surveillance, for the three months ended September 30, 2011 and 2010 were $0.6 million and $1.0 million, respectively.  These amounts are recorded as a component of selling, general and administrative expenses.  The expenses for these departments for the nine months ended September 30, 2011 and 2010 were $2.6 million and $2.9 million, respectively.

The Authority pays for various expenses for the Tribal Gaming Commission and surveillance. The 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. Gaming Commission and surveillance expenses for the three months ended September 30, 2011 and 2010 were $0.7 million and $0.9 million, respectively.  Gaming Commission and surveillance expenses for the nine months ended September 30, 2011 and 2010 were $2.2 million and $2.4 million, respectively.

The Tribe has incurred expenses on behalf of the Authority that relate to the development of the Dugan Property which is now a part of the Tribe’s Reservation. To date, the Authority capitalized approximately $1.5 million related to the Dugan Property.

The Tribe incurred approximately $67 million in total expenses on behalf of the Authority for master planning of the proposed resort and infrastructure improvements on the reservation that benefit the Casino. 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.  In January 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 $2.7 million on January 18, 2010, $0.4 million from February 1, 2010 through April 1, 2010 and $0.7 million monthly thereafter without exceeding the $14.9 million.  The Authority reimbursed the Tribe $9.5 million during the fiscal year ended December 31, 2010 and $4.7 million for the nine months ended September 30, 2011.  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 and feasibility 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.  During 2010, the Authority’s Board of Directors authorized the reimbursement to the Tribe not to exceed $3.5 million, and an additional $0.3 million was approved in March 2011 for a total of $3.8 million.  This project was completed in April 2011.

To date, access to the Tribe’s reservation and our casino has been over a single, two-lane road. Under the MOA, the Tribe covenanted as a condition to the issuance of our liquor license to construct an emergency vehicle access road from the casino over either the Dugan Property or at an alternative site subject to approval by Sonoma County.  The

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MOA requires that road construction commence no later than 60 days after the Dugan Property is taken into trust by the United States for the benefit of the Tribe, the effective date of which was November 30, 2010 (the “Trust Date”) and to be completed no later than 365 days after the Trust Date, subject to an extension if such commencement date occurs during the rainy season (approximately October 15th through April 15th).

In May 2011, the Sonoma County Board of Supervisors approved a revision to the construction schedule for the emergency vehicle access road. The Tribe has been given time to acquire property as an alternative site on which to construct the emergency vehicle access road.  Construction must begin the later of 30 days after the end of the rainy season as determined by National Oceanic and Atmospheric Administration Fisheries Service, or 60 days after the Tribe acquires the property, whichever is later. In any event the construction of the emergency vehicle access road must commence no later than June 30, 2012.

On August 3, 2011, the Authority entered into the Easement with the Grantors that will allow the Authority to construct an emergency vehicle access road that is required pursuant to the terms of the MOA. The Easement is effective until July 31, 2016.  In a separate agreement, the Tribe acquired the Proschold Property from the Grantors. The Easement Acquisition Price and $3.3 million in deposit funds from the Tribe were credited towards the purchase price for the Proschold Property. The balance of the purchase price for the Proschold Property, or $11.7 million, is payable by the Tribe to the Grantors over five years pursuant to a Mortgage Note from the Tribe that bears interest at 4% per annum and requires a final balloon payment of $10.6 million on the Easement Expiration Date.  On October 31, 2011, the Authority entered into a ten year agreement commencing November 1, 2011 to lease the Proschold Property from the Tribe for a monthly rent of $232,000 for five years and thereafter for $12,000 per month for the remainder of the term for a total commitment of approximately $14.6 million.

The Authority is in the process of  constructing the emergency vehicle access road across the Dugan and Proschold properties so as to complete the construction in 2012 within the timeframe required by the MOA.  The Authority has contracts with independent contractors to begin construction totaling $1.0 million.  The road construction is expected to cost approximately $5 million in addition to the $1.5 million previously spent on developing the emergency vehicle access road. The Tribe’s Public Works Department acts as the construction manager for the road project and oversees the construction. The cost of this construction will be funded from the Casino’s operating cash flows.

During August 2011 the Authority transferred $0.8 million for expenses previously incurred related to the purchase of the Proschold Property.  On October 31, 2011 we transferred to the Tribe for an additional $2.5 million.  The Authority accounts for all payments relating to the lease and purchase of the Proschold Property as transfers to the Tribe, of which $9.8 million were recorded during the three months ended September 30, 2011.

The Authority is presently constructing a new employee dining room and additional office space.  The Authority has authorized construction contracts in the amount of $1.9 million for this project.  The projected cost is approximately $2.2 million.  This construction will be funded from the Casino’s operating cash flows.

6.                                      CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents and restricted cash consisted of the following as of September 30, 2011 and December 31, 2010 (dollars in thousands):

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*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 September 30, 2011 and December 31, 2010 approximately $37.3 million and $34.3 million, respectively, of the Authority’s bank balance for deposits of $36.8 million and $34.8 million, respectively, were exposed to custodial credit risk, as it was uninsured and uncollateralized.

7.                                      CAPITAL ASSETS

Capital Assets at December 31, 2010 and September 30, 2011 consisted of the following (dollars in thousands):

The Authority accounts for all payments related to the purchase by the Tribe of the Proschold Property and the lease payments for the Proschold Property by the Authority to the Tribe as transfers to the Tribe, of which $9.8 million was recorded during the three months ended September 30, 2011.

Construction in progress consists primarily 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.

8.                          ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of September 30, 2011 and December 31, 2010 (dollars in thousands):

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9.                                      LONG-TERM DEBT

Long-term debt as of September 30, 2011 and December 31, 2010 consisted of  9 3/4% Senior Notes in the amount of $199,972,000 and $199,719,000 respectively, net of unamortized issue discount of $28,000 and $281,000, respectively.  The Authority’s long-term debt is recorded at an amortized historical cost basis. The fair value of the Senior Notes was approximately $138.1 million as of September 30, 2011 based on level one inputs, quoted prices in active markets.

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 (the Dugan Property) 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 $200.0 million principal payment was due November 1, 2011.

On November 2, 2011, the Authority and the Tribe reached an agreement with holders in the aggregate representing in excess of 60% of the Senior Notes (the “Majority Senior Noteholders”) that matured on November 1, 2011, to establish a framework under which the Authority will seek to restructure such Senior Notes consistent with its long-term growth and development strategy.  In connection with this restructuring, on November 2, 2011, the Authority and the Tribe entered into (i) a Forbearance and Support Agreement (the “Senior Notes Forbearance Agreement”) with the Majority Senior Noteholders, and (ii) a Forbearance and Support Agreement (the “Tribal Notes Forbearance Agreement” and, together with the Senior Notes Forbearance Agreement, the “Forbearance Agreements”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”), as the holder of $27.6 million principal amount in outstanding notes issued by the Tribe (the “Tribal Notes”).  See Note 15, “Subsequent Events”.

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 which has a Trustee and Investment Advisor, and is available to all eligible employees of the Casino who have attained the age of 18 and have worked at least six months as defined in the Plan. Plan participants may contribute up to 100 percent of their eligible pretax compensation, subject to the annual maximums set forth by the Internal Revenue Service. The Authority currently matches at 3% but is authorized to match contributions up to a maximum of 5%. Participants become vested in employer contributions, as well as any earnings thereon, over a three-year period at the rate of 33 percent, 66 percent and 100 percent at the end of each year provided they have worked a minimum of 1,000 hours in that year.  Non-vested employer matching contributions are forfeited by employees upon termination and are held in a forfeiture account and used to offset plan expenses.

Employee contributions to the Plan totaled $0.1 million for each of the three months ended September 30, 2011, and 2010.  Employee contributions to the Plan totaled $0.4  million for each of the nine months ended

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September 30, 2011 and 2010.  The Casino made matching contributions to the Plan of approximately $0.1 million for each of the three months ended September 30, 2011 and 2010, and $0.2 million for  the nine months ended September 30, 2011 and 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 ranging from $2,000 to $3,000 per plan member.

12.                   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.

13.                   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 for Class III gaming devices, 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 $0.3 million for each of the three months ended September 30, 2011 and 2010.  License fees expense totaled $1.0 million for each of the nine months ended September 30, 2011 and 2010, respectively.

14.                   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. Similarly, the Authority would be liable for such claims if the Tribe waived its sovereign immunity to an extent that allowed enforcement of such claims against the Authority’s business or assets.

On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into the MOA which settled several long-standing legal disputes between Sonoma County and the Tribe and provides a binding framework for resolving future disputes. Pursuant to the MOA, as amended, the Tribe has agreed to pay Sonoma County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to Sonoma County resulting from the Tribe’s various ongoing projects and is intended to support the services being provided by Sonoma County.  In addition to the mitigation fees, the Tribe will pay a fee in lieu of Sonoma 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 Sonoma County. Such in lieu fees could total as much as $25 million during the term of the MOA. The Tribe has made the prior payments to Sonoma County in the total amount of $10.3 million

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and is not currently seeking reimbursement from the Authority. Effective 2011, the Authority has begun making annual payments toward the remaining balance of the $75 million.

In May 2011, the Sonoma County Board of Supervisors approved a revision to the payment terms of the MOA. The Authority will pay, on behalf of the Tribe, to the County $3.5 million per year commencing June 30, 2011 and continuing each June 30 until the date of the opening of the first phase of an expanded resort facility (the “Opening Date”). Each annual payment will be recognized over the successive twelve month period. In the event the Opening Date occurs less than one year prior to the end of the term of the MOA (the “Term”), on the Opening Date the parties to the MOA shall calculate the difference between $75 million and the sum of all payments made from the beginning of the MOA (the “Deferred Amount”) through the Opening Date and the Tribe shall be obligated to pay to Sonoma County one-half of the Deferred Amount on the Opening Date and the balance at the end of the Term. If more than one year remains between the Opening Date and the end of the Term, the Deferred Amount shall be amortized into equal annual payments over the number of years remaining, plus one if the Opening Date occurs before June 30 of that year, and the Tribe shall be obligated to pay the first annual payment on the Opening Date and the remaining annual payments commencing on the June 30 next following the Opening Date and on each June 30 thereafter through the end of the Term. If the Opening Date does not occur prior to the end of the Term, the Deferred Amount shall be payable by September 30, 2020, unless the MOA is properly reopened as provided for therein and an alternative payment schedule is agreed upon by the parties thereto.  As of September 30, 2011, $13.8 million has been paid pursuant to the MOA and the Deferred Amount is $61.2 million. Pursuant to the MOA, the future payment schedule is open to renegotiation by either party due to unforeseen circumstances, including the inability to open the first phase of an expanded resort facility.  Amortization of the prepaid MOA fee was $0.9 million for the three months and nine months ended September 30, 2011.

On August 3, 2011, the Authority was granted an Easement that will allow the Authority to construct an emergency vehicle access road that is required pursuant to the terms of the MOA. The Authority paid the Easement Acquisition Price to the Grantors pursuant to the Easement. In a separate agreement (the “Purchase Agreement”), the Tribe has agreed to acquire from the Grantors an approximately 310-acre parcel of land (the “Proschold Property”) contiguous to the Tribe’s reservation that includes the land that is the subject of the Easement. The Authority, the Tribe and the Grantors have agreed that the Easement Acquisition Price will be credited towards the purchase price for the Property. On October 31, 2011, the Authority entered into a ten year agreement commencing November 1, 2011 to lease the Proschold Property from the Tribe for a monthly rent of $232,000 for five years and thereafter for $12,000 per month for the remainder of the term for a total commitment of approximately $14.6 million.

The Authority is in the process of constructing the emergency vehicle access road so as to complete the construction in 2012 within the timeframe required by the MOA.  The Authority has contracts with independent contractors to begin construction totaling $1.0 million.  The road construction is expected to cost approximately $5 million. The Tribe’s Public Works Department acts as the construction manager for the road project and oversees the construction. The cost of this construction will be funded from the Casino’s operating cash flows.

15.                   SUBSEQUENT EVENTS

On November 2, 2011, the Authority and the Tribe reached an agreement with the Majority Senior Noteholders relating to the Senior Notes to establish a framework under which the Authority will seek to restructure such Senior Notes consistent with its long-term growth and development strategy.  In connection with this restructuring, on November 2, 2011, the Authority and the Tribe entered into a Senior Notes Forbearance Agreements with the Majority Noteholders and a Tribal Notes Forbearance Agreement with Merrill as the holder of the Tribal Notes.

Under the terms of the Senior Notes Forbearance Agreement, each Majority Senior Noteholder, severally and not jointly, has agreed not to, during the period beginning on November 2, 2011 and ending upon its expiration or earlier termination in accordance with the Forbearance Agreements (the “Forbearance Period”), (i) file a complaint or take any other action to commence litigation, an arbitration or other proceeding to collect payment of amounts due in

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respect of the Senior Notes or to seek to enforce any of the provisions of the indenture governing the Senior Notes or the collateral documents related thereto or any of its rights or remedies thereunder or (ii) commence or participate in commencing any involuntary insolvency proceeding against the Tribe or the Authority.  The Majority Senior Noteholders have also agreed that, during the Forbearance Period, the Authority will continue to operate the River Rock Casino and make all payments to the Tribe permitted under the Senior Notes Indenture as if no event of default had occurred.

Under the terms of the Tribal Notes Forbearance Agreement, Merrill has agreed that, for so long as the Forbearance Period shall be continuing, it shall not (i) file a complaint or take any other action to commence litigation, an arbitration or other proceeding to collect payment of amounts due in respect of the Tribal Notes or to seek to enforce any of the provisions of the indenture governing the Tribal Notes dated as of December 22, 2006, as amended (the “Tribal Notes Indenture”) or any of its rights or remedies thereunder or (ii) commence or participate in commencing any involuntary insolvency proceeding against the Tribe or the Authority.

To restructure the Senior Notes, the Authority has agreed to (i) conduct an exchange offer (the “Exchange Offer”) pursuant to which the Authority will offer to exchange all issued and outstanding Senior Notes for its new secured senior notes (the “New Senior Notes”) and (ii) issue $27.6 million in aggregate principal amount of its new subordinated notes (the “New Subordinated Notes”), the proceeds of which will be distributed to the Tribe and used by the Tribe to retire the Tribal Notes.  The Exchange Offer will be open to all holders of the Senior Notes.  Concurrently with the Exchange Offer, the Authority has agreed to seek consents from all holders of the Senior Notes (the “Consent Solicitation”) to remove substantially all of the restrictive covenants and certain events of default from the Senior Notes Indenture and make certain amendments to the related collateral documents.  The Exchange Offer, Consent Solicitation and the issuance and sale of the New Subordinated Notes are collectively referred to as the “Restructuring.”

Each of the Majority Senior Noteholders, Merrill, the Tribe and the Authority have also agreed not to seek, solicit, negotiate, vote or otherwise take any action to encourage the making of any alternative proposal to effect a refinancing, restructuring, or modification of the Senior Notes, the Indenture or the Tribal Notes during the Forbearance Period.

Pursuant to the Forbearance Agreements, the Authority is required to commence the Exchange Offer and Consent Solicitation by November 18, 2011, and to consummate the Exchange Offer and Consent Solicitation and the issuance and sale of the New Subordinated Notes by December 31, 2011.  These dates may be extended upon the written consent of the holders of a majority of the outstanding principal amount of the Senior Notes.

Completion of the Restructuring will be dependent on, among other things, the negotiation and execution of definitive documentation to implement the Exchange Offer, the Consent Solicitation and the issuance and sale to Merrill of the New Subordinated Notes and the Authority’s ability to secure the support of holders representing at least 662/3% principal amount of the Senior Notes, including the Majority Senior Noteholders.  As a result, the Authority cannot assure that it will be able to timely effect the Restructuring, or at all.  In the event that the Authority is not able to successfully consummate the Restructuring, the Authority intends to explore all other restructuring alternatives available to it at that time.

During the Forbearance Period there will be no changes to Casino operations or material impact on the Authority’s customers, employees, vendors and suppliers.

On October 31, 2011, the Authority entered into a ten year agreement commencing November 1, 2011 to lease the Proschold Property from the Tribe for a monthly rent of $232,000 for five years and thereafter for $12,000 per month for the remainder of the term.

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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 and Mini-baccarat), 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 300 slot machines. The Tribe maintained 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. Throughout 2011 we continued to refine the configuration of our gaming floor.

A targeted, cost-efficient renovation project was completed in our fiscal year ended December 31, 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 further enhance the overall gaming experience and appeal to a broader spectrum of potential gamers, two additional food amenities were constructed.  Fortune Café, with 64 seats, offers a quick service, cook-to-order Asian-themed menu and is designed to be a high-margin, high-volume, quick turn restaurant and the Center Stage Bar & Grill, with 64 seats, offering “bar top” video poker games, 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.

In an ongoing effort to improve the overall appearance and appeal of the Casino to meet customer requirements, we completed two additional renovation projects in 2010.  The first project, a high-limit room offering high-limit slot machines and table games, comfortable seating, a bar with food and beverage service, and a private restroom was directed to appeal to a higher end player.  The second project, Lucky Dogz, is a 24-hour snack shop serving hot dogs, sandwiches, salads, snacks and drinks.

In January 2011, the poker tables were removed to make way for approximately 60 penny denomination slot machines that were placed in service in February 2011.

The construction of our new casino resort has temporarily been postponed due to lack of available financing.  We are actively reviewing our financing options and remain “shovel ready” to proceed.

We did not make a principal payment that was due on Senior Notes on November 1, 2011. On November 2, 2011, we and the Tribe reached an agreement with holders in the aggregate representing in excess of 60% (the “Majority Senior Noteholders”) of our Senior Notes that matured on November 1, 2011, to

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establish a framework under which we will seek to restructure such Senior Notes consistent with our long-term growth and development strategy.  In connection with this restructuring, on November 2, 2011, we and the Tribe entered into (i) a Forbearance and Support Agreement (the “Senior Notes Forbearance Agreement”) with the Majority Senior Noteholders, and (ii) a Forbearance and Support Agreement (the “Tribal Notes Forbearance Agreement” and, together with the Senior Notes Forbearance Agreement, the “Forbearance Agreements”) with Merrill, Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”), as the holder of $27.6 million principal amount in outstanding notes issued by the Tribe (the “Tribal Notes”).

Under the terms of the Senior Notes Forbearance Agreement, each Majority Senior Noteholder, severally and not jointly, has agreed not to, during the period beginning on November 2, 2011 and ending upon its expiration or earlier termination in accordance with the Forbearance Agreements (the “Forbearance Period”), (i) file a complaint or take any other action to commence litigation, an arbitration or other proceeding to collect payment of amounts due in respect of the Senior Notes or to seek to enforce any of the provisions of the indenture governing the Senior Notes or the collateral documents related thereto or any of its rights or remedies thereunder or (ii) commence or participate in commencing any involuntary insolvency proceeding against the Tribe or the Authority.  The Majority Senior Noteholders have also agreed that, during the Forbearance Period, the Authority will continue to operate the River Rock Casino and make all payments to the Tribe permitted under the Senior Notes Indenture as if no event of default had occurred.

Under the terms of the Tribal Notes Forbearance Agreement, Merrill has agreed that, for so long as the Forbearance Period shall be continuing, it shall not (i) file a complaint or take any other action to commence litigation, an arbitration or other proceeding to collect payment of amounts due in respect of the Tribal Notes or to seek to enforce any of the provisions of the indenture governing the Tribal Notes dated as of December 22, 2006, as amended (the “Tribal Notes Indenture”) or any of its rights or remedies thereunder or (ii) commence or participate in commencing any involuntary insolvency proceeding against the Tribe or the Authority.

To restructure the Senior Notes, the Authority has agreed to (i) conduct an exchange offer (the “Exchange Offer”) pursuant to which the Authority will offer to exchange all issued and outstanding Senior Notes for new secured senior notes (the “New Senior Notes”) and (ii) issue $27.6 million in aggregate principal amount of new subordinated notes (the “New Subordinated Notes”), the proceeds of which will be distributed to the Tribe and used by the Tribe to retire the Tribal Notes.  The Exchange Offer will be open to all holders of the Senior Notes.  Concurrently with the Exchange Offer, the Authority has agreed to seek consents from all holders of the Senior Notes (the “Consent Solicitation”) to remove substantially all of the restrictive covenants and certain events of default from the Senior Notes Indenture and make certain amendments to the related collateral documents.  The Exchange Offer, Consent Solicitation and the issuance and sale of the New Subordinated Notes are collectively referred to as the “Restructuring.”

Each of the Majority Senior Noteholders, Merrill, the Tribe and the Authority have also agreed not to seek, solicit, negotiate, vote or otherwise take any action to encourage the making of any alternative proposal to effect a refinancing, restructuring, or modification of the Senior Notes, the Indenture or the Tribal Notes during the Forbearance Period.

Pursuant to the Forbearance Agreements, the Authority is required to commence the Exchange Offer and Consent Solicitation by November 18, 2011, and to consummate the Exchange Offer and Consent Solicitation and the issuance and sale of the New Subordinated Notes by December 31, 2011.  These dates may be extended upon the written consent of the holders of a majority of the outstanding principal amount of the Senior Notes.

Completion of the Restructuring will be dependent on, among other things, the negotiation and execution of definitive documentation to implement the Exchange Offer, the Consent Solicitation and the issuance and sale to Merrill of the New Subordinated Notes and the Authority’s ability to secure the support of holders representing at least 662/3% principal amount of the Senior Notes, including the Majority Senior Noteholders.  As a result, we cannot assure that we will be able to timely effect the Restructuring, or at all.  In the event that we are not able to successfully consummate the Restructuring, we intend to explore all other restructuring alternatives available to us at that time.

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During the Forbearance Period there will be no changes to Casino operations or material impact on our customers, employees, vendors and suppliers.

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 other non-grandfathered non-SEC accounting literature not included in the ASC became nonauthoritative.

Following the ASC, FASB does not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it issues Accounting Standards Updates. FASB does not consider Accounting Standards Updates as authoritative in their own right.  Accounting Standards Updates 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.

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.” GASB No. 42 establishes accounting and financial reporting standards for

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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.  GASB No. 42 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.

·                              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 September 30, 2011, 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 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, 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 as traditionally represented under the FASB Codification.  The most comparable measure of owners’ equity is presented on our balance sheet as net assets.

The SEC has issued a final rule, Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers that is applicable to us. This rule provides a permanent exemption for nonaccelerated filers from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act of 2002 (“SOX”). Specifically, this rule adopts amendments to SEC rules and forms to conform them to Section 404(c) of SOX, as added by Section 989G of the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” Section 404(c) provides that Section 404(b) of SOX does not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

Recent Developments

On August 3, 2011, we entered into a Grant of Temporary Emergency Vehicle Access Easement (the “Easement”) with a group of individuals and family trusts (the “Grantors”) that will allow us to construct an emergency vehicle access road that is required pursuant to the terms of the Memorandum of Agreement, as amended (the “MOA”), dated March 18, 2008, between Sonoma County (the “County”) and the Tribe. We paid $9.0 million (the “Easement Acquisition Price”) to the Grantors pursuant to the Easement. The Easement is effective until July 31,

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2016 (the “Easement Expiration Date”). In a separate agreement (the “Purchase Agreement”), the Tribe has agreed to acquire from the Grantors an approximately 310-acre parcel of land (the “Property”) contiguous to the Tribe’s reservation that includes the land that is the subject of the Easement. We, the Tribe and the Grantors have agreed that the Easement Acquisition Price will be credited towards the purchase price for the Property.  The Tribe has agreed to pay the balance of the purchase price for the Property to the Grantors over five years pursuant to a note from the Grantors that requires a final payment by the Easement Expiration Date. On October 31, 2011, the Authority entered into a ten year agreement commencing November 1, 2011 to lease the Proschold Property from the Tribe for a monthly rent of $232,000 for five years and thereafter for $12,000 per month for the remainder of the term for a total commitment of approximately $14.6 million.

We are in the process of constructing the emergency vehicle access road across the Dugan and Proschold properties so as to complete the construction in 2012 within the timeframe required by the MOA.  The Authority has contracts with independent contractors to begin construction totaling $1.0 million.  The road construction is expected to cost approximately $5 million. The Tribe’s Public Works Department acts as the construction manager for the road project and oversees the construction. The cost of this construction will be funded from the Casino’s operating cash flows.

On November 2, 2011, we and the Tribe reached an agreement with the Majority Senior Noteholders on, to establish a framework under which we will seek to restructure our Senior Notes consistent with our long-term growth and development strategy. In connection with this restructuring, on November 2, 2011, we and the Tribe entered into (i) the Senior Notes Forbearance Agreement with the Majority Senior Noteholders, and (ii) the Tribal Notes Forbearance Agreement with Merrill, as the holder of the Tribal Notes.

Under the terms of the Senior Notes Forbearance Agreement, each Majority Senior Noteholder, severally and not jointly, has agreed not to, during the Forbearance Period, (i) file a complaint or take any other action to commence litigation, an arbitration or other proceeding to collect payment of amounts due in respect of the Senior Notes or to seek to enforce any of the provisions of the indenture governing the Senior Notes or the collateral documents related thereto or any of its rights or remedies thereunder or (ii) commence or participate in commencing any involuntary insolvency proceeding against the Tribe or the Authority.  The Majority Senior Noteholders have also agreed that, during the Forbearance Period, the Authority will continue to operate the River Rock Casino and make all payments to the Tribe permitted under the Senior Notes Indenture as if no event of default had occurred.

Under the terms of the Tribal Notes Forbearance Agreement, Merrill has agreed that, for so long as the Forbearance Period shall be continuing, it shall not (i) file a complaint or take any other action to commence litigation, an arbitration or other proceeding to collect payment of amounts due in respect of the Tribal Notes or to seek to enforce any of the provisions of the Tribal Notes Indenture or any of its rights or remedies thereunder or (ii) commence or participate in commencing any involuntary insolvency proceeding against the Tribe or the Authority.

To restructure the Senior Notes, we have agreed to (i) conduct the Exchange Offer pursuant to which the Authority will offer to exchange all issued and outstanding Senior Notes for the New Senior Notes and (ii) issue $27.6 million in aggregate principal amount of the New Subordinated Notes the proceeds of which will be distributed to the Tribe and used by the Tribe to retire the Tribal Notes.  The Exchange Offer will be open to all holders of the Senior Notes.  Concurrently with the Exchange Offer, we have agreed to conduct the Consent Solicitation to remove substantially all of the restrictive covenants and certain events of default from the Senior Notes Indenture and make certain amendments to the related collateral documents.  The Exchange Offer, Consent Solicitation and the issuance and sale of the New Subordinated Notes are collectively referred to as the “Restructuring.”

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Each of the Majority Senior Noteholders, Merrill, the Tribe and the Authority have also agreed not to seek, solicit, negotiate, vote or otherwise take any action to encourage the making of any alternative proposal to effect a refinancing, restructuring, or modification of the Senior Notes, the Indenture or the Tribal Notes during the Forbearance Period.

Pursuant to the Forbearance Agreements, the Authority is required to commence the Exchange Offer and Consent Solicitation by November 18, 2011, and to consummate the Exchange Offer and Consent Solicitation and the issuance and sale of the New Subordinated Notes by December 31, 2011.  These dates may be extended upon the written consent of the holders of a majority of the outstanding principal amount of the Senior Notes.

Completion of the Restructuring will be dependent on, among other things, the negotiation and execution of definitive documentation to implement the Exchange Offer, the Consent Solicitation and the issuance and sale to Merrill of the New Subordinated Notes and our ability to secure the support of holders representing at least 662/3% principal amount of the Senior Notes, including the Majority Senior Noteholders.  As a result, we cannot assure that we will be able to timely effect the Restructuring, or at all.  In the event that we are not able to successfully consummate the Restructuring, we intend to explore all other restructuring alternatives available to us at that time.

During the Forbearance Period there will be no changes to Casino operations or material impact on our customers, employees, vendors and suppliers.

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RESULTS OF OPERATIONS

For the Three Months Ended September 30, 2011 and 2010

(Dollars in Thousands)

(Unaudited)

Results of Operations

Comparison of the three months ended September 30, 2011 and 2010

Net revenues. Net revenues for the three months ended September 30, 2011 increased by $0.9 million to $31.3 million, from $30.4 million for the three months ended September 30, 2010.  We believe the increase in net revenues is attributable to our increased marketing focus on high-value players. Approximately 96.4% of our net revenues were from our gaming activities in the third quarter of 2011, as compared to 95.7% in the comparable prior year period.

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We generated $27.5 million or 87.7% of our net revenues from gaming devices, and $2.7 million, or 8.7% of our net revenues from table games for the three months ended September 30, 2011, as compared to $26.4 million or 86.8% of our net revenues from gaming devices, and $2.7 million or 8.9% of net revenues, from table games and poker for the three months ended September 30, 2010. Casino revenue is net of player incentives of $3.3 million and $3.5 million for the three months ended September 30, 2011 and 2010, respectively.

Our win per slot machine per day was $232 for the three months ended September 30, 2011, which decreased by $6 from $238 for the three months ended September 30, 2010.  We had an average number of slot machines of 1,286 for the three months ended September 30, 2011, compared to 1,204 for the three months ended September 30, 2010. At September 30, 2011, we had 1,282 slot machines on the gaming floor. In January 2011, the poker room was closed and converted to space for approximately 60 penny denomination slot machines that were placed in service in February 2011.

We generated $0.9 million and $1.0 million, net of promotional allowances in food and beverage sales for each of the three months ended September 30, 2011, and 2010. The retail value of our food and beverage provided to customers without charge is included in gross revenues and then deducted as promotional allowances. We do not provide complimentary alcoholic beverages to our patrons.

Promotional allowances. Promotional allowances for the three months ended September 30, 2011 were $0.7 million, or 2.1% of net revenues, compared to $0.5 million, or 1.5% of net revenues, for the three months ended September 30, 2010.

Operating expenses. Operating expenses for the three months ended September 30, 2011 were $18.5 million, or 59.1% of net revenues, compared to $19.9 million, or 65.4% of net revenues, for the three months ended September 30, 2010.

Casino expense includes costs associated with our gaming operations and an allocation of food and beverage expense related to the cost of complimentary activities.  Casino expense decreased by $0.6 million or 13.3% for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.  Casino expense for the three months ended September 30, 2011 was $3.7 million, or 12.2% of Casino revenues as compared to $4.2 million, or 14.5% of casino revenues, for the three months ended September 30, 2010.

Food and beverage expense for the three months ended September 30, 2011 was $1.4 million, or 144.9% of food, beverage and retail revenue, net of promotional allowances, compared to $1.9 million, or 184.6% of food and beverage revenue, net of promotional allowances for the three months ended September 30, 2010.  Food and beverage expensed decreased by $0.5 million or 28.5% for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. Our food and beverage 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 September 30, 2011 decreased by $1.1 million to $8.8 million, or 28.2% of net revenues, from $9.9 million, or 32.7% of net revenues, for the three months ended September 30, 2010. The decrease in selling, general and administrative expense is attributable primarily to a decrease in advertising expenses.

Depreciation expense for the three months ended September 30, 2011 was $2.7 million compared to $2.6 million for the three months ended September 30, 2010.  Depreciation expense was computed using the straight-line method over the useful lives of capital assets. The increase in depreciation expense is due to the purchase of new slot machines.

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Gaming Commission and surveillance expense for the three months ended September 30, 2011 was $0.7 million compared to $0.9 million for the three months ended September 30, 2010. The decrease is due to reduction in staff and related payroll expenses and benefits.

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 September 30, 2011 and 2010.

The MOA currently requires annual payments to the County of $3.5 million.  We made our first payment pursuant to the MOA in May  2011. Our MOA expense for the three months ended September 30, 2011 was $0.9 million. There were no MOA payments made by us during 2010, as prior payments were made by the Tribe.

Income from operations. Income from operations for the three months ended September 30, 2011 was $12.8 million, or 40.9% of net revenues, compared to $10.5 million, or 34.6% of net revenues, for the three months ended September 30, 2010.  The increase in income from operations is primarily attributable to an increase in revenues coupled with a decrease in operating expenses.

Non-operating expense, net. Non-operating expense, net for the three months ended September 30, 2011 was $5.2 million, or 16.6% of net revenues, compared to $5.2 million or 17.1% of net revenues, for the three months ended September 30, 2010, primarily representing interest expense for both periods. No interest costs were capitalized during the three months ended September 30, 2011 and  2010.

Income before distributions to Tribe. Income before distributions to the Tribe for the three months ended September 30, 2011 was $7.6 million, or 24.2% of net revenues, compared to $5.3 million, or 17.5% of net revenues, for the three months ended September 30, 2010.

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RESULTS OF OPERATIONS

For the Nine Months Ended September 30, 2011 and 2010

(Dollars in Thousands)

(Unaudited)